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Ethical violations and criminal activity in various sectors have affected our economy in recent decades, especially in the banking, financial, and real estate sectors. When it comes to financial crimes, mortgages offer ample opportunities for criminals to steal, swindle or take shortcuts. We examine the complex ethical and criminal issues surrounding mortgage fraud.

What is mortgage fraud?
Fraud in its simplest form is deliberate misrepresentation and deception: one part misleads another by misrepresenting information, facts, and figures. Therefore, mortgage fraud is not just predatory lending practices aimed at certain borrowers.

According to the Federal Bureau of Investigation (FBI), this is any kind of “misrepresentation, misrepresentation, or omission related to a potential property or mortgage on which an insurer or lender relies to finance, purchase, or insure a loan.”. With this definition of work, we see that mortgage fraud can be committed by both individual borrowers and industry professionals. And the sums involved are high. For example, in Sacramento, California, seven people were convicted of a $ 10 million mortgage scam in early 2019.

There are two different areas of mortgage fraud: fraud for profit and fraud at home.

Fraud for profit: Those who commit this type of mortgage fraud are often insiders in the industry who use their experience or authority to commit or facilitate the fraud. Current research and widespread reports indicate that a high percentage of mortgage fraud involves the collusion of industry experts, such as bank officials, appraisers, mortgage brokers, attorneys, loan providers, and other industry professionals. For-profit fraud is not intended to protect a home, but rather to abuse the mortgage lending process to steal money and assets from lenders or homeowners. The FBI prioritizes fraud over profit cases.

Housing fraud: This type of fraud is usually represented by illegal actions carried out by a borrower who is motivated to acquire or maintain ownership of a home. For example, a borrower may misrepresent income and asset information on a loan application or induce an appraiser to manipulate a property’s appraised value.

Why Commit a Mortgage Fraud?
Borrowers and professionals are motivated to commit mortgage fraud for many reasons. We can describe most of these reasons by defining two main types: real estate fraud and profit fraud. Housing fraud is perpetrated by borrowers who, with the help of loan officers or other staff, often misrepresent or omit relevant details about employment and income, debt and credit, or value and value. Property status to obtain or retain real estate. Profit fraud is committed by industry professionals who misrepresent, misrepresent, or omit relevant details about their work and personal or client income, debt, credit, or the value and condition of the property to maximize the benefits in a loan transaction.

It is important to note here that any professional in the chain of loan transactions can commit fraud for profit, including the builder, the real estate sales agent, the loan officer, the mortgage broker, the lender. Credit Advisor/debt, real estate appraiser, property inspector, insurance agent. Agent, business owner, attorney, and warranty agent. Industry professionals can also work together, as a network, to defraud insurers, lenders, and borrowers and maximize commissions and share in the benefits of all mortgage-related services. These actions are motivated by the desire to earn additional sales commissions or simply increase an investor position.

Common mortgage fraud and scam schemes
The most common investor mortgage fraud schemes are different types of property exchange, employment fraud, and figurehead scams.

Transfer of ownership is generally not illegal when associated with the purchase of a home, maintenance/remodeling, and then resale at a profit. On the other hand, when a property is purchased below market price and immediately sold at a profit with the help of a corrupt appraiser who “verifies” that the value of the property is twice the initial purchase amount, mortgage fraud is indicated.

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In the case of the same-day closing scheme, the chain of title and appraisal is often fraudulent and comprises three parties: the seller, the financier, and the unsuspecting end buyer. The seller enters into a contract with the pinball machine to purchase the property below market value. The flipper provides the end purchaser with a fraudulent title insurance pledge, showing the flipper as the owner (although this is not the case) and an assessment is made of the inflated price agreed upon between the pinball machine and the end purchaser.

The most common professional mortgage fraud scams in the industry are airline loans and appraisal fraud.

An airline loan is a loan taken out on non-existent property or for a non-existent borrower. Many times, a group of professionals will work together to create a fake borrower and fake chain of title, and to obtain a title and property insurance folder. In addition, the fraudulent chain may include telephone banks and mailboxes to create fake business checks, home addresses, and phone numbers of borrowers.

The air loan scam simply puts money in the hands of the perpetrators and never buys or sells any property.

Appraisal fraud often involves a real estate agent, builder, appraiser, and loan officer working together to maximize the purchase price and loan amount to increase your rates. On the other hand, corrupt appraisers often undervalue a property to ensure that another investor can buy the business.

Some forms of predatory lending, foreclosure, and mortgage reduction scams rely heavily on the aforementioned mortgage fraud practices. Predatory lending often involves lenders falsifying income data to misrepresent your ability to take on additional debt. These activities contributed greatly to the Great Recession.

Combating Mortgage Fraud
There is no shortage of local, state, or federal legislation designed to reduce mortgage fraud. States have recently taken a big step in requiring licensing and continuing education for loan officers. In addition, real estate, real estate, and insurance agencies are licensed and controlled by government agencies. Many states also require periodic audits of the activities and transactions of mortgage companies to monitor compliance.

Professional organizations such as the Mortgage Bankers Association (MBA) and the National Association of Mortgage Brokers (NAMB) have a peer-reviewed code of conduct and good practice. The FBI’s Economic Crimes-II Unit also oversees complaints and suspicious activity in the mortgage industry.

The bottom line
The good news is that we can improve our markets by reducing mortgage fraud. People should set realistic expectations for a home loan and property experience. Investors need to set realistic profit targets. Industry professionals must seek higher personal standards and submit to the responsibility of peer organization. Governments need to standardize legislation and reconcile law enforcement with active research.

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