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MORTGAGE FRAUD SCHEMES

Mortgage Fraud can occur in many ways. Here are a couple of Mortgage Fraud Schemes the FBI is watching for:

Occupancy fraud
Employment/income fraud
Failure to disclose liabilities
Property Flipping
Silent Second
Nominee Loans/Straw Buyers
Fictitious/Stolen Identity
Inflated Appraisals
Foreclosure Schemes
Equity Skimming
Air Loans

Occupancy fraud

Frequently this is seen where the borrower wishes to obtain a mortgage to acquire an investment property, but instead the borrower claims on the loan application that they will occupy the property as their primary residence or second home. If undetected, the borrower typically obtains a lower interest rate than was warranted. Lenders typically charge a higher interest rate for non-owner-occupied properties, which historically have higher delinqency rates. Occupancy fraud causes the lender receives insufficient return on capital and is also over-exposed to loss relative to what was expected in the transaction.

Employment/income fraud

Borrowers overstate income to qualify for a larger loan amount, typically when applying using "stated income" (often referred to as "liar loans") mortgage. A "stated income" application is where the borrower declares their income without verification.

Failure to disclose liabilities

Borrowers conceal obligations, such as mortgage loans on other properties or newly acquired credit card debt, in order to reduce the amount of monthly debt declared on the loan application. This is pertinent because the debt-to-income ratio is a key underwriting criterion to determine eligibility for most mortgage loans, and the omission of liabilities artificially lowers the debt ratio, allowing the borrower to qualify for a bigger loan.

Property Flipping

Property is purchased, falsely appraised at a higher value, and then quickly sold. What makes property illegal is that the appraisal information is fraudulent. The schemes typically involve one or more of the following: fraudulent appraisals, doctored loan documentation, inflating buyer income, etc. Kickbacks to buyers, investors, property/loan brokers, appraisers, title company employees are common in this scheme. A home worth $20,000 may be appraised for $80,000 or higher in this type of scheme.

Silent Second

The buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage. The primary lender believes the borrower has invested his own money in the down payment, when in fact, it is borrowed. The second mortgage may not be recorded to further conceal its status from the primary lender.

Nominee Loans/Straw Buyers

The identity of the borrower is concealed through the use of a nominee who allows the borrower to use the nominee's name and credit history to apply for a loan.

Fictitious/Stolen Identity

A fictitious/stolen identity may be used on the loan application. The applicant may be involved in an identity theft scheme: the applicant's name, personal identifying information and credit history are used without the true person's knowledge.

Inflated Appraisals

An appraiser acts in collusion with a borrower and provides a misleading appraisal report to the lender. The report inaccurately states an inflated property value.

Foreclosure Schemes

The perpetrator identifies homeowners who are at risk of defaulting on loans or whose houses are already in foreclosure. Perpetrators mislead the homeowners into believing that they can save their homes in exchange for a transfer of the deed and up-front fees. The perpetrator profits from these schemes by remortgaging the property or pocketing fees paid by the homeowner.

Equity Skimming

An investor may use a straw buyer, false income documents, and false credit reports, to obtain a mortgage loan in the straw buyer's name. Subsequent to closing, the straw buyer signs the property over to the investor in a quit claim deed which relinquishes all rights to the property and provides no guaranty to title. The investor does not make any mortgage payments and rents the property until foreclosure takes place several months later.

Air Loans

This is a non-existent property loan where there is usually no collateral. An example of an air loan would be where a broker invents borrowers and properties, establishes accounts for payments, and maintains custodial accounts for escrows. They may set up an office with a bank of telephones, each one used as the employer, appraiser, credit agency, etc., for verification purposes.

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