Nevada leads nation in risk for mortgage fraud, says analyst

Americans with jobs and money are fleeing expensive urban markets in favor of affordability, more space, and warmer climates — a recipe that’s landed Las Vegas in the top five hottest markets for in-migration, says analyst Core Logic..  

But Nevada leads states in the nation and Southern Nevada tops metro areas in mortgage fraud risk, thanks to rapidly increasing home prices, an increase in loans for purchase rather than refinance, and the potential for occupancy misrepresentation, according to CoreLogic’s second quarter risk report.     

“Frankly, I am not surprised as loan applications have to record income and the Las Vegas economy has jobs where there is a lot of undocumented income which are quite volatile, unpredictable and also maybe overstated,” says Vivek Sah, Director of UNLV’s Lied Center for Real Estate. “Those factors always increase fraud risk especially when housing prices are rising at such a fast rate.” 

The Mortgage Fraud Risk Index is calculated from “loan application fraud risk scores during the previous quarter,” according to CoreLogic. Refinances, which pose less risk to lenders than purchase loans, saw “a significant drop” in the second quarter, but were offset by record purchases. 

“While refinances still accounted for 53% of transactions, they are down from 68% the prior quarter,” Core Logic reported. “This shift in volume towards purchase loans is reflected in the increased risk indicated by the national index.”

The analyst also warned against buyers who may be misrepresenting their intentions.  

Since government-sponsored lenders “limit financing availability for non-primary occupancy, it seems quite likely to increase motivation for occupancy misrepresentation, already one of the most common mortgage fraud risks,” says CoreLogic.

Nevada is among the states with the lowest share of homes (56.6%) occupied by owners, ranking 48th in the nation. West Virginia has the highest ranking, with 73.4 percent of homes occupied by owners, according to the Insurance Information Institute.    

The percentage of owner-occupied homes in Nevada peaked at 59.7 percent in 2008 and fell to a low of 53.6 percent in 2014, according to the Institute.  

But what homebuyers report to their insurance company when they’re insuring their property, and what they report to a mortgage broker when they’re seeking a loan, may not always coincide.  

Between August 30, 2020 and the same date this year, Las Vegas Realtors reported selling 26,052 homes with mortgages. About 85 percent of buyers indicated they intended to occupy the properties.  The previous year, owners said they intended to occupy 89 percent of the 16,473 units sold. 

Nevada’s Mortgage Lending Division does not require mortgage brokers to report to the state the percentage of refinances and purchase loans closed or occupancy status.  

Regulators are seeing no indication of increased fraud, according to Department of Business and Industry spokeswoman Teri Williams.  

Attorney General Aaron Ford’s office says it has not seen any recent increase in mortgage fraud complaints.   

Seller’s paradise

CoreLogic, which warned a year ago of prices dropping in the Las Vegas market, now ranks Southern Nevada the fourth hottest metro area in the nation for homebuyers.

The median price of a single family home in July was $405,000, up 23 percent from $330,000 a year ago.

“In 2020, a black swan landed on the real estate industry and created a wave of ‘firsts,’” says the report — lack of construction, record-low interest rates, aversion to crowded places, demands for remote work, affordability, and more space — that Core Logic says are likely to become permanent.  

“Major metros are out, and affordable ones are in,” says the report. 

“The pandemic created a perfect recipe for consistently employed Americans,” said CoreLogic’s principal economist Archana Pradhan. “If it had been any other mix of events, for example, if low housing inventory was coupled with job inflexibility, we wouldn’t have had such a large group of homebuying consumers feeling empowered to make bold moves in their living situations.”

The report says buyers who moved in 2020 “often chose a housing market adjacent to their previous location, a more affordable housing market or both.”

The Riverside-San Bernardino-Ontario metro topped the national list of in-migration. CoreLogic reports the “average home price” in the area was $436,288 in 2020, compared with $989,157 in nearby Los Angeles and $812,401 in San Diego, 

The desire for new surroundings is the top factor spurring home purchases, according to CoreLogic. Gen Z and Millennials, however, are driven primarily by a need for larger homes that are generally unaffordable on the west and east coasts but within their means in states such as Colorado, Nevada, and Texas. 

Ten of the top fifteen markets are in states that have no income tax, according to CoreLogic. 

Seven of the fifteen hottest locations are in Florida.  

Top 15 in-migration markets  

1. Riverside-San Bernardino-Ontario, CA 
2. Lakeland-Winter Haven, FL 
3. Myrtle Beach-Conway-North Myrtle Beach, SC-NC 
4. Las Vegas-Henderson-Paradise, NV 
5. Tampa-St. Petersburg-Clearwater, FL 
6. Port St. Lucie, FL 
7. Jacksonville, FL 
8. San Antonio-New Braunfels, TX 
9. Deltona-Daytona Beach-Ormond Beach, FL 
10. Dallas-Fort Worth-Arlington, TX 
11. Stockton, CA 
12. Cape Coral-Fort Myers, FL 
13. Phoenix-Mesa-Chandler, AZ 
14. North Port-Sarasota-Bradenton, FL
15. Greeley, CO

Leaving New York

“For each incoming home-purchase application to New York, there were almost six potential homebuyers moving out of New York in 2020,” says the CoreLogic report.  

The tri-state area leads the analyst’s list of out-migration markets, followed by Los Angeles: 

Top 15 out-migration markets

1. New York-Newark-Jersey City, NY-NJ-PA 
2. Los Angeles-Long Beach-Anaheim, CA 
3. San Francisco-Oakland-Berkeley, CA 
4. San Jose-Sunnyvale-Santa Clara, CA 
5. Washington-Arlington-Alexandria, DC-VA-MD-WV 
6. Miami-Fort Lauderdale-Pompano Beach, FL 
7. Seattle-Tacoma-Bellevue, WA 
8. Boston-Cambridge-Newton, MA-NH 
9. Chicago-Naperville-Elgin, IL-IN-WI 
10. San Diego-Chula Vista-Carlsbad, CA 
11. Orlando-Kissimmee-Sanford, FL 
12. Denver-Aurora-Lakewood, CO 
13. Salt Lake City, UT 
14. Portland-Vancouver-Hillsboro, OR-WA 
15. Minneapolis-St. Paul-Bloomington, MN-WI 

“Urban markets even in warmer climates were also on the list for having high outmigration activity, likely because of affordability issues. For example, Miami had the sixth highest out-migration and Orlando had the 11th highest,” the report says. 

While economic experts agree double-digit appreciation is unsustainable, the admonition that “things will return to normal once the pandemic ends” appears more elusive with the discovery of each COVID mutation.  

Some alleged mortgage fraud is directly related to the economic assistance resulting from the pandemic.  

Henderson resident Brandon Casutt was indicted last year for “allegedly perpetrating a scheme to submit fraudulent Economic Injury Disaster Loan (EIDL) applications to the SBA and Paycheck Protection Program (PPP) loan applications to federally insured banks, which resulted in fraudulently obtaining approximately $500,000, which was then laundered the funds through friends and family in order to buy a house,” according to the U.S. Justice Department. 

Casutt ran unsuccessfully in 2018 for Nevada Assembly District 12.  His case is pending.