Tuesday, May 15, 2007

Fraud and Collateral Risk Index

by Tanta on 5/15/2007 09:25:00 AM

I thought you all might find this interesting; it also gives me an opportunity to try posting a wide chart and blowing up the new format before CR gets up (sorry, boss, I was just experimenting).

From First American CoreLogic, Core Mortgage Risk Monitor Q2 2007:

As house prices stabilize, we are entering a transitional period where the risks associated with rising delinquencies and foreclosures can have a concentrated and contagious impact on local markets. The Fraud and Collateral Risk Index (exhibit 3) is stabilizing at a relatively high level not reached in recent years, while the Foreclosure Index (exhibit 4) is expected to continue rising despite relatively unchanged employment conditions and a stabilization of house prices. Overall the CMRM data reveals continued turbulence in the residential real estate sector that is affecting local economies across the country.

A recent study performed by First American CoreLogic indicates that there is a strong correlation between fraud and collateral risk and foreclosure rates. The study of more than 150,000 loan transactions revealed that for every one percent increase in the local market foreclosure rate, the likelihood of fraud increases by approximately four percent. A rising foreclosure rate, in part due to the pressures of ARM resets as well as other fundamental economic factors, has placed upward pressure on the fraud and collateral risk index. This upward pressure is expected to continue throughout 2007 and into 2008 as the markets continue to digest payment resets. These effects are likely to be geographically concentrated since foreclosures and economic stress are concentrated in specific markets.