Occupancy fraud draws attention through Trump's political battles

"We're on the tail end of the buying season, and we are seeing potential indications of occupancy fraud to investigate it but it wouldn't be anything more significant than what we have come to expect just being in a higher volume set of months, Amanda Tucker, chief risk and compliance officer at Atlantic Bay Mortgage Group, said in an interview with HousingWire. Atlantic Bay reviews all origination files prior to closing to flag potential issues."

"Atlantic Bay reviews all origination files prior to closing to flag potential issues. That includes borrowers who are purchasing in different state from where they currently live, or those refinancing homes listed on short- or long-term rental platforms. The lender then works directly with borrowers to clarify their true intent for the loan. I've been doing this 22 years, and it's always been a part of our compliance framework, Tucker added."

"A 2023 study from the Federal Reserve Bank of Philadelphia found that occupancy misrepresentation peaked in 2006, when nearly 7% of loans showed signs of fraud. Even after the housing crash, the problem persisted as between 2% and 3% of loans in the post-bubble period were flagged. Researchers analyzed more than 584,000 loans from 2005 to 2017, focusing on investors who purchased more than one home as owner-occupied within a year."

"These borrowers defaulted at a 75% higher rate than other investors and were riskier because they had lower credit scores, higher loan-to-value (LTV) ratios and additional debt. These loans were sold to the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, held in bank portfolio or bundled into private securitizations. For lenders, the risk of overlooking occupancy misrepresentation is costly as investors can initiate buyback requests."

Potential indications of occupancy fraud are appearing during higher-volume buying months and lenders review origination files prior to closing to flag issues. Reviews focus on out-of-state purchases and refinancing of properties listed on short- or long-term rental platforms, with lenders clarifying borrower intent directly. A Federal Reserve Bank of Philadelphia study found occupancy misrepresentation peaked at nearly 7% of loans in 2006 and persisted at 2%–3% post-bubble. Investors who misrepresented occupancy defaulted at 75% higher rates, displayed weaker credit profiles and higher LTVs, and those loans were often sold to GSEs or bundled into securitizations, exposing lenders to buyback risk.

Read at www.housingwire.com