Mortgage Fraud

Everyone should have a right to affordable and safe housing.  Unfortunately, criminals have made this more difficult by defrauding our financial institutions, causing millions of dollars in lost revenue per year.  Mortgage fraud is a serious crime, yet people still attempt it every year.  There are several forms of mortgage fraud, but they are all essentially the same since they involve defrauding banks, innocent people, and in some cases, the US government.

Surprisingly, the FBI has found that a large percentage of mortgage fraud is actually committed by industry insiders.  This is disturbing news for consumers.  The most important thing we as consumers can do is be aware and educated about the most common mortgage fraud schemes.

House flipping is a common practice, where a buyer purchases a run-down home for a very inexpensive price.  Often, those committing fraud will do cosmetic repairs, making the home look brand new, and charge a buyer triple or more for the home, while it is not structurally sound or has other serious problems.  All the while, the seller makes false claims stating the home has been rebuilt and remodeled, when in reality they have made a few “cheap” upgrades to make it look good.

More common types of mortgage fraud include things such as simple misrepresentation, like overstating income or assets just to get a home loan.  Hiding liabilities to improve one’s debt to income ratio is another example.  This type of mortgage fraud isn’t limited to borrowers; sometimes, brokers have been known to tweak numbers to ensure that borrowers can get loans for which they may not otherwise be qualified. Fortunately, stricter lending practices have been put in place to help ensure that borrowers are providing accurate information.

Larger scams include mortgage fraud rings, where a “straw borrower” provides a credit report, an appraiser who overstates the home’s value, an attorney who is in on the whole scam, and an “owner” who signs off the overly large loan.  All parties take part in the loan process, and receive funds for a home which is worth much less, then take the money and disappear.  Committing identity theft in order to get a home loan is another example.

Mortgage fraud has serious repercussions for all involved. It behooves every home buyer to be completely honest about finances, to read all fine print carefully, and to choose trustworthy professionals who can offer disinterested advice on matters such as a potential home’s state of repair and loan financing.