Ethics

Question 1

Fraud

Answer 1

Fraud - misrepresentation, concealment, or omission of material facts

• Actual Fraud - intent to deceive
• Constructive fraud - “unintentional”, the result of carelessness or negligence

Mortgage fraud - any misrepresentation or concealment used to in an attempt to obtain a mortgage loan.

Two categories of mortgage fraud

1. Fraud for property (consumer fraud) borrowers misrepresent information on loan applications to qualify for, including but not limited to misrepresenting income and expenses, lying about the property being owner occupied and lying about the source amount of the down payment.
2. Fraud for profit - this type of fraud is more sophisticated version of mortgage fraud because it involves real estate agents, appraisers, lenders, and closing agents or attorneys. (Industry insiders)

*Some examples of fraud for profit include flipping, straw buyers, bogus sales, inflated appraisals, and air loans.

Question 2

Mortgage Fraud Schemes

Answer 2

Air loan - Non existent loans and no collateral loans.

Deed scam
- Forged seller’s signature on the deed
- Property is fraudulently transferred and deed recorded

Double sold loans
- Primary mortgage holder sells loan to fraudulent company for servicing
- Borrower signs multiple copies of the same application or documents that the loan originator submits to different lenders

Unrecorded or silent second - Buyer gives a seller a second mortgage without informing the lender, or makes the lender aware but never intends to file the lien to make payments to the seller, with seller agreement

Equity skimming- make loan and/or “rescues” knowing the borrower will not be able to pay

Loan Flipping - refinance with fee rich loan that has no benefits to the borrower

Straw buyer - person who makes a purchase on behalf of another person. A straw buyer is used when a real buyer cannot complete the transaction for some reason.

Question 3

Predatory Lending

Answer 3

Bait and switch
- Alluring but insincere offer to sell product or service
- “Purpose is to switch consumers from buying advertised product to something else”
- Still bait and switch I’d consumer chooses other product/service

Switch After Sale
- Accepting a deposit for product”, then switching product to a higher priced item
- Failure to make delivery of product within reasonable time or make refund
- Disparagement by acts or words of the advertised product

Bona Fide Offer
- Refusal of advertiser to show, demonstrate or sell product offered
- Disparagement of advertised product
- Showing or demonstrating product that is defective, unusable or impractical for purpose represented