Via the Wall Street Journal Wednesday comes a look at just how prevalent occupancy fraud really is -- something that lenders and servicers across the nation are just now starting to come to terms with. From the story:
Roughly 20% of mortgage fraud involved "occupancy fraud," or borrowers falsely claiming they intended to live in a property, according to an analysis by BasePoint Analytics, a provider of fraud-detection solutions in Carlsbad, Calif. Another study, by Fitch Ratings, looked at 45 subprime loans that defaulted within the first 12 months even though the borrowers had good credit scores. In two-thirds of the cases, borrowers said they intended to live in the property but never moved in ... In Las Vegas, as many as 60% of the foreclosures last year involved non-owner-occupied homes, according to Applied Analysis, a real-estate-research firm.
Let's stop right there -- subprime borrowers with good credit scores? Either Fitch doesn't realize steering when it sees it, or the WSJ reporting team got its facts mixed up. (I'd bet the latter.) At any rate, it's clear that fraudulently-originated loans are a big reason why lenders and servicers are becoming increasingly concerned about 'walk-aways,' and why rating agencies such as Fitch have had to ramp up their loss estimates lately. There simply isn't any sort of loan workout that solves for fraud. Nor should there be. Its worth noting that one industry insider suggested to me this week that as much as 70 percent of the Alt-A market in 2005 and 2006 was fraud-based, including occupancy-fraud. Seven zero. That's a stunning sort of number. HW reported last week on Census Bureau numbers showing that the number of vacant homes for sale are at record levels -- investors masquerading as owner-occupants would have to be considered as one of the largest drivers behind this trend.