Last week in our mortgage fraud series we discussed what mortgage fraud is. With an understanding of what fraud is we can turn to the question of what types of fraud exist and why people commit fraud. Mortgage fraud comes in many different forms and can derive from any of the parties involved in the mortgage acquisition process -- buyers, sellers, investors, property developers, appraisers, real estate agents, creditors, lenders, etc. -- so it is important that all parties involved in the mortgage process recognize key signs of fraud and stay informed of the procedures for prevention.
Emerging fraud trends: Mortgage fraud continues to be one of the fastest growing crimes in the United States and is generally classified into one of three categories:
- Fraud for housing or property
- Fraud for profit
- Fraud for criminal enterprise
Each fraud type is unique based upon the intent of the fraud scheme and the perpetrators involved.
Fraud For Housing
Fraud for housing, also known as fraud for property, is mainly committed by borrowers. Fraud schemes in this category often entail a borrower providing false information about employment, income or assets in order to qualify for a loan. A borrower, wanting to purchase a property that they know they cannot afford, may fabricate income and/or falsify assets in the mortgage application documents to qualify for a larger loan amount. This is an example of fraud for housing.
Common themes of fraud for housing schemes:
- Perpetrators may include the borrower and/or loan officer
- Normally involves a single loan
- Contains loan-level misrepresentations to qualify
- Borrower intends to repay - the loan usually does not default
- The appraised value is not typically inflated at origination
Fraud For Profit
Fraud for profit, also known as "industry insider fraud", is the most costly type of fraud. These schemes often involve a group of people who play multiple roles in the fraud. The initiators often receive a larger percentage of the profit while others may be paid smaller but substantial for their part in the misrepresentation. For example, a mortgage broker may partner with a loan processor to create a fictitious credit profile and collude with an appraiser to inflate the property value.
Common themes of fraud for profit schemes
- Often involves multiple industry professionals/insiders
- Fraud is committed throughout multiple transactions
- Includes numerous misrepresentations and omissions
- The borrowers involved may be unaware of the scheme
- Participants are often well compensated for the role they played
- Property appraisals contain misrepresentations or value issues
- Participants may include straw borrowers who do not intend to repay the loan
Fraud For Criminal Enterprise
Fraud for criminal enterprise is a growing trend involving participants attracted by the opportunity for greater profits, fewer dangers than commonly associated with violent crime, and reduced sentencing or jail time.
Common themes of fraud for criminal enterprise schemes:
- Perpetrators of this type of fraud often include members of criminal organizations who temporarily conceal the identity, source and/or destination of money by laundering it through real estate transactions.
- This includes three basic steps of money laundering:
- Placement - placing large amounts of illegally obtained funds into the financial system by virtue of mortgage fraud
- Layering - buying properties with "dirty" money and reselling them without intent to inflate value
- Integration - requesting the refund of principal reduction payments
In conjunction with the launch of our recently updated Mortgage Fraud class online we will continue to discuss mortgage fraud in greater detail. Next week we will discuss the scope of the mortgage fraud problem.
Click Here for more information on our recently updated Mortgage Fraud class online, available for 6 hours of MRE, Master of Real Estate Credit. And don't forget that our updated Mortgage Fraud course online is discounted through the month of May. We also offer many discounts on Twitter or Facebook.
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