Definition
Mortgage fraud refers to intentional misrepresentation, deception, or omission of information connected to the financing or purchasing of a property. Perpetrators often deceive a bank, lender or another borrower to make financial gains or obtain a mortgage loan they would not ordinarily be eligible for. This is a serious criminal offense punished by extensive fines or imprisonment.
Key Takeaways
- Mortgage Fraud involves providing false, incomplete, or incorrect information during the mortgage application process with the intention of getting a loan amount or conditions you would not otherwise qualify for.
- Mortgage Fraud is a serious crime with significant penalties, including substantial fines and possible imprisonment. It negatively impacts lenders, the housing market, and can even contribute to economic crises.
- Common examples of mortgage fraud include income inflation, occupancy fraud, appraisal fraud, and identity theft. To protect yourself from becoming a victim, always provide accurate information during the mortgage application process and work with reputable financial institutions and advisors.
Importance
Mortgage fraud is a critical financial term due to its significant impact on the economy, the housing market, and individual lives. It encompasses deceptive practices involving misrepresentation, lying, or omission during the mortgage lending process to obtain a loan that would otherwise not be granted.
The importance lies in its potential to bring about unstable financial and housing markets, similar to what was observed during the 2008 financial crisis. Mortgage fraud could lead to increased foreclosure rates, which disrupts communities and leads to decreased property values.
On an individual level, it can result in severe financial harm, including damaged credit, substantial fines, or even imprisonment. Therefore, understanding mortgage fraud is vital for both safeguarding the economy’s stability and protecting personal financial wellbeing.
Explanation
Mortgage fraud refers to a broad range of intentional deceptions, misrepresentations, or omissions in the application, documentation, or processes involved in securing a mortgage loan. The principal purpose of such fraud is primarily to secure a loan or obtain a larger loan amount than would have been possible with accurate, valid information. This might allow the fraudster to buy a property without investing their own money, or to pocket excess loan funds.
Mortgage fraud is a criminal offense, as it significantly disruptifies the function of the real estate market and lending institutions, and often results in substantial losses for lenders and potentially other parties. There are multiple ways mortgage fraud can be executed. For instance, the borrower might exaggerate their income or assets, or the value of the property might be falsely inflated.
Alternatively, a fictitious identity could be used to apply for the loan. Although the ultimate goal may vary from case to case and depend on the individual or group committing the fraud, it always involves skirting the guidelines or laws surrounding the mortgage lending process in order to gain financial or property benefits. It’s important to note that victims of mortgage fraud can face serious consequences including loss of their investment, damage to their credit, or even legal repercussions.
Examples of Mortgage Fraud
Lee Farkas Case: The former chairman of Taylor, Bean & Whitaker, Lee Farkas, was found guilty of mortgage fraud. He orchestrated a $
9 billion scheme that involved selling fake mortgage assets and causing significant losses for several financial institutions. The fraud contributed to the collapse of Colonial Bank, which marked the sixth-largest bank failure in US history.
Countrywide Financial Scandal: During the 2008 financial crisis, Countrywide Financial was one of the financial firms caught up in significant mortgage fraud controversy. Their VIP program allegedly gave mortgages with favorable terms to influential figures, in exchange for political favors. Additionally, they were accused of predatory lending and approving high-risk loans to unqualified buyers, contributing significantly to the housing market crash.
Marc Drier Case: Marc Drier, a high-profile lawyer, was sentenced to 20 years in prison for a fraudulent scheme involving the sale of fictitious promissory notes. He deceived victims into purchasing these notes by providing fraudulent documents indicating the notes were secured by mortgages, while they were in fact worthless. He managed to accumulate over $400 million from investors and financial institutions through this scheme.
Mortgage Fraud FAQ
1. What is Mortgage Fraud?
Mortgage Fraud is a criminal offense and generally occurs when a potential homebuyer, seller, or lender provides false or inaccurate information to complete the mortgage transaction. The two primary categories are fraud for profit and fraud for property/housing.
2. How does Mortgage Fraud occur?
Mortgage Fraud can happen in several ways, such as income inflation, non-disclosure of liabilities, occupancy fraud, purchase loans as refinanced loans, and so on. The intention behind such fraud is typically economic gain.
3. What are the consequences of Mortgage Fraud?
The Consequences of Mortgage Fraud could be severe, including criminal prosecution and significant fines. Outside of legal ramifications, individuals involved in mortgage fraud can expect damaged credit scores and decreased trust from future lenders.
4. How can Mortgage Fraud be prevented?
Putting truthful information in your application, researching the lenders, and thoroughly reading all parts of the documents provided can help prevent mortgage fraud. If unsure, it’s always wise to consult real estate or legal professionals.
5. What should I do if I suspect Mortgage Fraud?
If you suspect or witness mortgage fraud, you should report it. Various agencies accept reports of mortgage fraud, including local law enforcement, the FBI, and the Federal Trade Commission (FTC).
Related Entrepreneurship Terms
- Falsified Documents: These are the false papers or information used to deceive mortgage lenders.
- Identity Theft: This refers to stealing someone else’s personal information to secure mortgage loans fraudulently.
- Foreclosure Rescue: This is a scam wherein fraudsters target homeowners who are facing foreclosures with the promise of assistance or salvation, but instead exploit them for their own profit.
- Predatory Lending: This involves mortgage lenders deliberately deceiving or manipulating borrowers into taking unaffordable or unnecessary loans.
- Property Flipping: This refers to purchasing properties with the intention of reselling them for significant profit. If done fraudulently, it usually involves false appraisals and fraudulent loan documents.
Sources for More Information
- Federal Bureau of Investigation (FBI): Specifically, information about mortgage fraud can be found under their White-Collar Crime section.
- Federal Trade Commission (FTC): The FTC provides resources on understanding mortgage and loan fraud, among others.
- Consumer Financial Protection Bureau (CFPB): The CFPB offers resources about fraudulent mortgages, including how to protect against them and where to report such activities.
- U.S. Department of Housing and Urban Development (HUD): HUD provides advice and direction on fraudulent housing practices, including mortgages.
