Mortgage fraud is a financial crime that many people think they can’t commit. Homeowners might assume that mortgage fraud really only involves financial or real estate professionals. They think that because they don’t make money off of the lies involved with their mortgage application that it isn’t really fraud. Industry insiders might believe that individuals are the big risk for mortgage fraud.
In reality, both groups can potentially commit different kinds of mortgage fraud and could face criminal charges if someone eventually uncovers their lies. What are some of the different kinds of mortgage fraud that commonly occur in the United States?
Misrepresentation of applicant qualifications
The higher someone’s income, the lower their debt to income ratio and the higher their credit score, the better the mortgage terms they may qualify for when buying a home. They might pay less in interest, have access to premium mortgage products and qualify for higher overall mortgage amounts.
Any one of those benefits on its own could motivate someone to lie on their mortgage application or alter the application of a potential buyer that they represent. Overstating someone’s income, providing false or misleading employment information, or claiming assets that someone doesn’t actually own are all ways that either a potential buyer or a professional like a broker could unfairly manipulate the lender.
In extreme cases, people may fabricate a straw buyer using stolen information, a scenario that often also involves lies regarding the property itself.
Misrepresentation of the property
Some forms of mortgage fraud involve people trying to get a loan on a property that they don’t own and won’t purchase. Some people even finance purchases for properties that don’t exist at all. Banks can take major losses on this kind of fraud, as there may not be any collateral property to claim when the borrower defaults on the loan.
Lying about the neighborhood where a property is or its condition might mean that the lender invests more money than the property is actually worth. Even an inflated appraisal could constitute mortgage fraud in certain cases. Anyone intentionally lying about the condition, location or existence of a property to secure more financing could eventually find themselves accused of mortgage fraud.
Understanding the many forms of mortgage fraud can help those facing allegations of this serious white-collar offense.