Mortgage fraud is a growing concern for homeowners and prospective home buyers alike. It can result in serious financial losses, damage to your credit score, and even the loss of your home. Whether you’re in the proces of buying a home or are a homeowner looking to refinance, it’ s important to be aware of the signs of mortgage fraud and to take steps to protect yourself. In this post, we ‘ll dive into the world of mortgage fraud and provide you with the essential tips and advice you need to keep your home and finances safe
- What is Mortgage Fraud and How Does it Happen?
- Common Types of Mortgage Fraud Schemes
- Red Flags: How to Spot the Signs of Mortgage Fraud
- Reporting Mortgage Fraud: Taking Action to Prevent Further Damage
What is Mortgage Fraud and How Does it Happen?
It’ s important to be aware of these common types of mortgage fraud schemes so that you can protect yourself and your finances from becoming victim. Additionaly, it’s a good idea to thoroughly research any mortgage offer or loan opportunity before accepting it and to verify the accuracy of all information provided in the loan application and other mortgage documents.
Mortgage fraud is a criminal act in which someone deliberately provides false information in order to secure a mortgage loan or to obtain a larger loan than they would have been eligible for with accurate information. Mortgage fraud can happen in a number of different ways and can be committed by anyone involved in the mortgage process, including borrowers, lenders, real estate agents, and apraisers.
One common type of mortgage fraud is called “income fraud,” in which the borrower deliberately inflates their income in order to qualify for a larger loan. Another type of mortgage fraud is “property fraud,” in which the borrower or someone else involved in the transaction provides false information about the property, such as its value, ownership, or use.
Mortgage fraud can have serious consequences for both the borrower and the lender. For the borrower, it can result in higher monthly payments, the possibility of foreclosure, and damage to their credit score. For the lender, it can result in significant financial losses and a damaged reputation.
It’s important to be vigilant and to thoroughly research any mortgage offer or loan opportunity before accepting it. Additionally, it’s a good idea to obtain a property appraisal from a reputable source and to verify the accuracy of all information provided in the loan application and other mortgage documents.
Common Types of Mortgage Fraud Schemes
Several common types of mortgage fraud schemes that homeowners and prospective home buyers should be aware of:
Income Fraud: This is when the borrower deliberately inflates their income in order to qualify for a larger loan.
Property Fraud: This is when the borrower or someone else involved in the transaction provides false information about the property, such as its value, ownership, or use.
Appraisal Fraud This is when the appraiser provides an artificialy inflated property value in order to secure a larger loan for the borrower.
Identity Theft: This is when someone uses the personal information of another individual to obtain a mortgage loan in their name.
Straw Buyer Schemes: This is when a fraudster recruits a “straw buyer ” to pose as the borrower in order to obtain a mortgage loan.
Foreclosure Rescue Scams: This is when a fraudster offers to “rescue” homeowners who are in foreclosure by refinancing their mortgage, but instead steals their equity and leaves them in even more dire financial straits.
Phantom Help Scams: This is when a fraudster offers to help the borrower avoid foreclosure by providing temporary financial assistance, but instead steals their home through a phantom deed transfeer.
Red Flags: How to Spot the Signs of Mortgage Fraud
Mortgage fraud is a serious issue that can lead to financial loss and damage to your credit score Here are some red flags to watch out for when you’re applying for a mortgage:
Pressure to falsify information: If the lender or broker pressures you to falsify information on your loan application, such as your income or employment status, this is a red flag.
Requests for personal information Be wary of lenders or brokers who ask for personal information, such as your Social Security number, before you’ve even decided to apply for a loan.
Guaranteed approval: If a lender or broker guarantees approval for a loan, this is a red flag. No one can guarantee loan approval as it depends on many factors such as your credit score, income, and debt-to-income ratio.
Upfront fees: If a lender or broker asks for an upfront fee before approving a loan, this is a red flag. Legitimate lenders do not charge fees until the loan is approved and closed.
Unusual terms If the terms of the loan are significantly better than what you’d expect, this could be a red flag. For example, if a lender offers you a loan with a low interest rate and no money down, it could be a sign of fraud.
Lack of documentation: If a lender or broker does not require documentation to verify your income, employment, or other information, this is a red flag.
Unusual commission structures: If a broker or lender offers a high commission for obtaining a loan, this could be a sign of fraud.
Quick closing dates: If a lender or broker is pushing for a quick closing date, it could be a sign of fraud. Legitimate lenders will give you enough time to review and understand the loan documents.
Unusual loan products: If a lender or broker is offering unusual loan products, such as negative-amortization loans, interest-only loans, or option ARM loans, it could be a sign of fraud.
Hidden fees: If a lender or broker is not transparent about the fees associated with the loan, this is a red flag.
Inconsistent information: If the information provided by the lender or broker is inconsistent or contradicts information from other sources, this is a red flag.
