Mortgage Fraud Mortgage fraud is said to occur when fabrication or omission of important facts on the part of prospective homebuyers, lenders or sellers results in the approval of mortgage loans or terms applicants would usually not be entitled to enjoy. Mortgage fraud constitutes a major transgression, potentially prosecutable and resulting in incarceration for those found guilty. According to American state and federal regulations, mortgage fraud may cause an individual to end up paying as much as a million dollars in penalty, and as many as thirty years as a federal prison inmate (Robbins, 2005).

Mortgage fraud can take place outside as well as inside financial organizations, apparently only limited by criminals’ inventiveness and cunning. Third parties like real-estate brokers, agents, settlement agents, appraisers and others involved in mortgage origination largely contribute to mortgage fraud. Further, mortgage frauds are aided by insiders seeking benefits from diverse mortgage scams. Thus, mortgage fraud may manifest in multiple forms (Reich, 2006).

Of the mortgage-fraud practices reported, the commonly-occurring ones are identity theft, falsification of loan application details, misrepresentation of loan purpose, appraisal fraud, illegal property flipping, and loan-proceeds exploitation. Owing to the fact that multiple players are involved in mortgage lending, there are several chances and steps for abuse within transactions besides countless ways of perpetrating fraud, rendering its prevention tough (Reich, 2006).

The FBI (Federal Bureau of Investigation) states that two mortgage fraud forms exist. Fraud to gain profit is perpetrated by those on the inside who utilize their power or specialized skills for aiding, or themselves perpetrating, fraud. In numerous instances, this mortgage fraud variant involves bank loan originators, officers, attorneys, mortgage brokers, appraisers, and other insiders. This form of fraud revolves around misuse of mortgage lending for obtaining equity and cash from homeowners or lenders (O'Connell, 2018).

Housing-related fraud is the other class of mortgage frauds. It entails encouraging prospective homebuyers or borrowers to acquire a home or maintain a home’s ownership through, for instance, misrepresenting asset and income details on loan application forms or bribing appraisers to manipulate the appraised value of any given property. Such offenses can be further classified. For instance, occupancy fraud denotes purposeful misrepresentation of intended property usage by applicants (e.g., consumers might lie to lenders that they will use the place as a residence though their actual intent is renting it out). The reason for doing so is: applicants who plan to reside in the house normally have to pay lower down payments and interests as compared to individuals purchasing investment property (O'Connell, 2018).

Another kind of housing-related fraud is fake buyer fraud, where bogus/straw buyers let prospective homebuyers assume the identity of some other individual for acquiring mortgage loan approval. Straw buyers...

Following sale, the property deed can be shifted to intended owners. Fake buyers might be unaware that their identity, name, financial details and credit have been stolen and exploited for committing fraud (O'Connell, 2018).
Yet another form of housing-related fraud – home appraisal fraud – involves fraudulent inflation of home values above their real value. Increased home appraisal typically increases home prices, thereby brining more money to the prospective seller. This works to buyers’ detriment, potentially increasing debt burden linked to property purchase. Often, this form of fraud is associated with a few red flags, such as absence of important information from appraisals or false renovations mentioned on appraisals. When in doubt, opting for another appraisal is recommended (O'Connell, 2018).

Predatory lending fraud or predatory loans involve mortgage providers urging applicants or homebuyers to fib about facts like expenditure, earnings or down payment. Furthermore, a modified appraisal will be typically included, for selling the property for a higher price. Moreover, predatory lenders can deliberately lend borrowers a greater amount than they are able to afford whilst levying steep interest rates. Homebuyers might, for instance, take loans from kith and kin, thereby appearing to have less debt and more revenue. Cash gifts normally aid buyers in making down payments, thereby keeping major financial issues under wraps (O'Connell, 2018).

Debt management and mortgage foreclosure relief scams (also called foreclosure rescue or foreclosure scams) are highly common, costly scams involve scammers getting in touch with, and offering to help, homeowners unable to pay loans or failing to keep up (commonly via phone-calls). Prospective victims are found by scanning public foreclosure notices. Typically, they are promised lower payment or payments by the scammer in return for paying rents to the firm. But the firm fails to do so and the victim will eventually go into foreclosure (O'Connell, 2018).

Financial Income Frauds involve reporting of incorrect income for obtaining bigger loans or better deals. The motive is attempting to be qualified for mortgage loans they might otherwise be denied. Akin to home appraisal frauds, this involves red flags such as use of generic, rather than specific job title and mortgage lenders not being able to verify applicant employer. Further, the employment income reported by the applicant will not agree with bank statements or household assets (O'Connell, 2018).

Identity theft represents an especially ominous class of mortgage frauds, typically resulting in direct financial loss for the victim. For instance, identity thieves may steal the social security number of a victim or intercept their mortgage account number, utilizing the information obtained for taking out a HELOC (home equity line of credit) in the victim’s name, of the value of several…