Mortgage Fraud – Overview
Over the last few years, mortgage fraud is becoming an increasingly common practice in the housing industry. It occurs when the potential buyer, seller or lender deliberately omits or miscommunicate any key information that can affect the mortgage loan approval. According to the FBI, a mortgage fraud is defined as any “misstatement, misrepresentation, or omission in relation to a mortgage loan which is then relied upon by a lender.” Therefore, mortgage fraud is a serious offense and can lead to severe consequences for the convict.
Though the state laws for mortgage fraud differs, a convicted offender can get an imprisonment of up to 30 years in the federal prison and/or up to $1 million as fine.
Who Commits Mortgage Fraud?
There are two types of people who commit mortgage fraud. So you can classify mortgage fraud into two broad categories; fraud for profit and fraud for housing.
Fraud for Profit vs. Fraud for Housing
People who are involved in handing out loan typically commit fraud for profit. Some of the people who are likely to be involved in this type of fraud include mortgage brokers, lawyers, lenders and home appraisers.
On the other hand, fraud for housing is generally committed by potential homeowners who deliberately provide incorrect or misleading information.
Why do People Get Involved in Mortgage Fraud?
With changes in borrowing criteria, it is becoming more and more difficult to obtain a mortgage. As a result, more people today are making fraud for housing. According to statistics, almost 4 in every 1,000 mortgage applications are fraudulent.
There are many other reasons why people get involved in mortgage fraud. Some of the reasons include
- Increasing demand for home ownership
- Higher prices of property
- Rising interest rates
Types of Mortgage Fraud
Now that you are aware of what mortgage fraud is and why people commit it, it is important to understand a few types of mortgage frauds. Having this information can help protect you against any potential mortgage fraud. Some of the most common types of mortgage frauds that you should be aware of include.
Homes that are occupied by their owners tend to have an advantage over homes that are not occupied by the homes. And that advantage is lower rates of interest on mortgages. To gain this advantages, people trying to secure a mortgage may pretend that either they are living in the home or are planning to move in to avoid higher rates of interest.
This is a often a group effort of fraud for profit. Stakeholders such as real estate agents, appraisers and layers may work together to appraise the value of a property. They do so to get more profit over the market price and each stakeholder gets a share of that profit.
People with poor credit history may resort to this type of fraud. They may steal another person’s information (usually the one with a better credit history) in order to get approval for a mortgage.
Illegal Property Flipping
When you invest in a property with the intent of selling it at a higher value (after renovation), this type of activity, also known as property flipping, is completely legal. However, if you invest in a property and then sell it at a higher value (without adding value), simply by including fictitious details on the mortgage loan documents, then this is known illegal property flipping and is a type of mortgage fraud.
There are numerous other types of mortgage frauds including
- Loan Modification Schemes
- Foreclosure Rescue Schemes
- Air loans
Mortgage fraud, by law is a crime that is becoming more and more common around the world and particularly in the U.S. When it happens, it threatens the integrity of the entire housing industry. As a result, most people today are unable to fully enjoy their home-purchase experience. The FBI is working hard towards identifying and punishing people involved in this heinous crime. But having some basic knowledge of what mortgage fraud is, who is involved in this crime and types of mortgage frauds, you can be more aware and alert when applying for mortgage for your property.