According to the FBI, mortgage fraud is a “crime characterized by some type of material misstatement, misrepresentation, or omission in relation to a mortgage loan which is then relied upon by a lender. A lie that influences a bank’s decision — about whether, for example, to approve a loan, accept a reduced payoff amount, or agree to certain repayment terms — is mortgage fraud.”
Mortgage fraud is when someone intentionally lies or omits information on a mortgage application to either qualify for a loan they wouldn’t otherwise qualify for or to make a profit. Mortgage fraud falls under two main categories:
- Fraud for profit: This is when people commit mortgage fraud to make money. They tend to be industry insiders such as bank officers, mortgage brokers, appraisers, attorneys, loan originators, and other professionals in the industry. They typically have specialized knowledge that helps them commit the fraud. The goal isn’t to obtain housing, but to misuse the mortgage lending process to steal money. The FBI prioritizes fraud for profit cases.
- Fraud for housing: This is when people commit mortgage fraud to secure a house that they wouldn’t otherwise qualify for. They misrepresent income and asset information on mortgage applications or entice appraisers to manipulate a property’s appraised value.
Types of mortgage fraud
There are multiple types of mortgage fraud. Some are more common than others such as income fraud risk, when perpetrators inflate their incomes or employment history to qualify for loans. Property fraud is another common type where the property’s value is intentionally misrepresented. Below are some other types of mortgage fraud:
Perpetrators will misrepresent the transaction, such as undisclosed agreements between parties and falsifying records. There are several types of transaction fraud:
- Silent buyer — The perpetrator will deceive the lender by borrowing their down payment. The lender believes the buyer invested his own money. The additional loan is hidden from the lender.
- Straw buyer — The real buyer may have bad credit, so they’ll use a straw buyer to act on their behalf. After the straw buyer receives the property, he will transfer it to the real buyer.
- Non-arm’s length — When two parties in the transaction are related, both parties may be susceptible to manipulation by the other.
Foreclosure rescue/loan modification schemes
The perpetrators will identify homeowners who are in foreclosure or at …….