Avoiding Mortgage Fraud

One thing that any mortgage shopper should be on the lookout for is mortgage fraud - intentionally trying to deceive a bank or lender who is extending or offering a mortgage loan to a consumer in order to positively affect the loan terms. You might think it is no big deal to fudge a little bit here and there about your income, your job, your credit status or something else on your loan and it is no big deal but it is a big deal. It is a federal crime to knowingly falsify any information on a loan application, and if you are caught doing it the penalties can be very severe, ranting from the mortgage lender demanding full payment of the loan immediately, massive fines, and possibly even the FBI showing up at your home one day and taking you off to prison.

Some of the most common types of mortgage fraud include kickbacks, silent second mortgages, and falsifying employment and/or income.

• Falsifying employment income: This is where a person whose income may be difficult to verify, relies on that fact in order to inflate their earnings numbers on a stated income loan. These loans were originally designed for people who are self-employed because verifying their income levels and employment through a third party would obviously be very hard to do. Many people commit this type of fraud in different ways ant different means every day. Fortunately, in this day and age of electronic technology and instant checks a lie on stated income levels is usually much easier to detect and correct than it used to be.
• Not occupying the property: Due to the simple fact that people are more motivated to pay and likely to pay off a mortgage for a home they are actually living in and could otherwise be evicted from, mortgage lenders will charge higher premiums to a home buyer who does not intend to live in the home or who is buying it as an investment property. Claiming that you will live in the home when you have no intention to is fraud.
• Undisclosed kickbacks: This is where the seller and the buyer conspire together for various reasons without disclosing to the bank the true nature of the loan that they seek. For example, if you do not have enough money for the closing costs, the home seller may, in agreement with you, increase the price of the home $10,000, then pay you the $10,000 cash for you to use as the down payment. Not only is this move not smart financially (because you end up paying interest on that $10,000 for decades, but it is also illegal and considered a serious form of fraud.
• Claiming a gift that you will repay: Often people will turn to family members or friends in order to receive the amount of money required for a mortgage down payment. The terms of this exchange of money is important to the lender because if it is a gift, it doesn't have to factor into your ability to repay the mortgage. If it is a loan, on the other hand, then it counts as debt and the lender needs to know about that when compiling your debt to income ratio. Lying about a sum of cash given to you for the mortgage process, either for the down payment or closing costs is a crime and constitutes mortgage fraud.

There are other types of mortgage fraud out there - basically they all boil down to the same act - telling your lender one thing instead of the truth in order to make your financial situation seem more favorable than it actually is. Whether you cook one of these schemes up on your own or if you are told to do it by someone else involved in the process, it is illegal and can get you into serious trouble. Do yourself a favor, consider the consequences and think twice before committing loan fraud.