How Can Mortgage Fraud Be Prevented and What Is It?

Regardless of your stance, mortgage fraud is a serious crime that can seriously jeopardize your financial security.

When a buyer fabricates information on their application to get a better interest rate or to boost their chances of getting approved for a mortgage, it is referred to as mortgage fraud.

However, there is more than one definition of mortgage fraud. For instance, crimes in which the mortgage borrower is the victim include reverse mortgage scams and foreclosure rescue plans, in which dishonest individuals attempt to steal money or home equity.Mortgage fraud can be committed by pretty much anybody in the real estate or mortgage industry, including sellers, builders, investors, real estate agents, mortgage brokers, lenders, and third parties that offer phony services, though homebuyers are frequently the ones who commit it.The Federal Bureau of Investigation (FBI) looks into a variety of mortgage fraud cases and concentrates on con artists’ tactics that harm customers.

Contents Table of

  1. prevalent forms of mortgage fraud
  2. Advice on how to prevent mortgage scam
  3. How can mortgage fraud be found?
  4. How to report fraudulent mortgages
  5. FAQs pertaining to preventing mortgage fraud

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Prevalent Forms of Mortgage Fraud

There are two types of mortgage fraud: for-profit fraud schemes that take advantage of borrowers and fraud done by mortgage borrowers (usually to obtain homeownership).

Here are a few examples of the various forms of mortgage fraud:

Fraud Involving Mortgage Applications

This is among the traditional forms of mortgage fraud. The purposeful misreporting by borrowers to lenders and loan servicers of their income, assets, or debt is known as mortgage application fraud.Application fraud can involve lying to your lender about credit card debt, auto loans, or another mortgage.In order to increase your chances of getting a loan approved, it could also entail falsifying information on forms or doctoring papers. Sometimes, debtors fabricate employment at fictitious companies.If you wind up with a mortgage you can’t afford to pay off, this might have serious financial repercussions, such as foreclosure and credit harm. It is likewise prohibited, with fines of up to $1 million and a maximum sentence of 30 years in prison.

Fraud Involving Mortgage Occupancy

Fraud involving mortgage occupancy refers to falsely claiming that the property you are purchasing will be your primary residence.What could possibly motivate someone to do this? Lenders typically view investment properties as riskier because, in the end, they anticipate that borrowers would continue to make payments on their primary residence while falling behind on payments on their second house.Mortgage rates are therefore higher for investment houses where you do not spend at least half of the year residing there. Additionally, you might require a bigger down payment and have a harder time getting approved for a loan on an investment property. However, it is never a good idea to lie to a lender about your plans to reside in a property as it can be considered a felony.

Phony Buyer Schemes

Purchasing a property on someone else’s behalf and keeping that information hidden from the mortgage lender is typically prohibited.A more qualified borrower (referred to as the “straw buyer”) typically puts their name on the loan application in this kind of mortgage fraud, but the real intention is for a less qualified individual—possibly a friend or relative—to live there.In order to pay the mortgage, the resident—who might have a bad credit score or erratic income—would typically provide the straw buyer money.

Quiet Seconds

The buyer obtains a second loan to cover the down payment in this kind of fraud. The lender believes that the borrower contributed their own funds to the down payment because they haven’t disclosed the second loan to them.

Scams Involving Foreclosure Rescue

Now for frauds that prey on mortgage borrowers: foreclosure rescue scams target borrowers who are having financial difficulties. These schemes come in a variety of forms, but they all basically include con artists claiming to be able to “help” a borrower who is about to go into foreclosure, but in reality, they are not. Then, victims run the risk of having to pay for phony services or losing equity in their homes. They can even still experience foreclosure because the purported “rescue” was a hoax.

Scams Involving Reverse Mortgages

The equity in their homes can be accessed by Americans 62 and older through a reverse mortgage. Regrettably, it gives con artists more opportunity. When a con artist deceives an elderly homeowner into obtaining a reverse mortgage, they are committing reverse mortgage fraud. The money is subsequently stolen.

Advice On How To Prevent Mortgage Scam

The most crucial thing for borrowers to do in order to prevent mortgage fraud is to be truthful with their lenders regarding their financial situation. It is advisable to improve your credit, pay off debt, and raise your income if you are experiencing difficulties being approved for a mortgage.Avoid trying to game the system as this could land you in hot water legally and put you in debt for a house you cannot afford. Similarly, in order to prevent unintentionally breaching any laws, home sellers and their real estate agents should keep up to date on the relevant laws pertaining to fraud and home selling.preventing mortgage fraud schemes that take advantage of mortgage debtors is much like preventing other forms of fraud: Remain vigilant, verify the qualifications of lenders or any other individual or organization you come into contact with regarding your mortgage, avoid disclosing personal information to unreliable parties, and avoid paying for services in advance.The following are further comprehensive guidelines, obtained from the Department of Housing and Urban Development, the FBI, and the Consumer Financial Protection Bureau (CFPB):

How Can Mortgage Fraud be Found?

Since they lose money if a home buyer defaults on a loan because they were only able to obtain one by lying about their income, lenders have a strong incentive to find and stop mortgage fraud.Lenders watch for indications of potential fraud during the mortgage application or refinance process, such as too high income for the borrower’s claimed employment.They can also identify mortgage fraud with the use of fraud detection software. Lenders will use these tools to verify the authenticity of your identity documents and to double-check the information you provide in the loan application process with information from other publicly accessible sources. Lenders may also examine documents to look for indications of falsification or alteration.

How to Report Fraudulent Mortgages

You can report mortgage fraud to the FBI by calling 1-800-225-5324 if you believe you are a victim of it or if you learn of any instances of it. If you would like to report fraud to more government agencies, the Department of Justice also keeps a webpage with more details.Getting in touch with your state’s attorney general’s office or local law enforcement are two possible local reporting methods.

FAQs pertaining to preventing mortgage fraud

  1. Which kinds of mortgage fraud are there?

Mortgage fraud for housing and mortgage fraud for profit are two common categories used to group the                         numerous forms of mortgage fraud. The first category includes consumer fraud, such as fabricating pay stubs               to get approved for a mortgage, in order to get homeownership. Scams that target customers, such as                             foreclosure rescue scams, are considered fraud for profit.

  1. Mortgage fraud: is it a crime?

Mortgage fraud is a serious offense that, depending on its extent, may result in criminal charges. Experian                    reports that the maximum penalties for mortgage fraud are up to $1 million in fines and 30 years in jail.

  1. As a loan applicant, how can I prevent committing mortgage fraud?

The most crucial thing to remember is that lying about any information throughout the mortgage application                process is never acceptable. This implies that you ought to be truthful about your income and any outstanding              debts. Mortgage fraud carries serious legal ramifications, and lying about your income to get approved for a                   pricey property may result in foreclosure if you can’t afford the monthly payments.

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