Mortgage Fraud
The intention of mortgage fraud is typically to receive a larger loan amount than would have been permitted if the application had been made honestly. Aside from lying on a loan application, other types of mortgage fraud include: Straw buyers are loan applicants used by fraud perpetrators to obtain mortgages and are used to disguise the true buyer or the true nature of the transaction. An air loan is a loan to a straw or non-existent buyer on a non-existent property. A double sale is the sale of one mortgage note to more than one investor. Illegal property flipping occurs when property is purchased and resold quickly at an artificially inflated price, using a fraudulently inflated appraisal. In addition to individuals committing mortgage fraud, large scale mortgage fraud schemes are not uncommon. In short sale fraud, the perpetrator profits by concealing contingent transactions or falsifying material information, including the true value of the property, so the servicer cannot make an informed short sale decision. The FBI and other enforcement agencies charged with investigating mortgage fraud, particularly in the wake of the 2008 housing market collapse, have broadened the definition to include fraud targeting distressed homeowners.
Definition of Mortgage Fraud
The intention of mortgage fraud is typically to receive a larger loan amount than would have been permitted if the application had been made honestly. For example, by intentionally falsifying information on a mortgage application. Mortgage fraud schemes include straw buying, air loans, and double-sales.
In addition to individuals committing mortgage fraud, large scale mortgage fraud schemes are not uncommon. In 2008, the U.S. Department of Justice and Federal Bureau of Investigation (FBI) initiated "Operation Malicious Mortgage" as a special operation to investigate and prosecute 144 cases of mortgage fraud. Penalties for mortgage fraud include fines, restitution and prison time with sentences of 28 months on average. There are two distinct areas of mortgage fraud.
Fraud for profit
Perpetrators of this type of fraud are often industry insiders using their specialized knowledge or authority. These insiders include bank officers, appraisers, mortgage brokers, attorneys, loan originators, and other professionals engaged in the mortgage industry. Fraud for profit aims not to secure housing, but rather to misuse the mortgage lending process to steal cash and equity from lenders or homeowners. The FBI prioritizes fraud for profit cases.
Fraud for housing
This type of fraud is typically represented by illegal actions taken by a borrower motivated to acquire or maintain ownership of a house. For example, the borrower may misrepresent income and asset information on a loan application or entice an appraiser to manipulate a property's appraised value.
Breaking Down Mortgage Fraud
Mortgage fraud is a financial crime that entrails the falsifying of loan documents, or otherwise trying to illegally profit from the mortgage loan process. The FBI considers fraud to be a material misstatement, misrepresentation or omission in relation to a mortgage loan which is then relied upon by a lender. A lie that influences a bank's decision — for example, about whether to approve a loan, accept a reduced payoff amount, or agree to certain repayment terms — is mortgage fraud. The FBI and other enforcement agencies charged with investigating mortgage fraud, particularly in the wake of the 2008 housing market collapse, have broadened the definition to include fraud targeting distressed homeowners.
Aside from lying on a loan application, other types of mortgage fraud include:
Related terms:
Affinity Fraud
An affinity fraud is an investment scam in which a con artist targets members of an identifiable group based on things such as race, age and religion. read more
Air Loan
An air loan is a fraud scheme in which a mortgage broker invents both a property and a borrower in order to earn false profits. The lending bank ends up losing everything, because the home it would normally hold as collateral on which to foreclose does not exist. read more
Appraisal Fraud
Appraisal fraud is a form of mortgage fraud, whereby the value of a home is deliberately appraised above its market value. read more
Introduction to Flipping
Flipping is short-term ownership of an asset hoping to turn a quick profit. Discover more about Flipping here. read more
Foreclosure
Foreclosure is the legal process by which a lender seizes and sells a home or property after a borrower is unable to fulfill their repayment obligation. read more
Occupancy Fraud Defintion
Occupancy fraud is a type of mortgage fraud, whereby the borrower lies about whether or not the home will be owner occupied. read more
Ponzi Scheme (Fraudulent Investing Scam)
A Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors. read more
Proprietary Reverse Mortgage
A proprietary reverse mortgage is a loan that allows seniors to draw on their homes' equity. It is not federally insured like most reverse mortgages. read more
Purchase-Money Mortgage
A purchase-money mortgage is a mortgage issued to the borrower by the seller of the home as part of the purchase transaction. read more
Short Sale (Real Estate)
In real estate, a short sale is when a homeowner in financial distress sells their property for less than the amount due on the mortgage. read more