Unmasking Mortgage Fraud: Types, Tactics, and Prevention

Mortgage fraud is a serious offense that jeopardizes the financial stability of individuals and institutions alike. Understanding the various tactics employed by fraudsters can help in identifying and preventing potential fraudulent activity. The activities are majorly categorized into two types: Fraud for Property and Fraud for Profit.

Two Main Types of Mortgage Fraud

1. Fraud for Property (Fraud for Housing)

Fraud for Property, often referred to as Fraud for Housing, typically involves borrowers making misrepresentations to acquire a mortgage. These misrepresentations usually pertain to their income, personal wealth, property valuation, or down payment authenticity. Borrowers guilty of this type of fraud nevertheless intend to eventually repay the loan.

Key Characteristics:

• False claims about income and personal debt
• Misrepresentations about property value
• Issues with the down payment source

Sometimes, professionals within the industry also coach borrowers to help them qualify for loans they wouldn’t normally secure. Fraud for Property/Housing accounts for roughly 20% of all mortgage fraud cases.

2. Fraud for Profit

Fraud for Profit is more industrial in scale, frequently perpetrated by seasoned thieves. These cases generally involve multiple loan transactions manipulated across various financial institutions. This type of fraud includes egregious misrepresentations concerning the borrower’s income, assets, collateral, or employment history.

Key Tactics Include:

• Overstating income and assets
• Claiming fictitious employments
• Assuming another person’s identity (commonly known as the straw man technique)
• Hidden borrower debts
• Inflated property values through faulty appraisals

In these scenarios, fraudsters often falsify the intention behind the property’s use. Instead of living in it—or ‘owner-occupying’ as claimed—it’s rented out or purchased for another individual (referred to as a nominee).

Red Flags and Prevention

To shield against mortgage fraud, it’s crucial to be vigilant about abnormal claims or missing documentation during mortgage transactions. Employing sophisticated background checks and using modern fraud detection software can provide substantial protection.

Frequently Asked Questions (FAQs)

What is the most common form of mortgage fraud?

The most prevalent form of mortgage fraud is Fraud for Property/Housing, where borrowers misrepresent their qualifications to secure a loan they intend to repay.

What actions can lenders take to prevent mortgage fraud?

Lenders should implement robust identity verification processes, mandate thorough employment checks, scrutinize property appraisals diligently, and employ state-of-the-art fraud detection systems.

What should borrowers do to avoid being victims of mortgage fraud?

Borrowers should ensure all submitted information is accurate, work with reputable financial institutions, and rigorously review all loan documentation for any inconsistencies or inaccuracies.

By staying informed about mortgage fraud tactics and remaining vigilant, both buyers and financial institutions can better protect against these fraudulent schemes.

Related Terms: flopping, fraud and flipping, loan fraud, straw man, nominee, appraisal fraud.