Owner-Occupancy Fraud and Mortgage Performance

Ronel Elul, Aaron Payne and Sebastian Tilson

No 23-01, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We identify occupancy fraud — borrowers who misrepresent their occupancy status as owner-occupants rather than investors — in residential mortgage originations. Unlike previous work, we show that fraud was prevalent in originations not just during the housing bubble, but also persists through more recent times. We also demonstrate that fraud is broad-based and appears in government-sponsored enterprise and bank portfolio loans, not just in private securitization; these fraudulent borrowers make up one-third of the effective investor population. Occupancy fraud allows riskier borrowers to obtain credit at lower interest rates. These fraudulent borrowers perform substantially worse than similar declared investors, defaulting at a 75 percent higher rate. Their defaults are also likelier to be “strategic,” suggesting that they pose a risk in the face of declining house prices.

Keywords: mortgage default; consumer credit; household finance; misreporting; fraud (search for similar items in EconPapers)
JEL-codes: D12 R3 (search for similar items in EconPapers)
Pages: 47
Date: 2023-01-31
New Economics Papers: this item is included in nep-ure
Note: WP 23-01 supersedes WP 19-53R
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Owner-Occupancy Fraud and Mortgage Performance (2019)
Working Paper: Owner occupancy fraud and mortgage performance (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:95577

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DOI: 10.21799/frbp.wp.2023.01

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