What is Mortgage Fraud?

Have you ever wondered about the intricate web of deception that lies hidden beneath the surface of the mortgage industry?

A world where homebuyers, sellers, and even lenders can intentionally misrepresent or omit crucial information to gain an upper hand. Welcome to the complex realm of Mortgage Fraud – a phenomenon growing in prevalence since the global financial crisis of 2008. Mortgage Fraud is any intentional attempt, by homebuyers, sellers or lenders, to deceive, misrepresent or omit information to get approval for a mortgage or manipulate the terms of the mortgage favourably.

This blog aims to demystify this issue, shedding light on the various forms it takes, its root causes, the inherent risks, and most importantly, how you can protect yourself from falling prey to such fraudulent practices.

How does Mortgage Fraud work?

Mortgage fraud takes many different forms. The sub-set of mortgage fraud ballooning most is occupancy fraud, which involves mortgage applicants using contrived information on a mortgage application to improve their chances of getting a mortgage or improving the terms of the mortgage itself.

Commonly falsified information includes:

• Income
• Debt History
• Employment Status
• Property Value

Types of Mortgage Fraud

People often commit mortgage fraud for 1 of 2 reasons. The first is, Fraud for profit, which is usually committed by industry insiders, using their position or knowledge to misuse the mortgage lending process to get cash and equity from lenders or homeowners. The second is fraud for housing; which is a further split subset:

• Occupancy fraud
  • Which involves misrepresenting the intended use of the property, such as claiming it will be their place of residence, but actually planning to rent it out.
• “Fake Buyer” Fraud
  • Couples identity theft with mortgage fraud, as the stolen identity has better credit, they will get a better mortgage.
• Home Appraisal Fraud
  • A seller getting an inflated home appraisal, driving the house price up.
  • Indicators to look out for include an appraisal or faked renovations.
• Financial Income fraud
  • Applicant inaccurately reports income for a stronger mortgage.
  • Signs of income fraud, include generic job titles or the applicant’s stated income not matching bank statements.
• Friends/Family Loans
  • Getting loans from loved ones before the application attempts to present a higher income than is actually received.
• Mortgage Foreclosure Relief and Debt Management Scams
  • Scammers contact people struggling to pay off their mortgages, promising to help with mortgage payments.
  • However, they don’t actually pay, leaving the indebted with a larger-than-expected debt.
• Predatory Loans
  • Mortgage providers may encourage homebuyers to lie or use a rigged appraisal to pump the house price up beyond its value.

What is cause Mortgage Fraud to rise?

Rising Demand for Homeownership

Coupled with a shortage of housing on the market, forces house prices up. This leads to more fraudulent mortgage applications, as homebuyers seek an advantage in the competitive market.
Rising Interest Rates

If interest rates are expected to increase, it encourages people to buy a house as quickly as possible, before interest rates rise again and are cemented into the foundations of the mortgage contract. Conversely, sellers want to sell quickly so that they can reap the benefits of the higher demand of lower interest rates. Simplified, forecasted rising interest rates encourage sellers/buyers to cut corners to push through the purchase of the property.

How to Minimise the Risk of Mortgage Fraud?

1. Get Referrals From Trusted Sources – you need to be able to trust your mortgage providers, so asking which mortgage providers your trusted confidants trust is a good start. Real estate professionals may also be able to refer you to reliable mortgage partners.
2. Walk Away From Aggressive Mortgage Lenders – mortgage lenders pushing hard to get the contract signed may be trying to hide terms buried in the contract
3. Be Pragmatic – letting the emotions, involved with getting your next home, triumph over an evaluation, without truly weighing up all the implications of this life-changing decision.
4. Review your Credit – your credit reports would show any new, unfamiliar accounts, which may arise from fraudulent activity.

Should you require any further information on Mortgages & fraud prevention please feel free to contact us at 01903 534587