Part of cleaning up your finances is learning how to protect your interests. No one wants to be without a home.
Mortgage fraud is a growing problem. The FBI reported over 63,000 total incidents of actual and suspected mortgage fraud in 2008. Early figures for 2009 show a rapid increase in suspicious activity as scam artists seek to take advantage of vulnerable homeowners in the weakened economy, with over 40,000 cases reported through the month of April. The problem is more acute in some states than others; in terms of relative numbers, the top 10 states for mortgage fraud activity in 2008 were California, Colorado, Florida, Georgia, Illinois, Maryland, Michigan, Missouri, New York, and Rhode Island.
Mortgage regulations and processes frequently change and are complicated and confusing as it is. Add to that the stress homeowners feel when applying for a mortgage or refinancing because of financial straits, and fraudsters have the perfect conditions under which to manipulate their potential victims.
Here are some common types perpetrated both on and by homeowners:
- Not-so-accurate income. Because of the way self-employed people file taxes, many individuals fail to report their full income on their taxes. A “stated income” loan allows a potential borrower to claim a certain amount, and an underwriter bases a lending decision on that stated income. If a borrower inflates that figure, it constitutes mortgage fraud.
- Under-the-table exchange. Banks are reluctant to lend money to people who can’t prove that they have the financial means to make regular loan payments. A hefty down payment, however, can sway many a lender’s opinion. If a seller really needs to dump a property, he can give the borrower enough money for a down payment under the table. With the money in hand, the buyer can illegally “qualify” for the loan.
- Owner-occupant refusing to occupy. Because lenders tend to charge higher interest rates to non-owner occupants, a common mortgage fraud tactic is to claim occupancy even if you don’t live on the premises. If you plan to buy property and claim occupancy, pack your bags and move in. Otherwise, you’ll be committing mortgage fraud.
- Gifting a down payment, and then repaying it. You’re allowed to gift part of a down payment for a home on the condition that the gift is not repaid. It’s much like the under-the-table exchange between a seller and a potential buyer, but in reverse. This “gift” is given officially, but then repaid under-the-table.
A deeper understanding of the types of mortgage fraud schemes and their impact on the housing industry gives victim service providers and community leaders a broader perspective to help victims and identify at-risk homeowners.