Each day financial institutions are confronted with mortgage fraud risk. Mortgage fraud has become one of the fastest growing financial crimes in the history of the United States. As a result, the federal government has created a special task force to treat mortgage fraud as a type of white collar crime.
Too often the public is ill-informed about how mortgage fraud schemes work. Two types of mortgage fraud are “fraud for profit” and “fraud for property.” Each type of fraud has several schemes and misrepresentations that are characteristic. Mortgage fraud is far reaching and can involve buyers, sellers, mortgage brokers, real estate agents, appraisers and other industry professionals looking for financial gain from property sellers and legitimate lenders.
Mortgage Fraud for Property:
Mortgage fraud for property (also known as housing fraud) usually involves single borrowers who intend to repay loans, but misrepresent themselves and their financial qualifications in order to secure a mortgage.
Mortgage Fraud for Profit:
Mortgage fraud for profit typically involves professionals in the real estate, appraisal or banking business. These individuals committing fraud may engage in numerous illegal activities in effort to skim equity. Activities may include overstating income, assets and/or collateral value. Individuals may look to steal identities to secure or transact loans, overstate appraisal values for purposing of selling a property on multiple occasions and even invent fictitious properties and buyers to help secure loans.
The following three examples of mortgage fraud illustrate current fraud schemes and the parties that might be involved:
1. Real Estate Fraud: In this scenario, a perpetrator may use fraudulent documents to steal the title or deed to the property of a legitimate owner. Often, this individual will then obtain a loan on the property with intent to commit mortgage fraud. The perpetrator typically will then take the money and default on the loan, leaving the legitimate owners with the outstanding debt.
2. Appraisal Fraud: This is a type of fraud that involves property flipping. In appraisal fraud situations, a property is purchased using an initial mortgage. The property is then appraised at a much higher value, using an unscrupulous appraiser who overvalues the property. Finally, the property resold quickly for maximum profit. Other forms of appraisal fraud consist of inflating the value of a property in order to obtain a second mortgage or to pad the commissions of real estate brokers or agents.
3. Mortgage Loan Fraud: In this situation a potential buyer obtains a loan using fraudulent income, credit, employment or appraisal documents to obtain a mortgage for which they are not qualified. Mortgage loan fraud hurts lenders as many unqualified buyers are eventually forced to default on their loans. In many instances, these buyers are assisted by professionals who hope to increase their profits.
Combating Mortgage Fraud:
There are several approaches you can take to help mitigate mortgage fraud and loan fraud risk. It starts with being vigilant. Being aware of potential mortgage fraud risk helps keep you alert to potential schemes and deceptive individuals. In the early phases, you may want to work only with reputable professionals whom you can verify. To further reduce mortgage fraud risk, you may want to consider using mortgage fraud software.
Using Mortgage Fraud Software:
Mortgage fraud software can help industry professionals reduce the risk of mortgage fraud. Database software such as MIDEX (Mortgage Industry Data Exchange) exists as an industry-contributed repository used for verifying, credentialing and monitoring professionals and companies. Mortgage fraud software has also evolved and now can help with identity verification, credit checks, Social Security fraud checks and criminal background checks.
Mortgage fraud hurts everyone. Being proactive and taking the proper steps may help reduce your risk of being a victim of those that look to perpetrate mortgage fraud.