Repetition Bias Leads To Increased Mortgage Fraud
Summary
Repetition bias happens when mortgage underwriters have to wade through thousands of applications that have been marked as fraudulent by automated machinery. A fraudulent application occurs when a borrower lies about their credibility and financial status by either fudging their income, credit score, or anything that might make them look more trustworthy. Today’s lenders use various approaches for identifying these fraudulent loans, mainly with automated machinery, but most of these systems are not smart enough to accurately analyze applicants. “I think the estimates that are done by industry experts indicate that fraud probably runs about 80 basis points so if you were to take the mortgage originations…” McKenna said, trying to calculate a rough estimate in his head, “I think about 80 basis points is kind of the standard calculation, so if theres $2.6 trillion in originations its a very big number.” McKenna believes this issue will only become more exacerbated as we enter a tighter housing market in 2022 where refinances have dried out and purchase originations are in. As it becomes harder to purchase a home — with bidding wars, rising prices, low inventory, and higher rates — applicants are more likely to fudge their income or their credit score to get their loan approved.