Mortgage fraud is on the rise. But this time, it isn’t part of a bigger scheme orchestrated by white-collar thieves. Instead, there’s an uptick in home buyers who are attempting to cheat their way into a mortgage approval.
There are two main patterns: mortgage applicants who claim a higher income than what they report to the IRS, and applicants who create pure fiction.
In the first case, buyers may not realize that today’s lenders must follow strict criteria to calculate self-employed income. The buyers may have understated their income to the IRS to reduce their taxes, but this haunts them later when trying to obtain a mortgage. (Potential tax fraud aside.)
In next scenario, desperate home buyers have turned to fraud-enabling tools on the Internet to create falsified employment records. This includes completely fake pay stubs from make-believe companies, to modified pay stubs showing a higher income, or a longer length of employment. Some fraud-enabling websites even provide (for a fee) an employment verification to back up the fictitious info.
Other fraud trends include falsifying owner-occupancy, and creating fake “gift” down payment letters.
Even a so-called white lie can cause serious headaches. A buyer might think that a loan denial is the worst that could happen, so what is there to lose? And if the loan goes through, there’s nothing that can happen after closing, right?
Wrong. Deliberately presenting false information to a lender is bank fraud, which is punishable with fines and jail time – and possibly an acceleration clause on the mortgage, which would induce foreclosure. Mortgage applicants who try and cheat the process stand to lose much more than the house!
Fortunately, the vast majority of such fraud cases are caught during the underwriting or servicing process. The current fraud volume, while on the rise, is only about 1% of all applications. Today’s fraud attempts are fueled by an increasingly-automated mortgage process, and buyers who won’t take “no” for an answer.
Home buyers shouldn’t attempt to defeat the mortgage application or underwriting process. A mortgage denial isn’t a life sentence. A reputable lender will do their best to find the right mortgage for your situation, and help you qualify legitimately. If you are denied for the loan for any reason, a reputable lender will discuss the denial and offer suggestions to help you succeed in the future.
We only refer our Buyer-Clients to local, trustworthy lenders!
As your Exclusive Buyer’s Broker, we serve your best interests at all times! Unlike real estate agents and brokerages who represent sellers, as an Exclusive Buyer’s Broker, we only represent you, the buyer, getting you the best price and terms with no conflict of interest at all times.
Understanding this distinction could literally save you thousands of dollars not only on the purchase price and terms, but also on seller concessions and home inspection issues, whether you are a first-time homebuyer or an experienced homeowner!
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