May 28, 2015 | By RGR Marketing Blog

Mortgage Fraud 101: Stay Protected

Today’s lending environment is a challenging one, especially in slow markets where inventory is plentiful, but buyers are few and far between. It’s times like these when mortgage professionals need to be doubly cautious about preventing mortgage fraud.

Think mortgage fraud won’t happen to your firm? Think again! Mortgage fraud is still very much alive and well. The media tends to focus on abuses by lenders, but mortgage originators can fall prey to fraudsters just as easily. If you’re in the mortgage business, then here are five things you need to know about mortgage fraud.

Fraudsters Falsify Credit Reports

It’s no mystery why certain buyers would want to conceal derogatory credit marks; poor credit can cost many thousands of dollars over the course of a mortgage. Mortgage professionals should be on the lookout for shady credit reports, and should cross-reference any credit report provided by the borrower with one obtained from a reputable consumer credit bureau.

Bank Statements Can Be Doctored

Untrustworthy borrowers may also attempt to falsify bank statements to give the appearance of having more financial wherewithal than they actually possess. Lenders should look at more than just the ending balance on the bank statement; it’s also important to review the transaction records, and to check the statement’s appearance against other statements from the same financial institution.

You Should Always Verify Employment and Income

Some buyers will inflate their income or falsify their job titles to make it seem like they can afford more home than they actually can. Even if everything appears to be on the level, it doesn’t hurt to call employers to verify employment, and it’s also smart to review tax documentation just to make sure the numbers add up.

Occupancy Misrepresentation Is Common

Mortgage interest for investment properties is higher than the rates charged for owner-occupied purchases, because lenders know that investors are more likely to default when the going gets tough. While it’s difficult to verify a buyer’s intentions, lenders should be on the lookout for properties that are distant from the buyer’s place of employment, and buyers who are trading down to a lesser home unnecessarily. These can both be indications of occupancy misrepresentations.

Appraisals: Not Always What They Seem

It doesn’t take a genius to figure out that the appraisal process provides plenty of opportunity for fraud. Fraudsters may manipulate property values in order to decrease their own financial outlay, or may take out a mortgage on an inflated property, pocket the proceeds, and go into default immediately.

Lenders should always be wary of homes that seem overvalued relative to similar properties in the same market, unusually fast value gains since previous sales, pictures that don’t match the property at the listed address, and maps that appear skewed to make similar homes from different neighborhoods appear closer.

[Photo Via: RealEstateHomeNews]

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