As you might expect in a hot housing market, mortgage fraud is rampant. The mortgage industry is an environment for fraudsters because they can target both mortgage borrowers and mortgage lenders.
When borrowers are targeted, it’s typically a corrupt bank officer, mortgage broker or loan originator who uses their authority to skim off cash or equity from lenders or borrowers by circumventing the mortgage process.
When mortgage lenders are targeted, it’s the borrower who misrepresents information on a loan application or bribes an appraiser to manipulate the appraised value of a property.
Specifically, borrower mortgage fraud could include:
Overstating income: Some lenders offer “stated income” loans to self-employed borrowers who have been known to claim a higher income than they actually have.
Under-the-table transaction: When buyers accept cash towards a down payment from a seller to qualify for a loan, they are committing fraud.
Owner-occupied fraud: To avoid the higher mortgage rates on an investment property, borrowers claim the property will be owner-occupied (used as a private residence), when in fact it’s not.
Foreclosure rescue scam: Scammers posing as “foreclosure specialists” offer to rescue a borrower from losing their home. After collecting a fee for the service, the scammer disappears, leaving the borrower to suffer through the foreclosure process.
Skimming cash or equity: Mortgage industry officials, such as a mortgage banker, broker, attorney, or loan originator, circumvent the mortgage process to skim cash or equity from borrowers.
Hot housing markets are magnets for unscrupulous mortgage industry people looking to capitalize on the buying and selling frenzy. It’s essential for mortgage borrowers to scrutinize lenders and brokers, checking their credentials, licenses, track records and references before signing anything.