Loan Fraud

Question 1

What is loan fraud?

Answer 1

Loan fraud occurs when, with intent to defraud, a person makes a deliberate misstatement or omits a material piece of information which would affect the person’s decision regarding the loan transaction.

Question 2

What is a straw buyer?

Answer 2

A person who purchases the property or applies for the loan in his or her own name for the actual borrower

Question 3

What is identity theft?

Answer 3

Assuming the identity of another person

Question 4

What is contract kiting?

Answer 4

Using a double contract to conceal the true price of the property from the creditor

Question 5

What are silent seconds?

Answer 5

Arrangements in which the borrower obtains a second, undisclosed and unrecorded (i.e., silent) loan directly from the seller and uses this to help cover a down payment and closing costs on the purchase loan from a lender.

Question 6

What is fraud for housing?

Answer 6

Fraud for housing, sometimes also called fraud for property, involves a borrower lying about his or her income and/or assets in order to qualify for a mortgage loan. Fraud for housing may include using a straw buyer, identity theft, or contract kiting.

Question 7

What is fraud for profit?

Answer 7

Fraud for profit may involve a number of individuals (e.g., the seller, the mortgage licensee, an appraiser) and can take many forms. Fraud for profit may be, among other things:

• Occupancy fraud (i.e., a representation that the buyer will reside in the property when that is not the case)
• Documentation fraud
• Appraisal fraud (i.e., the use of an inflated appraisal to secure a larger loan or to flip a property)

Question 8

What is the punishmet for motgage loan fraud?

Answer 8

• For making a fraudulent or false statement, up to five years in jail and/or a $100,000 fine
• For submission of a false mortgage loan application, conspiracy to commit fraud, or bank fraud, up to 30 years in jail and/or a $1 million fine

Question 9

When will a lender require an originating broker or lender to repurcase a loan?

Answer 9

• If a loan goes into default and it is determined that fraud occurred in the origination of the loan
• In the event of early default (serious delinquency or in default within the first year), even if the loan did not result from mortgage fraud.

Question 10

What are some red flags that mortgage fraud may be occuring?

Answer 10

• Long or unrealistic commute from work to home
• Buyer is downgrading from a larger to a smaller home, unless empty-nesters
• The new home is too small to accommodate all the intended occupants
• Down payment is in a form other than cash
• Borrower claims they are going to resell the current home but have not put it on the market
• Deposit is a promissory note
• Stocks and bonds shown as assets are not from a publicly-traded company
• Face value of a life insurance policy is shown as a liquid asset
• Borrower is buying an investment property but currently renting his or her own home
• Price and date of the original purchase are not shown on a refinance application
• Borrower and co-borrower work for the same employer or hold stock in the employer
• Practice tip: discern whether they might be self-employed
• Same phone number is used for home and business
• Value of personal property is greater than one year’s salary
• New housing expenses are more than 150% of current housing expenses
• A high-income borrower discloses little or no personal property
• The credit report shows a DBA or AKA, particularly if this was not disclosed by the applicant
• Debt obligations are too high with respect to declared salary
• Significant differences between the handwritten and typed loan application
• Invalid Social Security Number
• Years of schooling are not consistent with stated job or profession
• Discrepancies between dates on application and verification forms
• Sales price is far below the property’s market value
• Deposit check dates are inconsistent
• Name and/or address on the deposit/down payment check are different from the borrower’s
• More than one purchase contract are used
• Large, recent deposits
• Earnest money/binder check are not cashed
• Borrower is not the purchaser shown on the contract (i.e., a straw buyer)
• Borrower is purchasing a home near the previous home to use as a primary residence-