Buying a home is not a decision to take lightly. With many spending so much time at home, coupled with low interest rates, now may even seem like an ideal time to buy.
However, before you apply for a mortgage, educate yourself on mortgage fraud. You do not want to spark unintentional red flags, which may result in white-collar crime charges. Understand why lenders may view your application with suspicion.
Income reporting fraud
To qualify for a larger mortgage, some borrowers inflate their incomes on their loan applications. CNBC reports that a number of online services answer calls from lenders to verify a prospective borrower’s income. These services also sell credit card lines to boost credit, and some will even create fake paystubs. Such services may be difficult to trace and do not operate out of the U.S. As a result, lenders and banks closely scrutinize mortgage applications for indications of fraudulent activity.
To secure better loan terms, some applicants claim they plan on living in the property they want a loan for. In reality, they rent out the property to tenants rather than treat it as their main residence. Not only can occupancy fraud result in criminal charges for the applicant, but it also causes hardship for lenders. What happens is an investor who buys a fraudulent loan from a lender may find evidence of criminal activity in the application that the lender missed. If the investor’s hunch proves correct, the lender may be forced to buy the loan back.
Not all mortage fraud is committed by borrowers. Brokers can also be at fault. Broker fraud often stems from a desire to earn more commission, triggering some brokers and wholesale lenders to toss regulations aside and approve loans that they should not.
Loan application fraud
Overall, most mortgage fraud stems from real estate purchases rather than refinancing applications. One reason for this is higher interest rates, which often slows refinancing applications.
Mortgage applications must have factual information for applicants to avoid any potential for criminal charges. Resisting the temptation to falsify even the smallest detail keeps you on the right side of the law.