The Mortgage Fraud Rate is Rising Annually, But Where?

Mortgage fraud is reported each year on a quarterly basis and the data shows that the rates for 2016 are on the rise. This increases consumer risk and it is vital information that every consumer in the market for a mortgage needs to be aware of. Fraud occurs when mortgage applications are processed and although some tight restrictions have been put into place, there is still a risk. Statistics show that the risk is higher in some metropolitan areas showing the highest incidences of fraud during the last quarter. Find out if you’re in an area with a high mortgage fraud rate that puts you at peril and how to safeguard against being taken advantage of.

Understanding what mortgage fraud is

Mortgage fraud is committed when information is misrepresented by the lender or the borrower. Any time that there is an omission or misstatement made about the facts relating to a mortgage process including disclosures, contractual terms and agreements, mortgage fraud is the result. Deceptive practices are not only unethical, they are criminal and can result in fines and/or imprisonment.

Common motivations

There are quite a few reasons why a professional or borrower would attempt to commit mortgage fraud. When borrowers participate in this activity it is generally so they can more easily qualify for home ownership. Fraudulent activities in this arena include falsifying employment and income records, working with the lending officers to submit false information or omission of information about debt, assets, credit ratings and so forth. Most people who are able to do this have a friend or relative in the business who is willing to work with them to achieve their goals. Others may be investors who want to purchase real estate in order to resell it at a higher price.

When fraud is committed by mortgage specialists, it is generally in order to profit from the sale by inflating certain figures to amplify the terms of the loan transaction. Professionals who participate in this type of mortgage fraud includes mortgage brokers, loan officers, real estate agent, real estate appraisers, insurance agents, escrow agents, builders and attorneys. It is not uncommon for some or all of these professionals to work together to push through a mortgage that defrauds the underwriters, borrowers and the lenders. Fees may be maximized in order to enhance broker fees and commissions at the expense of both the lender and the borrower. With this in mind, it is important to be aware that these situations do happen and to know how to prevent becoming a victim.

Individual mortgage fraud

This happens when property ownership records are falsified so a borrower can receive a mortgage on property that they do not own. Identity theft including the sue of addresses, birth dates and social security numbers does happen. Con artists use the victim’s information to secure a mortgage by using their financial information. This is a common scam that is becoming more popular and can lead to financial catastrophe for the victims. It sounds far fetched but it does happen.

Air loan and appraisal fraud

This unethical practice is committed by industry professionals who create a nonexistent borrower and falsify the information to bring them to life in the eyes of the lender and underwriter. They develop a title on real estate that doesn’t exist, generate proof of employment, telephone numbers, home addresses and makes the lender the ultimate victim.

Appraisal fraud

This is most often committed by real estate agents, appraisers, builders and loan officers who network together to falsify information and inflate the purchase cost of a property so everyone involved will get a higher commission. Appraisers may also undervalue a certain property to allow a co-conspirator to purchase the property at a cost that is far below market value.

How to avoid becoming a victim of mortgage fraud

Of course it’s important to protect your confidential financial information to the best of your ability. Even the most careful consumers can become victims of identity theft so a periodic check of your credit report and keeping an eye on your financial accounts can give you an early alert if there is this type of problem.

During a mortgage application process

Any time that you begin the process of entering into a mortgage process, there are a few things that you can do to help yourself. First, begin with an update of the areas that show the highest number of mortgage fraud incidents because this can serve of an indicator of your risk level. If you reside in an area with a high risk index then you’ll want to take additional steps to protect yourself. Watch for predatory lenders. These are the professionals who use unethical if not illegal methods for getting you the funding you need at unnecesarily high rates. CoreLogic LoanSafe Fraud Manager alerts are highly recommended to increased consumer safety. The company works with a network of partners to generate the index that will give you the scores for your area with indicators of fraudulent mortgage trends happening currently.

Benefits of using the current annual report

The report is useful for keeping updated on the number of mortgage apps which show red flag warnings of fraudulent activity. It provides an analysis of the six major components of mortgage fraud including transaction, identity, occupancy, property, income, undisclosed real estate debt and additional information. The data is not only useful for borrowers but also for reputable lenders who wish to avoid falling victim to scam activities.

Final thoughts

Mortgage fraud is on the rise and there is evidence to show that it is happening in all sectors of the industry. Borrowers are committing these crimes to get a better deal or to enhance the resale value of property. Scam artists currently manufacture false or stolen identities to collect from lenders who must pass the loss on through higher associated fees to their customers. It also makes it harder to secure a loan because of the need for increased verification. Unethical real estate agents, mortgage brokers and lending officers use fraudeulent activites to enhance their commissions. Lenders and borrowers are all at significant risk and awareness of these issues is useful for understanding the risks and taking the appropriate preventative actions. Find out if you live in an area that is at a high risk. For more information, consult the CoreLogic website.