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Mortgage Fraud Rising

Fraud is one of the fastest growing crimes in our nation.  We’ve seen fraud recently with gas stations, credit cards, credit bureaus and more.  It can also happen in the mortgage industry.  It was reported that mortgage fraud risk is up nearly 17 percent in the most recent 12-month period. In fact one in every 122 mortgage applications contained fraud during the first two quarters of 2017.  The most common frauds were application fraud, down payment funds, income and employment falsification and debt amounts. (1)  Fraud can include anything from “little white lies” on the application to complicated multi-person schemes.

Federal Crime

Any form of mortgage fraud may constitute bank fraud, which is a federal crime.  If you haven’t already gotten defensive about your credit, you need to.  Freeze your credit reports at all the credit bureaus.  Identity thieves should find it harder to take out a new loan if your name if your files are locked down.


According to the Federal Bureau of Investigation (FBI) mortgage fraud is “material misstatement, misrepresentation or omission relating to the property or potential mortgage relied on by an underwriter or lender to fund, purchase or insure a loan.” With this working definition, we see that mortgage fraud can be committed by both individual borrowers and industry professionals.(2)

Equifax Breach Increases Risks

With the recent breach at Equifax, the risk for increased mortgage fraud is worrisome.  More than 145.5 million consumers were accessed.  If you haven’t checked to see if you are one of them you should do so.  Here is more information about the Equifax breach and how to find out if your information was breached.

There are several methods that people commit mortgage fraud with including application fraud, industry insider fraud, stolen identity fraud, and having a silent second.  Let’s take a look at some of these so that you will be able to recognize the signs.

Application Fraud

The first type of fraud, and one of the most common, is Application Fraud.  Application fraud happens when someone knowingly puts false information on their application in order to qualify for a loan.  They may increase their income level, or their employment.  This has resulted in more stringent verification of income and employment.  Banks want to see your pay stubs, your bank account statements, and will call and verify employment.

Industry Insider Fraud

A second type of fraud usually involves someone in the industry being complicit. This could someone such as a mortgage broker, an appraiser, or a real estate broker.  This is another reason why it is so important to work with a real estate agent that carries the REALTOR® designation.  REALTOR’s adhere to a strict code of ethics to protect their clients.  They are motivated only for the money and don’t take into account the effect their actions could have on the entire housing market.  They may never intend to stay in the property or make the required mortgage payments.  Frequently, they will just disappear.

FBI’s Common Mortgage Fraud Examples:

Equity Skimming

Equity Skimming is when an investor uses false income documents, credit reports, or a straw buyer to obtain the loan in a “straw” buyer’s name. After closing, the “straw” buyer signs the property over to the investor in a quit claim deed.  This relinquishes all rights to the property.  It also provides no guaranty to title.  The investor then rents the property out but doesn’t make any mortgage payments.  They take the money from the renter until the property forecloses.

Inflated Appraisals

This is another way to commit fraud by industry insiders.  This happens when the appraiser works in collusion with a borrower to provide a fraudulent appraisal report to the lender.  The fraudulent appraisal has an inflated property value.

Property Flipping

Another type of fraud involves purchasing a property, falsely getting it appraised at a higher value, and then quickly selling it.  The illegal aspect of this is that the appraisal information is false.  This usually involves at lease one or more of the following criminal actions:  appraisals that are fraudulent, loan documentation that is false such as inflating the buyers income, kickbacks to buyers, investors, loan brokers, title company employees and more.  For example a home valued at $180,000 may be falsely appraised at $240,000 or more.

Silent Second

A silent second is when a buyer borrows the down payment from the seller through a non-disclosed second mortgage.  The buyer presents the money to the lender as if it is his own.  In actuality it is borrowed.  This helps the buyer obtain a fraudulent loan with terms that they don’t actually qualify for.

Stolen/Fictitious Identity

This type of fraud occurs when the buyer steals or creates a ficticious identity. They then use that identity to apply for the loan.  The individual who’s identity is stolen from has no knowledge that their personal information and credit history is being used.

Straw Buyers/Nominee Loans

This final version of fraud is when a loan is obtained using the identity of someone else.  The true buyer’s identity is concealed and the “straw” buyer’s credit history and name are used to purchase the home.

Red Flags To Watch For

  • When it is requested that a particular appraiser to be used
  • Also,significant sales price adjustments that aren’t supported by comparable market data
  • requests for the list price in the MLS be adjusted to reflect the appraised value
  • Down payment assistance programs that charge excessive fees or that attempt to place restrictions on how their participation is reported in contract documentation, including the HUD1.
  • Large seller contributions.
  • Mortgage brokers who refer pre-qualified buyers to agents.
  • Statement that the buyer will occupy the property is questionable.  For example, an unrealistic commute to the buyers employement.
  • Limited credit history for the buyer and existing history with high rate consumer finance companies.
  • A credit history indicates the repayment of a prior obligation did not include any interest payments.
  • Unrealistic income for the occupation
  • Recent drastic increase in income due to a raise or new job
  • The sales contract, appraisal and title work disagree with respect to the seller’s name and appraisal shows property or comps previously sold in past year.

Having A REALTOR®  Can Help

If any of these warning signs are present in your transaction bring them to the attention of your broker.  Fraud isn’t involved every time one of these warning signs appear. However, it’s better to take a few minutes to check out discrepancies than just assume everything is fine.  If something seems off, feel free to ask questions from a reliable source.

Having someone on your side during a transaction is more important than ever. All of EverStar Realty’s real estate agents are members of the National Association of Realtors and carry the REALTOR® designation to better serve you.

Have any other tips to share?  We’d love to hear them! As always, thanks for reading and we welcome any additional information or comments you may have.

Sources: ‘Mortgage Fraud: Recognizing Signs’; (1) ‘Mortgage Fraud Is Back on the Rise’; (2) Mortgage Fraud: Understanding and Avoiding It By Denise Finney/


1920 N. Pittsburgh St., Suite A

Kennewick, WA 99336






Posted by: everstar on December 12, 2017
Posted in: Uncategorized