What is mortgage fraud and how to avoid it
What is mortgage fraud?
Mortgage fraud happens when borrowers misrepresent themselves in order to get a mortgage. The FBI defines it as, “material misstatement, misrepresentation, or omission in relation to a mortgage loan which is then relied upon by a lender”.
That’s a pretty broad definition, as it can relate to a number of things, from lying about your income to bribing an appraiser to change a value’s assessed property.
How common is it?
About 1 in 109 mortgage applications have indications of fraud, according to a recent report by Core Logic in 2018. That was a 12% increase over the same time period in 2017.
What are the main types of fraud?
The most common type of mortgage fraud is income fraud. This is when a borrower misrepresents the amount of income, regularity of income or source of income in order to get a loan. Income fraud can help a borrower get a bigger loan, based on income that isn’t real or expected, or qualify for a loan in general.
Other types of mortgage fraud are occupancy fraud, when a borrower lies about the intended use of a property, transaction fraud, which is when the nature of the transaction is misrepresented (undisclosed agreements between parties, etc.), property fraud, when information about the property or its value are misrepresented, undisclosed real estate debt, when a borrower doesn’t disclose other real estate debt or foreclosure, and identity fraud, which is when a applicant’s identity is altered or credit history is altered.
What is the punishment for mortgage fraud?
If a borrower commits mortgage fraud, 81% of them are sentenced to jail time. The average length of a sentence, according to a 2017 report by the United States Sentencing Commission was 20 months.
Most people convicted of this type of fraud had no or little prior criminal history – 83%.
How can you avoid committing mortgage fraud?
Make sure all of your statements when applying for a loan are 100% factual. Don’t let someone else fill out your application for you, and don’t “bend” the truth. If you don’t quite qualify for the mortgage you want, find another lender or take some time to get your financial situation in order so that you can qualify truthfully. There are very effective things you can do to get your credit score up, for example.
If you don’t have the income, don’t lie and say that you have alternate income sources, or that they are coming more regularly than they are. Make sure the purpose of the property is truly the one you intend to use it for. Mortgage fraud is serious business and you don’t want to fudge any details.
Go over your loan application with a fine tooth comb to make sure it is 100% accurate. It’s not a risk worth taking!
My husband and I are looking to purchase a house, but his credit sucks. Is it fraud to not include him on the loan application?
Hi Tany, No, it isn’t fraud to exclude a spouse on the loan application whose credit is not so hot. In fact, it happens a lot that one spouse has better credit, and the mortgage is in their name only. What you do is apply for the mortgage in only your name, but that usually means that your own income must be enough to quality for the loan. Also, it’s worth learning about the pros and cons of having one spouse on the mortgage (and/or deed), just so there’s no confusion down the road. Here’s an article we have on that subject.