Financial crimes are one of the fastest growing areas of criminal activity in the United States and one of the fastest growing areas of financial crimes is mortgage fraud.  Fraud involves two parties: one makes a false statement of fact material to the business involved and the other party relies on that statement to their detriment.  In mortgage fraud false or inaccurate information in connection with a mortgage application is provided and that information causes a lender or another in the chain of approving and funding that loan to make the loan or to make the loan on terms and conditions different if the true facts were known.

Mortgage fraud includes a whole category of illegal business dealings.  The different schemes that may be used include, but are certainly not limited to, property flipping, equity skimming, application fraud, credit or income misrepresentation or asset and down payment misrepresentation.  Mortgage industry professionals and law enforcement break these difference schemes into two groups.

There is “Fraud for Housing” in which the borrower will knowingly provide false or at least inaccurate information regarding his or her qualification for the loan.  This might be something as innocent sounding as fudging a little on their income levels or employment in order to qualify for the loan or for better terms on a loan.

Although we would like to see everyone be able to obtain the American Dream of homeownership, real estate agents must be careful when counseling purchasers to avoid any suggestion that enhancing certain facts may assist a buyer in qualifying for the necessary mortgage.  The desire to be helpful can not override good sense and honesty.  The REALTORS® Code of Ethics requires members to treat all parties to the transaction honestly, including those providing the financing for the purchase.

There is also “Fraud for Profit” which is sometimes referred to as “industry insider fraud” because it typically requires at least the cooperation, if not the participation, of an appraiser, real estate broker, mortgage broker or other real estate professional.  Such cooperation or participation does not always require any action on the part of the real estate professional.  It can be implicit through the real estate professional’s failure to disclose or correct a representation made by someone else which the professional knows to be false.

The consequences for the housing market differ only as to degree.  The latter group causes far more in losses to the mortgage industry and ultimately the public because the people involved are not trying to stay in the property and never intended to make the payments required by the mortgage.  Often their schemes will involve multiple properties and parties.  They are motivated to commit mortgage fraud solely by the money that can be taken from a property.  When they have done that or the threat of being caught increases they will often disappear. Individuals who provide false information to the lender to help secure their own housing lack the same kind of bad motivation and usually intend to make the payments to stay in the housing.  But if they default on the loan because they really were not qualified, the community is still left with foreclosed housing and the individuals with damaged credit and credibility.

Mortgage fraud is accomplished through the use of false documents, identity theft, straw buyers, and sometimes the witting or unwitting assistance of real estate professionals.  To protect themselves and their clients, real estate agents must be able to distinguish between legal and illegal mortgage practices.  There are a number of different ways in which the real agent may inadvertently become involved in these schemes or involve their seller clients.  Agents may be asked to interfere in the appraisal process, alter or not include parts of the purchase agreement that is provided to the lender or title company, intercept verifications of income or employment history or help out by hand carrying verifications provided by the buyers or others working with the buyer.  Any of these activities could be a part of a mortgage fraud scheme.