UTAH LOAN FRAUD - Part 2

This is Part 2 of a 4 Part Article I recently wrote concerning Mortgage Fraud in Utah.

WHAT LEADS TO LOAN FRAUD?

My experience is that most cases of loan fraud are initiated by any one or combination of 3 parties: Real Estate Seller/Builder, Borrower, and Loan Officer. It is unfair to place blame on any one party when it is most common for multiple parties to be at fault.

• Real Estate Seller/Builder: As a market softens, it is not uncommon for a seller or builder to use fraudulent practices to maintain profitability. Appraisal fraud and Double Contracts are probably the most common types of fraud utilized by this group. As a market becomes increasingly competitive, fraudulent practices may be seen as a way to maintain market share and generate revenue to the builder. In the case of a private seller, fraudulent practices may provide a way to sell a home is a slow market by offering additional incentives, such as cash back to remodel or finish a basement.
• Borrower: It is not uncommon for a borrower to request actions that are fraudulent. This is extremely common when a borrower is seeking a loan program that may have been available in the past but is no longer being offered by lenders—such as no money down purchases with poor credit. A borrower may have used such a loan in the past and is unwilling to accept that these types of loans are unavailable at this time. Probably most common is fraud initiated by Real Estate Investors and Speculators. With seemingly little to loose, these individuals will request fraudulent activities to bolster profits on a transactions.
• Loan Officer: In a competitive market place, many Loan Officers feel that every effort possible should be used to close a transaction, including if necessary, loan fraud. The mindset is “well, If I don’t get them this loan they will just go to someone else who will, so I might as well get the paycheck myself.” Increased restrictions by lenders to loan amounts, coupled with less leniency in terms of credit scores and credit history have made it more difficult for loan officers to remain competitive. For many Loan Officers, fraudulent activity is seen as a last resort to retain an income stream.