Mortgage fraud can range from simple misrepresentations of information on a loan application to complex schemes involving multiple parties collaborating to steal from lenders, as well as from consumers. Mortgage fraud can occur at almost every point in the process of a mortgage loan, from the initial sales listing to a loan origination and closing.
In fraud for-profit schemes, the seller is often the primary perpetrator of mortgage fraud. A seller, with assistance from others, may be able to orchestrate a higher appraised value for a property than warranted, may be able to steer a prospective buyer to a loan officer willing to overlook deficiencies in a borrower’s overall loan application and qualifications as a buyer, or may make other arrangements with borrowers to bypass more standard and stringent underwriting criteria. Sellers may also be able to manipulate the entire lending process by fronting straw buyers and falsifying information in each step of the process. Sellers in this situation often have help from someone “inside” the process, including real estate brokers, appraisers, loan officers, or underwriters friendly to the seller. In other situations, sellers sometimes recruit unsuspecting buyers to participate in their schemes with the promise of quick-and-easy returns through acquiring and flipping real estate. However, these unsuspecting investors are often left holding an overvalued property with an extensive mortgage that the investor neither intends to live in nor can afford.
Your next step is to understand what documentation or information in the loan process may be misrepresented (such as overstated property values, overstated borrower income, and so on). Fraud for housing schemes typically involve a misrepresentation or omission with regard to some part of the loan application—namely, a borrower’s qualifications. Common borrower misrepresentations include false claims of their personal income, liabilities, or assets to make them appear more creditworthy.
Regardless of the mortgage fraud scheme, the misrepresentations, omissions, or other deception likely occur in one of several areas, including the borrower’s qualifications to receive the loan, the value of the property in question, or the underlying credit score and credit-worthiness of the borrower. Most mortgage fraud schemes involve the manipulation of one or more of these processes, often with the assistance of sellers, appraisers, loan officers, and others.
Understanding in what part of the loan process the mortgage fraud may have occurred, who the suspected perpetrator is, and whether the perpetrator may have had, or would necessarily had to have had assistance from insiders, will determine what you look for in investigating the fraud. You’ll often focus on identifying altered documents, as well as identifying collusion with insiders through communications, payments (such as kickbacks), or other conflicts of interest.
As with other types of fraud, attempts may have been made to conceal the existence of altered documents or inappropriate relationships, and this is where computer forensics often plays a substantive role.
The most important thing to keep in mind when purchasing a home is to work with an experienced professional who you trust. This is always the best way to avoid mortgage fraud or other unethical practices.