How To Evade Mortgage Fraud?

27 June, 2011

Ethical violation and criminal activities have influenced our economy a great deal for the past few decades specifically in the housing, financial, and banking sectors. These ethical and criminal issues also surround mortgage fraud. Fraud in its easiest meaning is the intentional misrepresentation of information, facts and figures. According to the Federal Bureau of Investigation (FBI), mortgage fraud is the misstatement, omission, and misrepresentation of material information regarding the property or mortgage with the intention to purchase, fund, or insurance of a loan. Both the industrial professional and the individual borrower may be involved in the execution of fraud.

Reasons For The Execution Of Mortgage Fraud:

There are many reasons which influence borrowers and professionals to commit fraud. Fraud for housing and fraud for profit are the two major factors from which we can explain these reasons.

Fraud for housing is usually executed by the borrowers with the help of loan officers or other lenders. They usually make omission or misrepresentation of the pertinent facts regarding the employment, debt and credit, income and the condition of the property etc. The sole purpose of doing so is to obtain and maintain their real estate ownership.

Fraud for profit is performed by industrial professionals who usually misrepresent or omit significant details about their clients income, debt and credit and the condition of their property in order to make maximum profit in a loan transaction. This type of fraud can be committed by any person in the loan transaction chain whether a real estate appraiser, property inspector, insurance agent, title company, real estate sales agent, loan officer, mortgage broker, attorney and escrow agent.

Usual Types Of Mortgage Frauds And Scams:

There are different types of mortgage fraud which includes property flipping, occupancy fraud and straw buyer scam. Property flipping is legal when is associated with the purchase of a house, fixing the house by making some essential repairs and then reselling it at a profit. But, if the house is purchased at a price which is less than the market price and instantly sold at more than market price with the assistance of a corrupt appraiser, who validate that the price of the house is double than the initial purchase cost, mortgage fraud takes place.In order to attain good bank status, the home owner asserts that his home will be owner occupied, but it remains empty afterwards. This is how occupancy fraud occurs. In a straw buyer scheme, a person usually by using his identity credit or income purchases a property for another buyer who does not meet the criteria. Investors normally use straw buyers either intentionally or innocently to conceal their different types of fraud.

The most usual types of fraud scams are identity theft and income/asset falsification. In identity theft, a buyer obtains the required finance by providing false information regarding social security number, birth dates, and addresses. It also includes stolen pay stubs, bank records, tax returns, falsified employment verification letters, and W2.

Ways To Reduce Mortgage Fraud:

There are a lot of legislations and laws at the state, federal and local level intended to lessen mortgage fraud. States requirement for loan officers licensing and continuing education is a major step. Different title, real estate, and insurance are watched by the government. Also audit for the transactions and activities of different types of mortgage lending companies have been conducted at regular intervals.

Impact Of Mortgage Fraud On Markets:

In order to realize the impact of mortgage fraud on financial institutions and housing and real estate industries, you have to study the details of 2008 subprime mortgage crisis. Studies relating to derivatives and mortgage-backed securities tell us about the failures of financial institution that goes after speculative lending which sometimes forms the basis of mortgage fraud.

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