Mortgage fraud
Mortgage fraud refers to an intentional misstatement, misrepresentation, or omission of information relied upon by an underwriter or lender to fund, purchase, or insure a loan secured by real property.
It is considered fraud because the borrower has materially misrepresented the risk to the lender to obtain more favorable loan terms.
This omission of liabilities artificially lowers the debt-to-income ratio, which is a key underwriting criterion used to determine eligibility for most mortgage loans.
Fraud for profit: A complex scheme involving multiple parties, including mortgage lending professionals, in a financially motivated attempt to defraud the lender of large sums of money.
In other cases, naive "investors" are lured into the scheme with the organizer's promise that the home will be repaired, repairs and/or renovations will be made, tenants will be located, rents will be collected, mortgage payments made and profits will be split upon sale of the property, all without the active participation of the straw buyer.
When overstated, more money can be obtained by the borrower in the form of a cash-out refinance, by the seller in a purchase transaction, or by the organizers of a for-profit mortgage fraud scheme.
As a result, the lender lends too much, and the buyer pockets the overage or splits it with other participants, including the seller or the real estate agent.
Shotgunning: Occurs when multiple loans for the same home are obtained simultaneously for a total amount that may be in excess of the actual value of the property.
[6] Working the gap: A technique which entails the excessive lien stacking knowingly executed on a specific property within an inordinately narrow timeframe, via the serial recording of multiple Deeds of Trust or Assignments of Note.
A title search done by any lender immediately prior to the respective loan, promissory note, & deed recording would thus erroneously fail to show the alternate liens concurrently in the queue.
White-collar criminals who utilize this technique will frequently claim innocence based on clerical errors, bad record keeping, or other smokescreen excuses in an attempt to obfuscate the true coordination & intent inherent in this version of mortgage fraud.
Dishonest and unreputable stakeholders may encourage and assist borrowers in committing fraud because most participants are typically compensated only when a transaction closes.
[8] In 2004, the FBI warned that mortgage fraud was becoming so rampant that the resulting "epidemic" of crimes could trigger a massive financial crisis.
[9] According to a December 2005 press release from the FBI, "mortgage fraud is one of the fastest growing white-collar crimes in the United States".
