Over the past few decades, the violations of rules and criminal activities that various industries carry out cause a significant impact on our economy. They mainly affect the banking, finance, and housing sectors of several states. When we hear about financial crimes, mortgage frauds tops the lists almost in every state. So in this article, let’s look at the criminal and ethical issues surrounding the term mortgage fraud.
Fraud is intentionally misleading, misrepresentation, and cheating: One party of people deceives another party by twisting information, facts, and different figures. So, you can say in simple words that mortgage fraud is the same as fraud, but in mortgage fraud, a party deals with destructive lending practices that target some little and easy-going mortgage borrowers.
Mortgage fraud is the “material misstatement, misrepresentation, or omission relating to the property or potential mortgage relied on by an underwriter or lender to fund, purchase, or insure a loan.”
As mentioned above, you can see that both individuals do the mortgage fraud, such as borrowers and other industry professionals. The costs associated with this are always massive. People who wish to enter and occupy the land, home, or property do this type of housing fraud as a primary residence. You may say that groups of homebuyers who, when flipping homes, take advantage of residential properties do some appraisal fraud.
Major Areas of Mortgage Fraud
Mortgage fraud deals within two diverse areas and they are as follows.
Mortgage fraud for profit
The people involved in this type of fraud are majorly industry insiders who used their specialized collected information, knowledge, or expertise to do the scam. No wonder! These types of fraud are increasing in number. There are many investigations done widely. The reports point out a high percentage of these kinds of mortgage frauds that mainly includes approval by industry insiders, like the bank officers, appraisers, real estate brokers, counselors, loan officers, and many other professionals that are playing a major role in the industry. Mortgage fraud for profit deals with the misuse of the loan lending process to steal money and equity from real estate lenders or homeowners. Many different states prioritize the cases that target mortgage frauds for profit.
Mortgage fraud for housing
These kinds of fraud are usually representations of the illegal actions carried out by the loan borrower interested in getting homeownership. There are the following common conditions that a borrower does this fraud.
- Misleading information about the income on the mortgage application.
- Misrepresentation of asset information on the loan application.
- Attract an appraiser to influence a property’s appraised value.
Schemes of Mortgage Fraud
There are three most common types of schemes of mortgage frauds.
- Property flipping
- The Occupancy fraud
- The Straw buyer scam
- Employment fraud
Property flipping scheme
When homebuyers purchase or sell a property or home, this is not illegal because they carry out the process under specific terms and conditions. You can sell the property, fix it, or purchase it for profit. But on the other hand, if your purchase a property lower than the market rate and the person immediately sells this property at a profit by taking the help of a dishonest appraiser who suggests and verify that the cost and value of this property are double than the initial purchase price, so this shows mortgage fraud.
The Occupancy fraud
This is the type of mortgage fraud that is carried out by the investors. In this case, the borrower claims to the bank that the investment property is under the owner, but it remains unoccupied or vacant. The borrower also mentions that they used the property as their primary residence their second home on the loan application. Due to all this, the borrower obtains a low-interest rate than the warranted value. When occupancy fraud is committed, they are likely not to pay the taxes on gains, resulting in additional fraud. The main reason to categorize it as a mortgage fraud type is that the borrower has misused the lender’s risk to obtain more favorable mortgage terms.
The Straw buyer scam
In this type of fraud, a straw buyer usually uses or permits other individuals to use their identity, good credit score, and income to get the property for another buyer. The other buyer will not be qualified for a mortgage or does not get reasonable mortgage interest rates. The investors used straw buyers either willingly or unknowingly. Investors usually use them to protect other different types and multiple layers of fraud.
Employment fraud is mainly committed by a borrower when they claim that they are self-employed in a company that does not exist. They also claim that they are in a higher post in a real estate company. This all is the justification of a fake representation of their income source.
Controlling the Mortgage Fraud
Many states have passed legislation at the local, state, or federal level that introduces and implements to decrease mortgage fraud. Different states have taken significant steps recently according to their requirements. Some of the common actions are as follows.
- Licensing of the loan officer.
- Taking proper education on real estate and continue this till you get legalized.
- Licensing and monitoring of Real estate business, title, and insurance agencies.
- Some states have a requirement of periodic auditing of the mortgage-lending and to keep an eye on compliance of transactions and many other related activities.
Wait! There is good news. We will improve the real estate markets by decreasing mortgage fraud, but people (borrowers and investors) have to take part in this at individual levels. They must have to establish some real opportunities for borrowing and owner a property. Investors have to set some true objectives for gaining profit. Industry professionals will be responsible for following higher personal standards. The government is accountable for making uniform legislation to enforce the law. If you are looking for expert advice and guidance, contact Aceland Mortgage today.