Types Of Mortgage Loan Fraud That Are Most Commonly Committed For Property. I started this series on Mortgage Loan Fraud on Sunday, and it is the result of a class that I am teaching this week to individuals that are considering becoming Mortgage Loan Originators. One of the chapters that I am covering is on Mortgage Loan Fraud. The material that I am covering has made me aware that even though additional safeguards, reporting, and enforcement procedures have been put in place, Mortgage Loan Fraud continues to plague the Mortgage and Real Estate Industries. The first first blog was Mortgage Loan Fraud: Introduction, and the second blog was on the Reporting & Enforcement Of Mortgage Loan Fraud. This third blog will be the first of two blogs on the several Types Of Mortgage Loan Fraud That Are Most Commonly Committed.
Most Mortgage Loan Fraud can be divided up into two major categories:
- Fraud For Property
- Fraud For Profit
Under each of these two major categories of Mortgage Loan Fraud there are several types of Mortgage Loan Fraud that fall under each one. In this blog I will cover most of the types of fraud the come under Fraud For Property, and give a brief description of each one.
- Asset Fraud:
- Failing to disclose a credit card or unsecured loan that is being use as the source of the downpayment.
- Overstating assets for a downpayment.
- Claiming that a loan for the downpayment is a gift, and submitting a fraudulent Gift Letter.
- Claiming an Earnest Money Deposit that does not exist.
- Income and Employment Fraud:
- Overstating income or lenght of employment.
- Falsely claiming to be employed by an employer when they are not
- Lumping part time income, bonuses, and other types of income with salaried income.
- Altering Credit History: Trying conceal negative past occurrences.
- Hiding Liabilities: The Borrower does not disclose all of their debt, usually this happens when a new installment loan or credit card has been acquired, but it is not showing up on the credit report yet.
- Straw Buyer: Borrower applying for a mortgage on a property that is not for him or herself, but for someone else who will actually own, occupy and make payments on the property.
- Identity Theft: Borrower assumes the identity of another person to obtain a mortgage.
- Appraisal Fraud: This type of fraud takes many forms, but basically it is the Borrower, Loan Originator, or Realtor conspiring with an Appraiser to falsify the value of a property.
- Silent Second: A Lender approves a mortgage for a Borrower who the Lender believes has used his/her own money for the downpayment and closing costs. But the Borrower has actually borrowed the funds from the Seller through an undisclosed personal loan which is not recorded.
- Contract Kiting: Also Known as Double or Dual Contracts: The Seller agrees to create a second false Sales Contract with a higher Sales Price, in order to get a larger mortgage from the Lender. The Seller and Buyer then split the difference between the actual Sales Price and the loan amount.
- Cash Back: This is sort of like the Contract Kiting or Double/Dual Contract scheme but with a slightly different twist. The Seller and or the Real Estate Agent conspire with the Buyer and Appraiser. Only one Sales Contract is created, but the Appraiser over appraises the property, the Lender makes the loan, and all parties split the difference between what the Seller agreed to sell the property for and the actual loan.
This concludes my examples of Property Fraud, but these are just the most common types. There maybe other less common, or combinations of the above examples of Fraud for Property that can be committed.
Tomorrow in Types Of Mortgage Loan Fraud That Are Most Commonly Committed For Profit, I will list several types of Mortgage Loan Fraud that fall under the Fraud For Profit category.
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
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