How far will people go to get the home of their dreams? According to a recent report, mortgage fraud is up by 12 percent! New York, New Jersey, Florida, New Mexico, and Washington, DC, are the states where mortgage fraud is most likely to occur.
On the Rise
CoreLogic analyzed data from the past year and discovered that one in every 109 mortgage applications seems to contain some attempt at fraud. They looked for indicators including identity, income, occupancy, property, transactions, and undisclosed real estate date. And they found that mortgage fraud is most definitely on the rise.
Fudging the Facts
But who is committing the fraud? It turns out that the culprits aren’t shady dealers or swindlers. Instead, these are bona fide borrowers who don’t see any other way to get the home they want. The debt-to-income limits imposed by mortgage lenders may be stopping these people from securing funding, so they fudge the facts.
How They Do It
Mortgage fraud shouldn’t be easy to commit. But thanks to the internet, a worrying number of buyers have found ways to exploit the system. There are internet sites that provide income falsification as a service. When someone from the mortgage company checks up on it, the sites will send fake pay stubs, letters of confirmation, and even answer questions over the phone. It’s a sophisticated scheme that makes it much harder to track down the truth.
Other borrowers lie about their employment history, claiming to have been a student before their current job. That makes it harder for lenders to get information from the IRS. Still other scammers invent fake jobs or wealthy relatives who just happen to give the borrower a “gift” of a down payment.
Severe Consequences
Obviously, the borrower should shoulder the consequences of their actions. If their mortgage fraud is discovered, they can expect to face problems with the IRS, their mortgage company, and possibly even the law. Mortgage fraud is punishable by up to 30 years in prison and a fine of $1 million. While most scams won’t get the maximum penalty, borrowers may still have to repay the entire mortgage in full if they get caught.
There are bigger-picture consequences as well. The real estate industry is vulnerable to mortgage fraud if it comes from wholesale brokers, as happened during the last boom right before the bubble burst. Brokers who gather the information and sell it to lending companies aren’t doing their due diligence at best, making them the biggest source of mortgage fraud in the industry.
