Wednesday, October 9, 2013, AM | 1 Comment
Dictionary defines fraud in its simplest form as deliberate misrepresentation and deception of anything – person or material. Immoral, unethical and outright violation of the law has been reported in the media over the last few years in industries such as mortgage, banking, and other financial sectors.
One of the frauds that the Federal Bureau of Investigation (FBI) investigates is the mortgage fraud.
According to the FBI, mortgage fraud can be anything from predatory lending practices to material misstatement, misrepresentation or omission relating to the property or the potential mortgage. This is done by a lender for the purpose of funding, purchasing or insuring a loan.
Mortgage fraud then by default can be committed by both borrowers and lenders.
Borrower commits fraud, with or without the help of loan officer, by misrepresenting or omitting relevant details about employment and income, debt and credit. This kind of fraud is committed because the borrower wants to move in the dwelling very badly, not caring for immoral, unethical or criminal behavior and is sometimes known as fraud for housing.
Lender commits fraud, with or without the help of borrower, by misrepresenting or omitting relevant details about the borrower’s employment and income, debt and credit. This kind of fraud is committed because the lender wants to make a big profit very badly, not caring for immoral, unethical or criminal behavior and is sometimes known as fraud for profit. It can be committed by anybody in the loan transactions chain.
Who can be involved?
The housing market includes the builder, real estate sales agent, loan officer, mortgage broker, credit/debt counselor, real estate appraiser, property inspector, insurance agent, title company, attorney, and escrow agent. Any of these can be involved in the lender fraud.
Mortgage Fraud Scams
There are a variety of flavors of mortgage fraud scams common in the industry.
When a borrower buys a dwelling, fix it, hold it, and sell it for a profit. That’s normal business. It becomes illegal when the property is appraised at artificially low price, hold it and sell it at a profit. You would need the help of appraisers and probably others. You split the profit.
When a borrower buys a dwelling as a primary residence (owner-occupied) but in reality you act as investor and rent it out. That way you take advantage of the lower mortgage interest rate.
The straw buyer can use two things at their disposal: 1) Use their identity credit and 2) their income to obtain property for another buyer who may not qualify.
This loan is obtained on a nonexistent property or for a nonexistent borrower. This scam simply puts cash into the hands of the perpetrators, and no property is ever bought or sold.
This often involves a real estate agent, builder, appraiser and loan officer working together to maximize a purchase price and loan amount in order to increase commission and profit.
This is the most common and the most dangerous of all frauds. When a borrower uses identity of someone else to get mortgage loan, the person is committing identity fraud.
The identity theft may include one or more of the following:
- Social Security numbers
- Birth dates
- Stolen pay stubs
- Bank records
- Tax returns
- W2 form
- Falsified employment verification letters
How to protect yourself from Mortgage Fraud?
Always deal with real estate, title and insurance agencies that are licensed and monitored by government agencies. This is the most important of all criteria to follow before the fraud occurs.
Professional organizations such as the Mortgage Bankers Associations and National Association of Mortgage Brokers have a code of conduct and best practices that are peer-monitored. Look for a licensed member of these organizations.
The FBI’s Economic Crimes Unit II also monitors complaints and suspicious activity in the mortgage industry.
None of these precautions is guarantee that you would be protected in any circumstance but following them will be enough to minimize the loss to your financial life.
In a Nutshell
As mentioned above, the lender fraud is extremely difficult to detect just because there are so many levels at which a fraud can occur. Look at how many organizations are involved at different levels.