Mortgage Fraud Red Indicators

Even lying on your application is already a mortgage fraud. Perhaps your real estate agent says it's no big deal, but IT IS actually a big deal. Then you start to think it's really no bid deal because you don't know that much and it seems that you doubt about being approved on your loan application.

Any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan is mortgage fraud, according to FBI. Another term for mortgage fraud is 'creative financing' because the individual 'customizes' some information on the application or real estate document. This activity started in the 1970s where some lenders discovered that there were some false information on a borrower's application, and the usual punishment was full payment of the loan or pay six-figure fines, and imprisonment.

There are so many types of Mortgage fraud but the activities are usually easy to detect. Here are some:

1. An individual claims a certain income or asset that s/he actually doesn't have. 2. An individual gives an inflated appraisal in order to obtain a mortgage for more than a property is actually worth. 3. An individual pretends to be the borrower in behalf of the person who is actually buying a property. 4. An individual pretends to provide financial help to a financially stressed homeowner in order to skim off equity from the property.

Because mortgage fraud refers to many activities done by buyers, sellers, agents, and even mortgage lenders themselves, here are some of the mortgage fraud red flags as mentioned in Fannie Mae's Mortgage Fraud Overview (2007):

1. Loan participants/Motivations 2. Information discrepancies 3. SSN discrepancies 4. Document discrepancies 5. Undisclosed Mortgages

These indicators in Fannie Mae's report was further broke down into Loan application, Credit Report, Employment and Income Verification and Appraisal. So, it is wise to be informed with these red flags so you can guard yourself as well as your investment and cash. If you are specifically involved in any real estate transactions, Fannie Mae suggests that you know the people with whom you do business with, educate yourself with the common mortgage schemes, ensure that every document is accurate, and report any suspicious mortgage fraud activity that you know.