Loan Fraud

Question 1

Mortgage loan fraud consequences

Answer 1

Punishable by
* For making a fraudulent or false statement, up to five years in jail and/or a $100,000 fine
* For submission of a false mortgage loan application, conspiracy to commit fraud, or bank fraud, up to 30 years in jail and/or a $1 million fine

If loan goes into default and it is determined that fraud occurred in the origination of the loan
* The lender will often require the originating broker/lender to repurchase the loan
* The lender may also require an originating broker/lender to repurchase a loan in the event of early default (serious delinquency or in default within the first year), even if the loan did not result from mortgage fraud

Question 2

Fraud red flags

(see also Red Flags Rule)

Answer 2

• Long or unrealistic commute from work to home
• Buyer is downgrading from a larger to a smaller home, unless empty-nesters
• The new home is too small to accommodate all the intended occupants
• Down payment is in a form other than cash
• Borrower claims they are going to resell the current home but have not put it on the market
• Deposit is a promissory note
• Stocks and bonds shown as assets are not from a publicly-traded company
• Face value of a life insurance policy is shown as a liquid asset
• Borrower is buying an investment property but currently renting their own home
• Price and date of the original purchase are not shown on a refinance application
• Borrower and co-borrower work for the same employer or hold stock in the employer
  
  • Practice tip: discern whether they might be self-employed
• Same phone number is used for home and business
• Value of personal property is greater than one year’s salary
• New housing expenses are more than 150% of current housing expenses
• A high-income borrower discloses little or no personal property
• The credit report shows a DBA or AKA, particularly if this was not disclosed by the applicant
• Debt obligations are too high with respect to declared salary
• Significant differences between the handwritten and typed loan application
• Invalid Social Security Number
• **Years of schooling **are not consistent with stated job or profession
• Discrepancies between dates on application and verification forms
• Sales price is far below the property’s market value
• Deposit check dates are inconsistent
• Name and/or address on the deposit/down payment check are different from the borrower’s
• More than one purchase contract are used
• Large, recent deposits
• Earnest money/binder** check are not cashed**
• Borrower is not the purchaser shown on the contract (i.e., a straw buyer)
• Borrower is purchasing a home near the previous home to use as a primary residence