UTAH LOAN FRAUD - Part 1

This is Part 1 of a 4 part series I recently wrote for an article concerning mortgage fraud in the Utah.

A lot has been written lately about the high levels of Loan Fraud in Utah and how this has impacted the current cooling of the housing market. Perhaps the most commonly asserted point regarding Mortgage Fraud has been the role of the Loan Officer. Now, I am not going to give a pass to my colleagues who have participated in fraud over the years. Their actions have helped create an economic environment with inflated home values increased foreclosure rates. But the blame cannot, and should not stop at the Loan Officer; blame needs to be placed upon all participants who promulgate such improper behavior.

In an effort to provide education concerning Loan Fraud, and in hopes of curtailing fraudulent behavior, I will first discuss some common aspects of and strategies for loan fraud, then I will discuss the factors leading to loan fraud, and finally I will highlight some steps that can be followed to limit and ultimately eliminate Mortgage Loan Fraud in Utah.

WHAT IS LOAN FRAUD?

Mortgage Fraud is refers to any efforts or actions whereby the intent is to misrepresent information on a mortgage loan application, in order to obtain the loan. While most would agree that Identity Theft is fraudulent, there are more common and more subtle actions that also constitute fraud.

• Occupancy Fraud: Most common in times of housing growth, this fraud occurs when a potential borrower claims the intent of occupying a home as a primary residence in order to secure more favorable loan terms.
• Income Fraud: This fraud occurs when a borrower artificially inflates his or her income to increase his or her ability to qualify for financing. This is occasionally done through altered W-2 forms, but is most common on “stated income” loans where no income verification is required.
• Appraisal Fraud: Common in new home constructions, an appraiser may be asked to unnecessarily inflate a homes value so that a homeowner is able to receive additional funds or sell the home at an increased amount.
• Double Contract/Cash Back Schemes: Typical among the various “real estate guru” courses, this practice involved a buyer and a seller essentially using two separate purchase contracts, one at a high level which is used provided to the lender, and another at a lower amount that is kept between the buyer and seller. When financing is received at the increased amount, cash is then distributed.