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California wildfires will increase fraud risk

Last month’s deadly wildfires in California will likely lead to more mortgage fraud, the title insurance company First American Corp. said.

“Unfortunately, on top of the damage to thousands of homes, historical data indicates that natural disasters and loan application defect risk go hand-in-hand,” First American’s Chief Economist Mark Fleming said.  

The Camp fire, which has damaged as many as 19,000 properties, is projected to cause $11 billion to $13 billion in damage, according to CoreLogic. Total losses from the recent Woolsey Fire in Southern California were estimated to be an additional $4 billion to $6 billion.

“As we’ve seen too often, natural disasters create the potential and opportunity for significant misrepresentation of collateral condition,” Fleming said.  After the December 2017 Thomas Fire in Ventura and Santa Barbara Counties, for example, mortgage fraud risk increased dramatically in the Oxnard-Thousand Oaks-Ventura metropolitan area, Fleming said.

“Fraud and misrepresentation risk remained elevated for five months after the wildfire, before trending down again,” he said. “Defect, fraud and misrepresentation risk in the Oxnard metropolitan area, which had been declining prior to the Thomas Fire, has yet to return to pre-wildfire levels.”

First American’s national loan application defect index increased in October over the September level, but was down compared to the October 2017 level. 


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