Mortgage broker frauds: Here's how to avoid them

Spot the difference between fraud for housing and fraud for profit

Mortgage broker frauds: Here's how to avoid them

Understanding mortgage broker frauds

There are two primary types of mortgage broker frauds: fraud for profit and fraud for housing. Industry professionals commit fraud for profit by misrepresenting, misstating, or omitting pertinent details about their clients’ or their own employment and debt, credit, income, or property value and condition with the aim to maximize profits on a loan transaction.

Borrowers, however, commit fraud for housing, usually with the assistance of loan officers or other industry professionals, omitting or misrepresenting pertinent details about income, employment, credit, and debt, or a property’s condition or value, with the aim of maintaining or obtaining real estate ownership.

Fraud for profit can be committed by anyone in the loan transaction process, including mortgage brokers, loan officers, real estate sales agents, builders, credit/debt counselors, property inspectors, insurance agents, title companies, escrow agents, and attorneys. These industry professionals can also work as a network to defraud lenders, borrows, or underwriters by sharing profits and maximizing fees on any and all mortgage-related services. Mortgage fraud is typically motivated by the prospect of increasing an investment position or gaining extra sales commissions.

Can a mortgage broker steal your money?

Yes. A mortgage broker can steal your money, typically in a fraud for profit scam.

Fraud for profit

Fraud for profit is one of two distinct areas of mortgage fraud, the other being fraud for housing. A fraud for profit is typically committed by industry insiders utilizing their authority or specialized knowledge to facilitate or commit the fraud. According to widespread reporting and investigations, a large percentage of mortgage fraud involves collusion with industry insiders like mortgage brokers, appraisers, bank officers, loan originators, attorneys, and other industry professionals. Fraud for profit aims to misuse the mortgage lending process to steal equity and money from homeowners and lenders, rather than to secure housing.

Fraud for housing, on the other hand, is usually a type of fraud committed by a borrower in order to maintain or acquire ownership of a home. For instance: the borrow could misrepresent asset and income info on an application or even convince the appraiser to manipulate the property’s value.

Tips to avoid being scammed

If you are buying a home, a lot of money and multiple parties will be involved. The process typically gives both the motive and the opportunity for mortgage fraud, which means you should be aware that it’s a crime to provide inaccurate or false information when applying for a home loan. You could end up in trouble if anyone throughout the lending process suggests that you fudge the truth—they may not have your best interests at heart and you could wind up in a lot of trouble.

Here are some tips to avoid being scammed:

Understand the terms carefully. Avoid “no money down” loans and other gimmicks designed to get potential buyers to purchase homes that they cannot afford. Any such loan has extremely unfavourable terms and interest rates—at best.

Do your research. Be sure to learn what other houses have sold for, especially houses that are similar in size and value. It would also be a good idea to check into recent tax assessments of houses in the area. Ensure that the paperwork and the dollar amount match up.

Get referrals for the companies/brokers you will need to work with. When you buy, finance, sell, or refinance a home, be sure that you know who you are working with. Get referrals for the companies and brokers and verify their local and state licenses.

Never sign a blank document. There is no legitimate reason to sign a blank document or a document that contains blank lines. When you sign any document, be sure that you have read and understood what you are signing.

Speak to a licensed professional. Once again—be sure you do the appropriate research to make sure you are working with licensed professionals with tried-and-true track records. This includes speaking to a real estate attorney, if need be.

Suspect guarantees. For example, do not agree to sign over the house deed temporarily. This maybe suggested to you as part of a scheme to avoid foreclosure, but the reality is, you may end up losing your house permanently.

Be suspicious of unsolicited loan offers. Be suspicious of unsolicited offers that claim to help you eliminate or reduce your mortgage debt for an up-front fee, especially if you already own a house and have run into financial difficulties. By accepting, you could wind up in a hole deeper than before—these are not legitimate services.

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