Did you ever expect to become a con artist? Many have, by accident — falsified loan applications are the most commons type of mortgage con, legal publisher NexisLexis said in its NexisLexis Risk Solutions annual mortgage fraud report. Director Tim Coyle stated that 80 percent of mortgage fraud involves an industry insider, like a broker, loan officer, appraiser or real estate agent. However, it’s the borrower who signs on the bottom line.
Nearly three-fourths of mortgage fraud included the misrepresentation of borrower income, employment or intent to occupy the property. In addition, another 17 percent of scams were credit frauds, which means mortgage applications in which debt that didn’t appear on credit reports was not disclosed, or there was actual misinformation planted in the credit report.
The reason for this increase in fraud, says Mr. Doyle, is that lender guidelines have become so restrictive that those who stand to gain from a transaction, like appraisers, property investors, real estate agents and mortgage brokers, have increasingly resorted to fraud to shore up their profits. However, it’s borrowers whose signatures are on these loan documents who can end up in trouble most easily. Here’s what can happen.
Just One Little Lie
The Joneses (not their real names) wanted to purchase a house. Their credit scores were good, and they had no problem paying their bills with their income — probably because they have a boarder renting a room and a little side business, buying things at garage sales and selling them on eBay. However, the lender wouldn’t count the boarder income or the business earnings because neither of those things were listed on the Joneses’ tax returns.
The mortgage broker was stumped — in the past, he’d have just found them a stated income mortgage, but today those loans don’t exist. To get around this income problem, which he didn’t consider a “real” problem because they actually have the income, he “bumped up” the earnings on the Joneses mortgage application and added “new and improved” W-2s to the file. The couple was none the wiser, and they got their house. However, the loan was eventually audited, and the W-2s from the IRS didn’t match those in the loan file. The Joneses now have to defend themselves against a criminal charge.
Read Your Documents, or Go to Jail
All this could have been prevented by carefully reading before signing their application and their final loan documents.
- Never sign a blank mortgage application
- Never sign loan documents (the final paperwork contains a final mortgage application with the information used to grant the loan approval) without reading them and resolving discrepencies.
- Never let a real estate agent or lender talk you into misrepresenting anything — in no instance is that ever legal.
While the example above doesn’t seem so terrible (the underwriter wouldn’t count income that they truly earn, so are they really lying?), it’s still criminal. And underwriters have good reasons for disallowing that sort of income — because statistically, people relying on unstable sources of income default at a higher rate.
If the only way you can get loan approval is to lie, it’s flat-out fraud. Don’t go there.
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