As you might expect in a hot housing market, fraud is rampant. The mortgage industry is an environment for criminals because they can target both borrowers and lenders.
When borrowers are targeted, it’s often done by a corrupt bank officer, mortgage broker, or loan originator who uses their authority to skim off cash or equity from lenders or borrowers by circumventing the mortgage process.
When lenders are targeted, an untrustworthy borrower may misrepresents information on a loan application or bribe an appraiser to manipulate the appraised value of a property.
Specifically, types of mortgage fraud could include:
Overstating income: Some lenders offer “stated income” loans to self-employed borrowers who have been known to claim a higher income on their loan application than they actually have.
Under-the-table transaction: Buyers that accept cash towards a down payment from a seller to qualify for a loan are committing fraud.
Owner-occupied fraud: To avoid high rates on an investment property, fraudulent borrowers may claim the property will be owner-occupied (used as a private residence) when it won’t.
Foreclosure rescue scam: Scammers posing as “foreclosure specialists” offer to rescue a borrower from losing their home. After collecting a fee for the service, the scammer disappears, leaving the borrower to suffer through the foreclosure process.
Skimming cash or equity: Mortgage industry officials, such as a banker, broker, attorney, or loan originator, circumvent the mortgage process to skim cash or equity from borrowers.
Appraisal fraud: A borrower may collaborate with an untrustworthy appraiser to deliberately overestimate the value of a house, often by presenting inappropriate comparables. This is particularly common when a home is bought and resold quickly.
Hot housing markets are magnets for unscrupulous mortgage industry people looking to capitalize on the buying and selling frenzy. It’s essential for mortgage borrowers to scrutinize lenders and brokers, checking their credentials, licenses, track records, and references before signing anything.
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