Mortgage Fraud is real and rampant in the United States according to the FBI. The Federal Trade Commission estimates that mortgage fraud has cost businesses nearly $48 billion and consumers about $5 billion in the past 5 years. There are some cases that involve appraisers, lenders, attorneys, and real estate agents. While other scams can be pulled off by consumers acting alone. The FBI estimates that 80% of all mortgage fraud losses involve collaboration or collusion by industry insiders.
Per the FBI: The increase reliance by both financial institutions and non-financial institution lenders on third-party brokers has created opportunities for organized fraud groups, particularly where mortgage industry professionals are involved.
Mortgage fraud is investigated in two distinct areas: Fraud for Profit and Fraud for Housing.
Fraud for Profit: Sometimes referred to as "Industry Insider Fraud" with the motive to revolve equity, falsely inflate the value of property, or issue loans based on fictitious property.
Fraud for Housing: Represents illegal actions perpetrated solely by the borrower. This type of fraud is typified by a borrower who makes misrepresentations regarding his income or employment history to qualify for a loan.
The FBI's report suggests that mortgage fraud can lead to a domino effect on a local housing market and the overall economy. FBI assistant director Chris Swecker testified before the US House of Representitve's Financial Services Subcommittee on Housing and Community Opportunity as follows:
"When loans sold in the secondary market default, and have fraudulent or material misrepresentation, loans are repurchased by the lending financial institution based on a ‘repurchase agreement.' As a result, these loans become a non-performing asset. In extreme fraud cases, the mortgage backed security is worthless. Mortgage fraud losses adversely affect loan loss reserves, profits, liquidity levels and capitalization ratios, ultimately affecting the soundness of the financial institution."
So how can you avoid being a unknowing participant in mortgage fraud?
* Beware of deals presented by unknown parties where certain guaranteed returns are promised
* Hire a real estate agent or lender based on the referral of family or friends and avoid high pressure sales situations where you have not had time to review all the information
* Get everything in writing. Beware of unsolicited sales calls promising below market rates and "no cost" mortgage loans.
* Check with the better business bureau, local real estate board, or state banking commission if you have any concerns about an individual's license or track record.
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