Keys to Recognizing Mortgage Loan Fraud
A real estate lawyer, two mortgage brokers and a
businessman, in South Carolina US, conspired to bilked two mortgage lenders out of thousands of
dollars. They pleaded guilty to conspire to skim money from fraudulent
property sales in Charleston, S.C. and each could receive up to five
years in prison and a $250,000 fine.
For any potential home buyer or any potential borrower for that matter to learn a lesson from
the above incident is to be able to recognize mortgage loan fraud. While most lenders
are up front and honest, there will always be shady characters who prey
on weakness and seek to take advantage of those in need.
It is essential to trust your instincts, and your common sense, if you
suspect loan fraud. For instance, common sense should tell you that if
you're a poor credit record you cannot expect to get a super low loan
rate. If your lender offers to use creative ways to get you a better
rate, it is best to pass and look for another lender.
Likewise, if anyone involved with the process of buying a home and
obtaining financing asks you to make false statements on the loan
paperwork, or to do something else you feel is unethical, it should send
up a big red flag. Lying on a loan application is illegal, and a sure
sign of an unethical lender.
Before you can recognize and avoid loan fraud, it is important to
understand just what loan fraud is. Loan fraud happens when anyone
involved in the process of obtaining a mortgage loan, including the real
estate agent, the appraiser, the mortgage lender, the attorney, the
closing agent, the buyer, the seller or others, make false statements in
order for you to qualify for a mortgage that is larger than you would
otherwise be entitled to. Any false statement made to a lender is
considered loan fraud.
While loan fraud schemes vary, there are a number of common ones that
seem to pop up from time to time. These common loan fraud schemes
include:
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Misrepresenting the amount of, or the source of the down payment made by
the buyer.
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Any undisclosed rebates made to third parties, such as real estate
agents, loan officers or mortgage brokers.
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Providing an inflated appraisal value for a property which is to be used
as collateral for the loan.
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Providing false information regarding the creditworthiness of the buyer.
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Misstating the actual amount of closing costs paid by the buyer.
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Making false statements about who plans to live in the property. For
example, claiming the home will be occupied by the owner when you really
intend to rent it out.
Loan to Value Ratio Fraud
Another popular loan fraud scenario is known as loan to value ratio
fraud. The loan to value ratio is an important number in the world of
mortgage loans, and lenders use that ratio to determine the amount of
mortgage for which a buyer is qualified. The loan to value (LVR) ratio
designates the percentage of the home's value that is represented by the
loan.
Loan to value ratio fraud works like this: when the buyer applies for a
loan, the lender looks at the contract to determine how much the buyer
is paying for the property. After the appraisal is received, the lender
compares the appraised value to the purchase price. If the lender has
previously determined based on the buyer's credit history that he or she
qualifies for 95% financing, the loan will be 95% of the appraised value
of the home or 95% of the purchase price, whichever is lower.
For a home valued at $100,000, that 95% would be $95,000. But if the
buyer cannot close without 98% financing that would represent $98,000.
The loan fraud happens if documents are falsified in order to help the
buyer get the additional funding for the home.
Bogus Earnest Money Deposits
Another loan fraud scheme involves the claim of bogus earnest money
deposits. This fraud involves stating that the buyer has paid more down
that he or she actually has. For instance, the settlement statement may
show those bogus funds as paid outside of he closing.
Undisclosed Concessions
Undisclosed concessions are another common source of loan fraud. This
type of fraud happens when money is given to the buyer for the closing,
but that money is not recorded on the settlement statement. For
instance, the seller may give the buyer funds in order to complete the
sales transaction, or the real estate agent may give back part of the
commission in order to make the deal go through.
It is important to understand that any of these schemes are illegal, and
that loan fraud is a federal crime. It is important to avoid these
schemes, and not to associate with anyone who suggests you commit fraud
to obtain the financing you need.
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