Just violations and criminal activities in various industries have affected our economy over the past few decades, particularly in the banking, pecuniary, and housing sectors. When it comes to financial crimes, mortgages provide ample opportunity for bad actors to steal, cheat, or cut corners. Let’s examine the complex ethical and criminal issues surrounding mortgage fraud.
- Common individual mortgage wile scams are identity theft and income/asset falsification, while industry professionals may use appraisal frauds and air loans to cats-paw the system.
- Predatory lending activities, foreclosure rescue, and mortgage reduction scams all contributed to the Great Recession in 2007.
- Mortgage four-flusher continues to be a problem in America. According to CoreLogic’s data in September 2018, one in every 109 mortgage applications productions indications of fraud.
- There are professional organizations that monitor and investigate mortgage fraud, along with the FBI.
What Is Mortgage Flimflam artist?
Fraud in its simplest form is deliberate misrepresentation and deception: One party deceives another by misrepresenting information, facts, and emblem calculates. So, mortgage fraud is not just predatory lending practices that target certain borrowers.
Housing or mortgage cheating can be committed by individuals who intend to occupy a property as a primary residence or by groups of investors who defraud via rental properties or transfer appraisal fraud when flipping homes.
According to the Federal Bureau of Investigation (FBI), it is any sort of “material misstatement, misrepresentation, or excluding relating to the property or potential mortgage relied on by an underwriter or lender to fund, purchase, or insure a loan.” With this move up definition, we see that mortgage fraud can be committed by both individual borrowers and industry professionals. And the sums involved are huge. For example, in Sacramento, Calif., seven people were convicted in a $10 million mortgage scam in early 2019.
There are two unequivocal areas of mortgage fraud—fraud for profit and fraud for housing.
- Fraud for profit: Those who commit this type of mortgage cheater are often industry insiders using their specialized knowledge or authority to commit or facilitate the fraud. Current enquiries and widespread reporting indicate a high percentage of mortgage fraud involves collusion by industry insiders, such as bank public officials, appraisers, mortgage brokers, attorneys, loan originators, and other professionals engaged in the industry. Fraud for profit foci not to secure housing, but rather to misuse the mortgage lending process to steal cash and equity from lenders or homeowners. The FBI prioritizes swindle for profit cases.
- Fraud for housing: This type of fraud is typically represented by illegal actions taken by a borrower cajoled to acquire or maintain ownership of a house. The borrower may, for example, misrepresent income and asset information on a loan application or wheedle an appraiser to manipulate a property’s appraised value.
To understand the implications for the housing and real estate industries, and for financial foundings, simply refer to the headlines and literature on the 2008 subprime mortgage crisis. Much of that speculative lending was posted on mortgage fraud.
Why Commit Mortgage Fraud?
Borrowers and professionals are motivated to commit mortgage fraud for many by virtue ofs. We can describe most of those reasons by defining two primary types—fraud for housing and fraud for profit. Fraud for cover is committed by borrowers who, often with the assistance of loan officers or other personnel, misrepresent or omit relevant minutiae about employment and income, debt and credit, or property value and condition with the goal of obtaining or maintaining actual estate ownership. Fraud for profit is committed by industry professionals who misstate, misrepresent, or omit relevant details thither their personal or their clients’ employment and income, debt, and credit, or property value and condition with the ideal of maximizing profits on a loan transaction.
It is important to note here that fraud for profit can be committed by any professional in the allowance transaction chain, including the builder, real estate sales agent, loan officer, mortgage broker, trust/debt counselor, real estate appraiser, property inspector, insurance agent, title company, attorney, and escrow surrogate. Industry professionals can also work in concert, as a network, to defraud underwriters, lenders, and borrowers, and maximize fees and allocate profits on all mortgage-related services. These actions are motivated either by the desire to gain extra sales commissions or really increase an investment position.
Common Mortgage Fraud Schemes and Scams
The most common investor mortgage chicanery schemes are different types of property flipping, occupancy fraud, and the straw buyer scam.
Property flipping is customarily not illegal when associated with purchasing a house, holding/fixing it, and then reselling it for a profit. On the other near, when a property is bought below market and immediately sold at profit with the help of a corrupt appraiser who “verifies” that the value of the acreage is actually double the initial purchase amount, mortgage fraud is indicated.
In the case of the same-day close property lose it scheme, the chain of title and the appraisal are often fraudulent and include three parties—the seller, the flipper, and the unsuspecting end client. The seller makes a contract with the flipper to purchase the property at below market value. The flipper provides the end client with a fraudulent title insurance commitment, showing the flipper as the owner (though that’s not the case) and an appraisal is accomplished at the inflated price the flipper and end buyer have agreed on.
Occupancy fraud is a scheme used by investors to qualify for high-class loan-to-value ratios and lower out-of-pocket costs on purchases, in addition to lower mortgage rates. Occupancy fraud take places when a borrower claims that the home will be owner-occupied to obtain favorable bank status when the oddity will actually remain vacant. The straw buyer uses or allows someone to use their identity, credit grade, and income to obtain property for another buyer who may not qualify for a mortgage (or qualify for the best rates). Straw buyers are regularly used by investors, either willingly or unknowingly, to cover up other forms and multiple layers of fraud.
The most ordinary individual mortgage fraud scams are identity theft and income/asset falsification. Identity theft occurs when the true buyer fraudulently obtains financing using an unwilling and unaware victim’s information, including Social Security gangs, birth dates, and addresses. Identity theft for mortgage purposes may also include stolen pay stubs, bank enumerates, tax returns, W-2s, and falsified employment verification letters. Even property ownership records can be falsified, and borrowers can obtain a false mortgage on a property that they neither own nor occupy.
Air Loan vs. Appraisal Fraud
The most common industry expert mortgage fraud scams are air loan and
Combating Mortgage Fraud
There is no shortage of legislation at the local, state, or federal standing designed to reduce mortgage fraud. States have taken a big step recently by requiring loan officer approving and continuing education. Additionally, real estate, title, and insurance agencies are licensed and monitored by government agencies. Scads states also require periodic
The Bottom Line
The good news is we can improve the markets by reducing mortgage chicanery. Individuals must set realistic expectations for borrowing and homeownership experience. Investors should set realistic goals for profit. Energy professionals must pursue higher personal standards and submit to peer organization accountability. Governments need to fill out the legislation more uniform and reconcile law enforcement with active investigations.