Refusing to answer questions: If a lender or broker refuses to answer questions or provide information about the loan, this is a red flag.
No physical office: If a lender or broker operates only online or over the phone, it could be a sign of fraud. Legitimate lenders and brokers will have a physical office where you can meet with them.
Poor communication: If a lender or broker is difficult to reach or unresponsive, it could be a sign of fraud.
Unprofessional behavior: If a lender or broker is unprofessional, such as using high-pressure tactics or making false promises, this is a red flag.
No licensing or credentials: If a lender or broker is not licensed or doesn’t have the proper credentials, it could be a sign of fraud.
Unusual payment arrangements: If a lender or broker is asking for payments to be made to an individual rather than a company, or to an offshore account , this is a red flag.
Suspicious references: If a lender or broker provides suspicious references, such as a fake business name or an individual’s name instead of a company’s name, this is a red flag.
No verifiable contact information: If a lender or broker does not have verifiable contact information, such as a physical address or telephone number , this is a red flag.
Email scams: If you receive an unsolicited email from a lender or broker, or if the email appears to be from a legitimate company but the sender’s address is different, this is a red flag.
Unfamiliar with the loan process: If a lender or broker is unfamiliar with the loan process or cannot explain the terms of the loan, this is a red flag.
No written loan estimate: If a lender or broker does not provide a written loan estimate, this is a red flag. Legitimate lenders will provide a written estimate of the fees and costs asociated with the loan.
No credit check: If a lender or broker does not check your credit history, this is a red flag. Legitimate lenders will always check your credit history as part of the loan process.
No appraisal: If a lender or broker does not require an appraisal of the property, this is a red flag. Legitimate lenders will always require an appraisal to determine the value of the property.
No title search: If a lender or broker does not require a title search, this is a red flag. Legitimate lenders will always require a title search to ensure that the property is free of liens and encumbrances
No insurance: If a lender or broker does not require insurance on the property, this is a red flag. Legitimate lenders will always require insurance to protect their investment in the property.
No escrow account: If a lender or broker does not require an escrow account, this is a red flag. Legitimate lenders will always require an escrow account to hold funds for taxes and insurance.
No title insurance: If a lender or broker does not require title insurance, this is a red flag. Legitimate lenders will always require title insurance to protect their investment in the property.
No closing disclosure: If a lender or broker does not provide a closing disclosure, this is a red flag. Legitimate lenders will always provide a closing disclosure that lists all of the fees and costs asociated with the loan.
No closing documents: If a lender or broker does not provide closing documents, this is a red flag. Legitimate lenders will always provide closing documents, such as the promissory note, mortgage, and deed of trust.
High interest rates: If a lender or broker is offering interest rates that are significantly higher than market rates, this is a red flag.
Unfavorable terms: If a lender or broker is offering loan terms that are unfavorable or appear to be designed to take advantage of the borrower, this is a red flag.
Pressure to sign quickly: If a lender or broker is pressuring you to sign the loan documents quickly without reviewing them, this is a red flag.
Refusing to provide a Good Faith Estimate (GFE ): If a lender or broker is refusing to provide a Good Faith Estimate, this is a red flag. Legitimate lenders will always provide a GFE that outlines the estimated costs of the loan.
Refusing to provide a Truth in Lending Statement ( TIL): If a lender or broker is refusing to provide a Truth in Lending Statement, this is a red flag. Legitimate lenders will always provide a TIL that outlines the terms of the loan.
Requiring up-front payments: If a lender or broker is requiring up-front payments, such as application fees or appraisal fees, this is a red flag. Legitimate lenders will typically collect these fees at closing or roll them into the loan.
Unclear ownership of the company: If the ownership of the lender or broker is unclear or there is a lack of transparency about the company structure, this is a red flag.
No physical closing: If a lender or broker is refusing to conduct a physical closing or is offering to close the loan remotely, this is a red flag. Legitimate lenders will always require a physical closing where you sign the loan documents in person.
Using unlicensed or unregistered individuals: If a lender or broker is using unlicensed or unregistered individuals to originate loans, this is a red flag. Legitimate lenders and brokers will only use licensed and registered individuals.
Pressure to falsify information: If a lender or broker is pressuring you to falsify information on your loan application, this is a red flag. Falsifying information on a loan application is illegal and can result in serious consequences.
Requiring you to purchase additional products or services: If a lender or broker is requiring you to purchase additional products or services, such as credit insurance or home warranty, this is a red flag.
Refusing to provide documentation: If a lender or broker is refusing to provide documentation, such as loan disclosures or loan estimates, this is a red flag. Legitimate lenders will always provide all necessary documentation.
Inconsistent information: If a lender or broker is providing inconsistent information, such as changing interest rates or loan terms, this is a red flag.
Unusual fees: If a lender or broker is charging unusual or unexplained fees, such as processing fees or documentation fees, this is a red flag.
