Mortgage Fraud

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Mortgage Fraud

Mortgage fraud is a term used to describe a broad variety of actions where the intent is to materially misrepresent information on a mortgage loan application, in order to obtain the loan. Mortgage fraud should not be confused with predatory mortgage lending. Mortgage fraud is when one or more individuals defraud a financial institution; predatory lending is when a dishonest financial institution wilfully misleads or deceives the consumer.

Fraud is perpetrated in the industry today for two primary reasons:
1. Fraud for profit – for the purpose of benefiting financially
2. Fraud to qualify – for the purpose of buying a property, also known as “fraud for house”

The five types of mortgage fraud are listed below, with some examples of how the fraud is committed.

Employment/Income:
• Falsified employment
• Employer does not exist
• Inflated income
• Fabricated tax returns or pay stubs

Credit
• Falsified non-traditional credit
• Falsified identity
• Straw borrowers

Assets:
• Falsified bank statements
• Falsified earnest money deposit
• Falsified gift letter
• Falsified seller or lender concessions

Property:
• Falsified comparables
• Falsified property type
• Property flips or undisclosed property transfers
• Appraisal not performed on subject property
• Inflated appraised value due to large positive adjustments

Occupancy:
• Falsified intent to occupy

Shotgunning is when a person takes out multiple loans for the same home simultaneously. Typically after committing the mortgage fraud, the person or persons leave the country.

Mortgage fraud may be perpetrated by one or more participants in a loan transaction, including the borrower; a mortgage broker who originates the loan; a real estate agent, appraiser, or attorney; or by multiple parties (mortgage fraud ring). Dishonest and unreputable mortgage brokers may encourage and assist borrower in committing fraud because brokers are typically compensated based on loans originated (and brokers are not lending their own money but rather are lending the money of others, hence they have fewer deterrents to cheating).