The intentional misrepresentation of information by a buyer to deceive a lender in order to purchase a property for which they would not otherwise qualify in order to make a profit is known as mortgage fraud. Law enforcement investigates and prosecutes mortgage fraud as a criminal offense.
One of the largest purchases you will ever make is purchasing a home. Mortgages provide perpetrators with an easy opportunity to cut corners, deceive, and defraud for profit or purchase a home for which they would not otherwise qualify and they will do this all at your expense.
Financial institutions are required by numerous laws and regulations to monitor and identify mortgage fraud. To identify potential fraudulent transactions, they must adhere to specific policies and procedures.
Mortgage fraud is primarily investigated by the FBI. Based on the victim, the perpetrator, and the type of mortgage loan, additional government agencies will also investigate fraud.
The perpetrators of fraud employ a wide variety of techniques to steal money. One of them is mortgage fraud, which has grown by almost 40% since the pandemic. In 2008, mortgage fraud played a role in the Great Recession. What mortgage fraud is, the most common types of fraud, and how to avoid them are all covered in this article.
Mortgage fraud: what is it?
When someone intentionally omits or lies on a mortgage application, they commit mortgage fraud. “Crime characterized by some type of material misstatement, misrepresentation, or omission in relation to a mortgage loan which is then relied upon by a lender,” the FBI defines mortgage fraud. Mortgage fraud is when a lie influences a bank’s decision, such as whether to approve a loan, accept a lower payoff amount, or agree to certain repayment terms.
There are two main types of mortgage fraud:
Fraud for profit: This is the time when mortgage fraud is committed for financial gain. They are typically professionals in the industry, such as bank officers, mortgage brokers, appraisers, attorneys, loan originators, and others. These individuals typically have authority or specialized knowledge that enables them to commit the fraud. The objective is not to acquire housing; rather, it is to take advantage of the mortgage lending process to steal money from lenders and homeowners. Fraud committed for financial gain is given top priority by the FBI.
Fraud for housing: When people want to buy a house, they use mortgage fraud. They lie about their assets and income on mortgage applications. Additionally, they might persuade appraisers to alter a property’s appraised value.
Statistics on mortgage fraud According to the 2021 Mortgage Fraud Report from CoreLogic, Nevada has the highest rate of fraudulent mortgage application submissions. California, Hawaii, New York, and Hawaii complete the top five. One in 120 mortgage applications contained signs of fraud, up 37.2% from the previous year, according to the report.
One out of every 90 purchase applications shows signs of fraud, whereas one out of every 169 refinance applications does. When compared to the previous year, the risk for applications for purchase increased by 40% and for applications for refinance by approximately 20%. Investment properties have the highest risk, with one out of every 23 applications being fraudulent. Applications for loans backed by the VA carry the lowest risk.
As the housing market has heated up, mortgage fraud has skyrocketed. The cost of mortgage fraud is high, at $5.34 for every $1 spent on it by mortgage lenders. Nowadays, mobile and online channels account for more than half of all fraudulent transactions.