In an effort to deter mortgage fraud the FBI has listed (from their investigations) typical fraud schemes. Some are listed below:
Backward Applications: After identifying a property to purchase, a borrower customizes his/her income to meet the loan criteria.
In effect the borrowers determine from the lender what the criteria should be to qualify for the mortgage loan. Then income is "customized" or fabricated to meet the criteria. This sort of fraud is usually a single loan fraud. The fraud can involve others - as mortgage professionals may coach the borrower thus participating in the fraud.
In many cases, as I've addressed mortgage industry professionals, we find that such frauds involve the mortgage broker knowing that they are paid based on production and production can't take place without sufficient income.
Air Loans: These are non-existent property loans where there is usually no collateral. An example would be where a broker invents borrowers and properties, establishes accounts for payments and maintains custodial accounts for escrows. They may set up an office with a bank of telephones, each one used as the employer, appraiser, credit agency, etc. for verification purposes.
These loans represent a clear intent to commit fraud. Many convictions this past year have involved the complete creation of fabricated documentation. Other than "money for nothing" these frauds when caught will result in prison time.
While presentations to industry professionals focus on various types of frauds and the consequences that follow...rarely have I seen this other than from experienced criminals.
The last fraud scheme identified by the FBI that will be reviewed in this blog is:
Silent Seconds: The buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage. The primary lender believes the borrower has invested his own money in the down payment, when in fact, it is borrowed. The second mortgage may not be recorded to further conceal its status from the primary lender.
This fraud is common especially with first time home buyers, low income buyers or those who are new at investing in real estate for profit. In some cases, borrowers don't see the fraud involved in this scheme. Based on experience there are two types of people involved: (1) folks who, as first time buyers, borrow the money from relatives and knowingly don't disclose to the lender (otherwise they wouldn't qualify) or (2) folks who clearly don't have the fund to purchase the real estate and use funds (401(k) loans, personal loans from relatives or friends. or personal loans from undisclosed lenders.
For information about presentations related to ethics choices and mortgage fraud contact Chuck Gallagher at http://www.chuckgallagher.com