Mortgage Loan Fraud and Its Impact on the Worldwide Economic Crisis

7037 Words Feb 3rd, 2010 29 Pages
Mortgage loan fraud is a common and often overlooked crime; it is taking place with increased prevalence today, due to the predominance of third-party loan originators (both brokers and conduit lenders). This type of fraud takes many different forms and is committed by buyers, sellers, attorneys, title companies, and others; in most cases it is overlooked by individuals, corporations, and law enforcement because it is seen as a “victimless crime”. In recent years, the booming real-estate market has fueled this criminal activity; mortgage loan fraud has become a crime with both victims and harsh consequences. In present day, banks and financial institutions have become inundated with “bad loans”, many of which are “bad” because they were …show more content…
A “duped buyer” has no cash or good credit, and has been induced into buying a home at an inflated price with the incentive of no money down. Fraud for profit is often supported by inflated appraisals, false income statements or verifications of income, and/or false verification of deposits to deceive out-of-town lenders. There are four major subcategories of obvious fraud: • Appraisal fraud. This is frequently associated with the aforementioned property flipping. Lenders rely on accurate appraisals to ensure that loans are fully secured. In appraisal fraud, appraisers fail to accurately evaluate the property; this may be unintentional, or they may intentionally become a party to a fraud scheme begun by the lender or borrower. • Identity theft. This is very common in both the real estate and credit card markets, and involves a borrower who assumes the identity of another person in order to secure a loan. The thieves take the overage and run. Both victims (the bank and the person whose identity was stolen) typically incur financial losses. • Cash-back schemes. Here, the price of a property is illegally inflated in order to provide a cash-back transaction to the participants. Many times, the borrower will receive a rebate which is hidden from the lender and not stated on the HUD-1. In this situation, the lender is bamboozled into lending more than the actual property value, and the buyer and/or participants benefit financially.
Open Document