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CASE-SHILLER INDEX AND EMPLOYMENT–ANOTHER LOOK By Mark Lieberman, Economist for the Five Star Institute MORTGAGE FRAUD COLLUSION ON THE RISE: LEXISNEXIS Home Price Index shot up in May—a record high increase (2.2 percent) in the 20-city index and a near-record (2.2 percent increase) in the narrower 10-city index—it also suggested employment has less to do with the change in home prices than might otherwise have been thought. A comparison of the year-to-year and While the month-to-month Case-Shiller month-to-month change in unemployment rates for the cities that make up the Case- Shiller database shows little correlation with changes in home prices. For example, from May 2011 to May improvement in their price index from April to May—Chicago (4.5 percent), Atlanta (4.0 percent), San Francisco (3.9 percent), and Minneapolis (3.1 percent)—saw inconsistent changes in local unemployment rates: down 0.3 percentage points in Chicago and Minneapolis (to 9.8 percent and 5.3 percent, respectively), up 0.3 percentage points in Atlanta (to 11.0 percent), and no change in San Francisco (at 7.4 percent). The city with the greatest improvement in The four cities with the greatest 2012—the period of the latest Case-Shiller survey—New York City was an exception. Of the 20 cities surveyed, New York City was the only city to see its unemployment rate increase, while the index value of home prices dropped (2.8 percent) as one might expect. The city that saw the greatest price index fraud appear to be trending up, according to a report released in July by LexisNexis Risk Solutions. After noticing this trend, LexisNexis created a new index specifically to measure incidences of collusion. Collusion has been on the rise since 2009, Incidences of collusion related to mortgage according to Tim Coyle, senior director of real estate and mortgage solutions at LexisNexis. He noted during a conference call with reporters that prior to 2009, collusion reports remained just below 5 percent. By 2010, the rate had almost doubled. While the rate declined in 2011, it remained above historic levels at 6.8 percent. "Increased levels of fraud and drop—Atlanta, at 14.5 percent—saw a 0.8 percent decline in its unemployment rate, albeit to a higher-than-national 11.0 percent. The other six cities that saw price index declines from May 2011 to May 2012—Boston, Chicago, Cleveland, Las Vegas, Los Angeles, and San Diego—all saw an improvement in their unemployment rates of 0.9 percentage points (San Diego, Cleveland) to 1.7 percentage points (Chicago). The cities with the slower improvements its unemployment rate in May was Detroit, where the jobless rate dropped 1.9 percentage points to a still-staggering 17.7 percent while the home price index rose 0.4 percent—the slowest gain of all the cities in the Case-Shiller survey. The jobless rate fell in only two other survey cities—Chicago and Minneapolis. Unemployment jumped by 0.8 percent in New York in May—high among the 20 cities surveyed—but its price index gained just 1.4 percent. Seattle trailed New York with an increase of 0.7 percentage points in its unemployment rate in May to 6.4 percent while Seattle's price index rose 2.6 percent. The unemployment rate, to be sure, is an in unemployment rates—less than 1.0 percentage point—included Denver, Charlotte, and Portland, which all saw price index improvements from May 2011 to May 2012: Denver at 3.7 percent, Charlotte at 0.9 percent, and Portland at 0.4 percent. Phoenix saw the greatest price index gain imprecise measure since it excludes individuals out of work but not looking or available for work. A better measure might be employment since employed individuals are more likely to look for a home and qualify for a mortgage, driving prices up with improved demand. Four cities in the survey group saw a in the 12-month period, 11.5 percent, while its unemployment rate fell 1.0 percent to 7.3 percent (compared with 8.2 percent nationally). The month-to-month data is similarly inconclusive. 62 misrepresentation in the foreclosure, short sale, and real estate-owned worlds have pushed the issue of collusion to the forefront," said Tom Brown, SVP of financial services at LexisNexis. "Now, more than ever before, these complex schemes are coming under increased scrutiny and investigators need to pay attention to all parties and relationships in non-arm's length transactions," Brown added. According to the new collusion index, among properties with 20 percent to 95 percent price depreciation, Alabama ranked highest for collusion in 2011. The southern state was followed by New York, Kentucky, Pennsylvania, and Indiana in LexisNexis' assessment of mortgage fraud conspiracies. The company also observed collusion reports on properties experiencing 50 percent to 95 percent price depreciation. In this category, Vermont ranked first with the highest number of such reports, followed by West Virginia, Alabama, Pennsylvania, and Louisiana. In its traditional mortgage fraud index, LexisNexis found Florida ranked highest for mortgage fraud investigations. Nevada, Arizona, Michigan, and Rhode Island rounded out the top five in the investigation category. LexisNexis' study found mortgage drop in employment between April and May—Charlotte, Cleveland, Detroit, and Washington, D.C. … yet all four cities saw an increase in price index values in the month. Year-over-year, only two cities—Detroit and New York—saw employment levels dip, while price index values went up in Detroit and down in New York. origination fraud overall to be on the decline. The company noted, though, that fraud reports specific to originations were highest in New Jersey, Colorado, Florida, Michigan, and California. LexisNexis measures fraud as reported by industry participants. The fraud must be verified and must be substantial to be counted. The index does not include fraud perpetrated by borrowers.

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