Preventing Mortgage Fraud
Lenders are getting stricter on their evaluation of documents that are used to secure a mortgage. With an increase in concern about fraud, lending institutions more vigilant on applications are either a private purchase or have a short closing period. If the same application has those two conditions, then there is even more vigilance.
As part of the mortgage approval process, your mortgage broker will ask for documents that show proof of your income, down payment and other items such as proof of permanent residency and other identification.
A mortgage fraud occurs when an applicant misrepresent or omit any information on a mortgage application to secure a larger mortgage (or any mortgage for that matter) than would have been obtained had the lender known the truth.
There are different types of mortgage fraud:
• Occupancy Fraud
• Income Fraud
• Employment Fraud
• Fraud for Profit
• Appraisal Fraud
• Identity Fraud
Mortgage fraud may be perpetrated by one or more participants in a mortgage transaction, including the borrower; the mortgage; the real estate agent, appraiser, or the solicitor; or by multiple parties as in the example of the fraud ring described above. Dishonest and irebutable participants may encourage and assist borrowers in committing fraud because most participants are typically compensated only.
From a lenders perspective documentation and timing is very crucial, if they have suspicions regarding a file they would like the time to verify all information:
• Identity documents
• Employment letter and pay stubs
• Down payment and banking information
• All supporting documents
Mortgage fraud affect all participants in the mortgage industry especially buyers. Aside from the fact that it is a crime it also creates upward pressure on home prices. We have to look no further than the 2008 subprime mortgage crisis in the US to see how it could affect the market.
The good news is we can improve the real estate market by reducing mortgage fraud. Buyers must set realistic expectations for borrowing and homeownership experience. Industry professionals must pursue higher personal standards and submit to peer organization accountability. Governments need to create legislation to make it easier to punish participants, not just deter.