What Is Mortgage Fraud?
Mortgage fraud seems like such a strong term where it applies to professional white collar criminals but that is not always the case. A hard working home buyer with no criminal record or even a parking ticket can commit mortgage fraud without them realizing that they are committing mortgage fraud.
Who Investigates Mortgage Fraud?
The law enforcement agency that enforces mortgage fraud is not your local police station. It is the FBI as well as criminal investigators from HUD. These are federal agents who have a no tolerance policy with regards to mortgage fraud. Part of the reason for the 2008 real estate and mortgage meltdown was due to mortgage fraud. Home buyers, investors, real estate agents, attorneys, appraisers, title companies, and mortgage brokers practiced creative financing where fake tax returns, false bank statements,straw buyers, lax underwriting procedures, inflated appraisals, kick backs, lying on mortgage applications, and multiple flipping was a common practice. Although tens of thousands of folks got arrested, indicted, and sentenced to federal prison for committing mortgage fraud, the practice still exists today.
Lying On A Mortgage Application
Lying on a mortgage application or providing misleading information in order to deceive an underwriter’s decision in approving a mortgage loan in order to get a mortgage loan approval is committing mortgage fraud, a felony punishable up to 30 years in federal prison. No matter how big or small the deception is, if you attempt to deceive a mortgage lender in order to get a mortgage loan approval, you are committing mortgage fraud. The deception needs to be intentional and minor mistakes does not constitute mortgage fraud. Many borrowers think it is no big deal fudging on their mortgage application or taking the suggestion of their realtor or mortgage loan originator to either omit or lie about a question on a mortgage application. However, even though the mortgage loan borrower did not initiate the idea but was told by the realtor and/or mortgage loan originator in intentionally lying on a mortgage application to influence a mortgage lender in deception, all parties are guilty in committing mortgage fraud can and will be investigated by the mortgage fraud task force of the FBI. I guarantee you that all mortgage fraud allegations will be investigated by federal criminal agents to see the validity of the accusation.
Definition Of Mortgage Fraud
Mortgage fraud is define by the Federal Bureau of Investigation Mortgage Fraud Task Force as ” any material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase, or issue a loan.” This statements is in black and white. The reason mortgage loan applicants lie is to make their applications look as vanilla as possible and show the underwriter that they are a good credit risk.
Examples of occupancy fraud include when a non-owner occupant states that they will be an owner occupant. Case scenarios like these are very common where a parent or relative states that they are an owner occupant but actually are purchasing the home for a family member, relative, or friend because the other party does not qualify for a residential mortgage loan due to credit issues, income qualification issues, or other issues. Many owner occupancy fraud violators do not get caught and life goes on. However, if the mortgage loan ever goes bad, that is when mortgage fraud investigators catch the owner occupancy fraud.
Kickbacks From Seller To Buyer
Kickbacks that are not disclosed is another example of mortgage fraud. A common practice is when a seller kicks back sellers concessions towards the buyers closing costs when their is left over funds. FHA allows up to a 6% sellers concession towars a buyers closing costs and conventional loan programs permit up to a 3% sellers concession towards the buyers closing costs. Any left over in sellers concession credits need to go back to the seller and cannot be credited to the home buyer. An example of this case study is when a seller offers a 6% sellers concession to the buyer but the actual sellers concession used is 2%. The unused 4% sellers concession needs to go back to the seller. If the seller gives the buyer the unused 4% sellers concession credit, both the seller and buyer is committing mortgage fraud. If this idea was initiated by the real estate agent, mortgage loan originator, title agent, or attorney, then everyone involved have committed mortgage fraud. If nobody finds out about it, then no problem. However, if someone talks and the lender or mortgage regulators find out, then all parties are in trouble and can be charged with mortgage fraud.
Inflated Purchase Price
Another case scenario for kickbacks is when the seller agrees to inflate the purchase price hoping for the appraisal to come in at a higher value than the actual purchase price. The seller then gives a kickback for the difference between what the mortgage lender valued the property and the actual sales price. The real estate purchase contract will state the inflated purchase price but the actual purchase price will be much lower. After closing, the seller gives the home buyer the kickback and the mortgage lender funding the loan does not know about this.
Disclosing Second Liens
Undisclosed second mortgage on a home purchase is another form of mortgage fraud. For example, say that the home buyer needs to come up with a 3.5% down payment but does not have his or her own funds. FHA allows up to 100% of the funds to be gifted by a family member. Gift funds cannot be paid back nor can it be a loan from the donor of the gift funds. If the mortgage loan borrower receives gift funds and signs a sworn statement that the down payment is a 100% gift from a family member and will not be paid back but in actuality is a loan and a seperate loan agreement is adhered to, whether oral or written, and the home seller agrees to give a 3.5% second mortgage so the home buyer can pay back the gift funds, all parties here, from the donor, buyer, seller, have committed mortgage fraud.