Requesting personal information: If a lender or broker is requesting personal information, such as your Social Security number or bank account information, without a valid reason, this is a red flag.
No documentation of your income: If a lender or broker is not requiring documentation of your income, such as pay stubs or tax returns, this is a red flag . Legitimate lenders will always require proof of income.
Offering to finance more than the property is worth: If a lender or broker is offering to finance more than the property is worth, this is a red flag.
Requesting a large down payment: If a lender or broker is requesting a large down payment, especialy before the loan is approved, this is a red flag.
Refusing to put the terms of the loan in writing: If a lender or broker is refusing to put the terms of the loan in writing, this is a red flag. Legitimate lenders will always provide written documentation of the loan terms.
Pressure to use a specific title company: If a lender or broker is pressuring you to use a specific title company, this is a red flag. Legitimate lenders will allow you to choose your own title company.
Requesting cash or wire transfer for payment: If a lender or broker is requesting payment in cash or by wire transfer, this is a red flag. Legitimate lenders will accept payment by check or electronic transfer.
Refusing to provide a loan agreement: If a lender or broker is refusing to provide a loan agreement, this is a red flag. Legitimate lenders will always provide a written loan agreement that outlines the terms of the loan.
Requesting that you sign blank forms: If a lender or broker is requesting that you sign blank forms or incomplete forms, this is a red flag.
Lack of transparency about loan terms: If a lender or broker is not being transparent about the loan terms, such as the interest rate, payment schedule, or loan amount, this is a red flag.
Unclear or confusing loan documentation: If the loan documentation is unclear or confusing, this is a red flag. Legitimate lenders will provide clear and straightforward loan documentation.
Unusual loan repayment terms: If the loan repayment terms are unusual or do not align with industry standards, this is a red flag.
Requesting that you sign a loan agreement without reading it: If a lender or broker is requesting that you sign a loan agreement without reading it, this is a red flag. Legitimate lenders will allow you sufficient time to review the loan agreement before signing it.
Pressure to sign the loan agreement outside of normal business hours: If a lender or broker is pressuring you to sign the loan agreement outside of normal business hours, this is a red flag.
Offering to refinance your loan quickly: If a lender or broker is offering to refinance your loan quickly or soon after the loan is originated, this is a red flag.
No record of the loan: If there is no record of the loan or the lender or broker can not provide proof that the loan has been approved, this is a red flag.
No physical address or phone number: If the lender or broker does not have a physical address or phone number, this is a red flag.
Pressure to obtain a higher loan amount: If a lender or broker is pressuring you to obtain a higher loan amount than you need or can afford, this is a red flag.
Offering to waive your closing costs If a lender or broker is offering to waive your closing costs, this is a red flag. Closing costs are an important part of the mortgage process and cannot be waived.
Refusing to provide a loan estimate: If a lender or broker is refusing to provide a loan estimate, this is a red flag. Legitimate lenders will always provide a loan estimate that outlines the costs of the loan.
Unusual or high fees: If a lender or broker is charging unusual or high fees, such as broker fees or origination fees, this is a red flag.
No credit check or income verification: If a lender or broker is not performing a credit check or income verification, this is a red flag. Legitimate lenders will always perform a credit check and verify your income.
No lender identification number (L ID): If a lender or broker does not have a lender identification number (LID), this is a red flag. Legitimate lenders will always have a LID.
Pressure to use a specific appraiser: If a lender or broker is pressuring you to use a specific appraiser, this is a red flag.
Reporting Mortgage Fraud: Taking Action to Prevent Further Damage
If you suspect mortgage fraud, it’s important to take action to prevent further damage. Here are some steps you can take:
Report the fraud: Contact the Federal Bureau of Investigation ( FBI), the Department of Housing and Urban Development (HUD), and/or the Consumer Financial Protection Bureau (CFPB ) to report the fraud.
- Gather documentation: Collect any documents that support your claim of fraud, such as loan applications, mortgage statements, and other relevant paperwork.
- Notify your lender: If you have a loan in place, notify your lender of the fraud immediately. They may be able to take steps to prevent further damage.
- Contact your state attorney general: If the fraud involved a state- licensed mortgage broker, contact your state attorney general’s office for assistance.
- Contact a lawyer: Consider contacting a lawyer for guidance on what steps you should take and what your legal rights are.
- Protect your credit: Keep a close eye on your credit reports to ensure that no one is using your personal information to obtain credit in your name.
- Be wary of further attempts Be cautious of any future attempts to obtain your personal information, as the person who committed the fraud may try to do so again
- Cooperate with the authorities: If the authorities are investigating the fraud, cooperate with them fully and provide them with any information or documentation that they request
- Stay informed: Stay informed about developments in the case and continue to take steps to protect yourself from further harm.
- Install a VPN
Taking these steps can help you prevent further damage from mortgage fraud and bring those responsible justice.