Mortgage Interest Rates: Occupancy Fraud Insights

This 2024 HMDAVision chart from Polygon Research highlights average interest rates for home purchase originations on 1-4 unit properties, segmented by occupancy (primary residence, investment property, second home) and lien status (first vs. subordinate).

Primary residences with 1st liens show the lowest rate at 6.588%, reflecting lender confidence in owner-occupied stability. Investment properties and second homes exhibit higher rates—7.890% and 7.043% for 1st liens, respectively - due to perceived risks like vacancy or resale challenges. Subordinate liens amplify this trend, with second homes peaking at 8.240% and primary residences dropping to 4.399%, possibly due to HELOCs or combined financing.

Amid current discussions on occupancy fraud - where borrowers misrepresent primary residency to secure lower rates - this data raises red flags.

The significant rate gap (e.g., 1.302% between primary residency and investment property first liens) suggests lenders price risk based on reported occupancy. Fraud could inflate primary rates if undetected, while low subordinate primary rates might reflect legitimate financing structures.

Decision makers should scrutinize borrower documentation and cross-check with tax records or utility data to validate occupancy claims, ensuring compliance and reducing portfolio risk.