Mortgage fraud is illegal. This crime can be committed by a person who is writing the mortgage or by the person who is applying for the mortgage. In both cases, serious consequences can come along with a conviction.
For a person who is writing a mortgage, fraud can occur if you fib on the paperwork. For example, don't claim that Mr. and Mrs. Smith have a combined annual income of $250,000 when that figure is actually closer to $100,000 based on the documentation provided by the couple. Mortgage fraud at the hands of the person writing the mortgage is known as fraud for profit.
For a person who is applying for a mortgage, completing the application truthfully is crucial. Making false statements of any sort for the purpose of obtaining a mortgage is illegal. You can't inflate your income or claim non-existent assets just to get the mortgage. When a person makes fraudulent claims to obtain a mortgage, this is known as fraud for housing.
There are other types of fraud that are tied to housing. Foreclosure rescue and loan modification schemes also fall under this category. Equity skimming, illegal property flipping and air loans are also fraudulent activities that might lead to criminal charges.
The government usually isn't going to levy these types of charges unless there is some good evidence to support the charges. The paper trail in these cases is usually evidence on which the prosecution relies. You should be ready to work together with your defense attorney to strategize how best you can combat this evidence.
Source: Federal Bureau of Investigation, "Financial Institution/Mortgage Fraud," accessed Aug. 18, 2017