Mortgage Fraud: "Pervasive and Growing"
Whether you are buying or selling a home, or if you plan to buy a house in the future, you will benefit from learning about mortgage fraud, what it is and how you can avoid it.
Mortgage brokers are the liaison between the borrower (an individual or company) and the lender (who supplies the mortgage loan). The broker's role is becoming more important as a result of competitive markets. According to the FBI, an increased reliance on third-party brokers "has created opportunities for organized fraud groups, particularly where mortgage industry professionals are involved." In their 2006 Financial Crimes Report to the Public the FBI claims that mortgage fraud is "pervasive and growing."
What is Mortgage Fraud?
There are multiple types of mortgage fraud but each type uses some kind of misinformation, whether information is blatantly false, misleading or omitted.
The FBI divided mortgage fraud into two categories. "Fraud for Profit" is committed by industry insiders. This type of fraud typically occurs when the price of a home is falsely inflated and the mortgage broker, seller or real estate agent keeps the difference. "Fraud for Housing" occurs when an individual (or a business) misrepresents income or employment history to qualify for a loan. If you make false or misleading claims on a mortgage loan application, then you are committing fraud. This is illegal and you can get in trouble even if you were following the advice of a professional. You cannot plead ignorance to avoid penalty.
Predatory lending practices can also be considered mortgage fraud, but this type of fraud affects its victims differently. Predatory lending can occur when unethical lenders approve mortgage loans for borrowers when they know they cannot afford them. The borrowers will usually default on the mortgage payments and be forced to foreclose.
Other types of mortgage fraud are "equity skimming," "property flipping" and mortgage-related identity theft.
Mortgage fraud typically targets first-time homebuyers and senior citizens. To protect yourself from becoming the next victim, check out these tips:
9 Tips to Avoid Mortgage Fraud
- Read and understand everything you sign. Don't sign blank documents and don't sign something because someone tells you it's just a standard form. You should read and understand all forms, even the standard ones.
- Get copies of everything you sign.
- Hire your own appraiser.
- Don't let a mortgage broker insist on a specific lender. Even when a broker has a recommended lender, they should be open to other.
- Do not allow yourself to be pressured into accepting a loan for more money than you need, or for more than you are comfortable with borrowing.
- Ask for the sales history of the property. Many sales in a short period of time could be a sign of trouble.
- If you are selling your home, make sure your real estate agent is licensed in your state.
- Distrust offers that sound too good to be true.
- Never buy a property without seeing it in person first.
