Mortgage Fraud

Mortgage Fraud: What You Need to Know

Mortgage fraud is, unfortunately, a big problem that can have serious consequences for homeowners, lenders, and the housing market. With the complexities of getting a mortgage, there are many opportunities for fraud to occur. This article will break down the basics of mortgage fraud, common schemes to watch out for, and tips for how borrowers and industry folks can protect themselves.

What Exactly is Mortgage Fraud?

The FBI defines mortgage fraud as “schemes perpetrated by individuals acting alone or in collusion with borrowers, loan originators or real estate professionals.” It basically involves intentionally providing false information or leaving out key details on a mortgage application in order to get better loan terms.

Some common examples include:

• Inflating your income to qualify for a bigger loan or lower interest rate
• Lying about the value of the property to get approved for more financing
• Using someone else’s credit history and information to qualify for a loan

Mortgage fraud can occur at any point in the lending process, from application to closing. And it can be committed by borrowers seeking a loan, industry insiders like lenders and brokers, or third parties like appraisers and contractors.

Why Do People Commit Mortgage Fraud?

There’s unfortunately a lot of incentive for fraud in the mortgage industry. For individual borrowers, it often comes down to wanting to buy a home they otherwise wouldn’t qualify for. The “American dream” mindset of homeownership leads some to falsify documents instead of accepting they don’t meet lending guidelines.

Industry professionals like lenders and brokers can also profit big time from pushing through bad loans. They collect fees and commissions whether the borrower defaults or not. From 2000-2007, this kind of fraud for profit was a huge factor in the subprime mortgage crisis.

Common Mortgage Fraud Schemes

There are tons of different scams out there for mortgage fraud, but here are some major ones to watch out for:

Foreclosure Rescue Schemes

A big one is foreclosure rescue scams. This is when a “savior” promises to stop the foreclosure process, usually in exchange for an upfront fee or the deed to the house. The scammer has no intention of actually helping and is just out to steal money and equity.

Loan Modification Schemes

Similar are fraudulent loan mods. A con artist charges borrowers fees, often thousands, while promising to negotiate with the lender for modified loan terms. But nothing ever happens, leaving homeowners out money with no actual help.

Appraisal Fraud

Lying about a property’s value is very common. A dishonest appraiser intentionally inflates the home value so borrowers qualify for more financing. Industry people also use this to push through bad loans just to collect fees.

Identity Theft

Stealing someone’s personal information to apply for mortgage loans without their knowledge is another major fraud. It often goes undetected until the victim tries to legitimately buy a house but keeps getting denied because of debts racked up in their name.

How to Avoid Being a Victim

The most important thing is simply being aware of the issue. But here are some tips for avoiding fraud as a borrower or industry professional:

• Get referrals and check credentials for lenders, brokers, appraisers etc.
• Review all docs for accuracy – don’t sign anything suspicious
• Be wary of “easy approvals” or pressure to take a deal
• Watch out for upfront fees for loan mods or foreclosure help
• Monitor your credit and account activity

Mortgage fraud affects everyone from individual homeowners to giant lenders. Being informed is the best way to protect yourself. And if you do suspect fraud, report it! The earlier it’s caught, the less damage done.