“A refi has a 1 in 148 estimated fraud risk,” he said. “Where a purchase is 1 in 104. So, obviously with rates higher, the purchases have been in the 65% to 70% range (of total transactions), with refis making up the difference. That really plays a big part in the fraud risk.”
Even though there will likely be more transactions if mortgage rates drop, as refinances are expected to make up a larger portion of the transactions in a lower-rate environment, fraud is expected to decrease, according to Seguin.
“We do think it will go down with the rate,” Seguin said. “The stats we have here go back to 2010, and refi versus purchase really does play a big factor in fraud risk from a transaction level. As the refis go up, you think about a lot of the government streamlines. FHA and VA have streamlined programs where there’s no income docs, there’s no asset docs, and there’s no purchase contract obviously there.
“There aren’t many docs to commit fraud on. So, in theory, fraud should go down.”
Not only does fewer documents typically equal fewer chances to commit fraud, but lower rates will also result in more deals, meaning unscrupulous brokers and loan officers might be less tempted to commit fraud to meet commission goals.