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 consequence, the federal government has produced a special task force to treat mortgage fraud as a kind of white collar crime.
Too often the public is ill-informed about how mortgage fraud schemes work. Two types of fraud are “fraud for profit” and “fraud for character.” Each kind of fraud has several schemes and misrepresentations that are characteristic. Mortgage fraud is far reaching and can include buyers, sellers, mortgage brokers, real estate agents, appraisers and other industry professionals looking for financial gain from character sellers and authentic lenders.
Fraud for character:
Fraud for character (also known as housing fraud) usually involves single borrowers who intend to repay loans, but misrepresent themselves and their financial qualifications in order to obtain a mortgage.
Fraud for Profit:
Fraud for profit typically involves professionals in the real estate, appraisal or banking business. These individuals committing fraud may include 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 obtain or transact loans, overstate appraisal values for purposing of selling a character on multiple occasions and already invent fictitious similarities and buyers to help obtain 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 character of a authentic owner. Often, this individual will then acquire a loan on the character with intent to commit mortgage fraud. The perpetrator typically will then take the money and default on the loan, leaving the authentic owners with the noticeable debt.
2. Appraisal Fraud: This is a kind of fraud that involves character flipping. In appraisal fraud situations, a character is purchased using an initial mortgage. The character is then appraised at a much higher value, using an unscrupulous appraiser who overvalues the character. Finally, the character resold quickly for maximum profit. Other forms of appraisal fraud be make up of consistently inflating the value of a character in order to acquire a second mortgage or to pad the commissions of real estate brokers or agents.
3. Loan Fraud: In this situation a possible buyer obtains a loan using fraudulent income, credit, employment or appraisal documents to acquire a mortgage for which they are not qualified. Loan fraud hurts lenders as many complete buyers are ultimately forced to default on their loans. In many instances, these buyers are assisted by professionals who hope to increase their profits.
There are several approaches you can take to help mitigate fraud and loan fraud risk. It starts with being vigilant. Being aware of possible loan fraud risk helps keep you alert to possible schemes and misleading individuals. In the early phases, you may want to work only with reputable professionals whom you can verify. To further reduce loan fraud risk, you may want to consider using specialized software.
Using Mortgage Fraud Software:
Mortgage fraud software can help industry professionals reduce the risk of mortgage fraud. Database software exists as an industry-contributed repository used for verifying, credentialing and monitoring professionals and companies. This software has also evolved and now can help with identity verification, credit checks, Social Security fraud checks and criminal background checks.
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.