Mortgage fraud is a growing concern in the nation. The following article allows the reader to better understand the true criminal nature of mortgage fraud.
Mortgage fraud, when defined overall is a crime associated with misrepresentation by the borrower. However, the lender, on behalf of the borrower, can misrepresent the borrower’s true financial picture in order to push through a loan at a lower rate of interest, or for a higher amount. Suffice it to say, in this manner the lender receives more monies too, and with regard to the amount borrowed. This type of misrepresentation can come about in many forms.
One way the borrower misrepresents him or herself is by stating on the application he or she actually occupies the property which he or she intends to borrow money against. The untruth comes about because what he or she really intends to do is use the property for investment purposes; and he or she has no true intention of ever living inside the property. As such, the borrower receives a better interest rate because the lender incorrectly believes the borrower is using the property as a primary residence.
Naturally, if the borrower is living inside the property or occupying it, it is less risk for the lender to lend the borrower money for the property. Many times this type of action on the part of the borrower goes undetected. However, in the end, if something occurs on the unoccupied premises the lender has put his or her own money at greater risk by not making up for the deficit by charging the proper higher rate of interest.
Income mortgage fraud can occur on behalf of the lender or borrower or both. The problem surfaces with the advent of stated income only or “Alt-A” types of loans. Many times the lender lies, and proper verification of income was never applied. This type of fraud is becoming less of a threat with many lenders not offering such types of products to the borrower.
The borrower who claims he or she is self-employed with a company that does not exist is guilty of employment fraud as it pertains to mortgage loans. Also, such a borrower may state his or her position as higher in a company when fraudulently representing his or her income. Naturally the lender and borrower need to participate in this type of scheme. If the lender is strict about verification of income then this type of mortgage fraud is impossible.
Some borrowers may not disclose all of their liabilities. This certainly provides an inaccurate picture of the borrower’s true finances. As a consequence the borrowers’ debt-to-income ratio is greatly lowered. It is a certainty that debt-to-income ratios are necessary with respect to underwriting rules in order to determine the borrower’s true eligibility for the loan. Naturally, if this is not properly checked, the borrower is approved for a loan greater than what he or she deserves.