What Is Mortgage Fraud? How to Understand and Avoid Mortgage Scams
Chances are you’re familiar with the terms mortgage and fraud, and you understand those two definitions individually. But what about mortgage fraud? There’s a good chance you may not have heard those two terms used in conjunction with one another.
But believe it or not, there is a lot of fraud that happens within the housing industry. If you’re asking yourself, “What is mortgage fraud?” Take a look at the information below to get an in-depth explanation.
What Is Mortgage Fraud?
According to the FBI, mortgage fraud is a scheme that consists of misrepresentation, material misstatement, or complete omission of information. This task is usually done by the borrower, lender, or underwriter.
Essentially, it’s lying or leaving out details on a mortgage application in order to get loan approval. However, it’s not just borrowers who commit mortgage fraud. In fact, it’s also committed by housing professionals who manipulate homeowners in an effort to get more money.
There are two categories of mortgage fraud: for-profit and for housing. For-profit fraud is generally committed by those who work within the housing industry. They use their skills and knowledge to commit this type of fraud in order to sell a home.
Appraisers, bank officers, loan originators, and mortgage brokers are all professionals who have the ability to commit this crime. Fraud for profit is a misuse of the mortgage lending process, and it’s intended to still cash and equity from homeowners and lenders.
On the other hand, fraud for housing is performed by the borrower. If they want to become a homeowner, they may lie about their assets or income in an effort to get approved for their loan.
Types of Mortgage Fraud
In addition to the two categories of mortgage fraud, there are several ways in which it’s carried out. Here are some of the main ways:
False identity: A person can use another person’s identity and credit history to fraudulently apply for a loan. Sometimes this is done with the other person’s knowledge, or it could happen in the case of identity theft.
Foreclosure scams: Individuals who are at risk of losing their homes due to foreclosure are sometimes led to believe that they can save their house in exchange for a deed transfer or a fee. The fraudster then remortgages the property without actually preventing the home from going into foreclosure.
Equity skimming: In this scenario, an investor will use a straw buyer in conjunction with fake credit and income to apply for a loan. Once the loan closes, the straw buyer gives the property to the investor who in turn rents the property out without making the mortgage payments.
In addition to this, many schemers also open a silent second mortgage to collect extra money.
Avoid Mortgage Fraud
Now that you’ve read the information above, you no longer have to ask yourself, “ What is mortgage fraud?” Do your best to avoid mortgage scams by carefully reading all of your paperwork and double-checking everything.
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