Mortgage fraud is a financial crime involving false information on mortgage applications to secure loans that wouldn’t be approved under normal conditions. The primary purpose is to deprive lenders and receive loan approval or better terms for the loan with deceit. Fraud in mortgages can be carried out by an individual, those within the mortgage industry or even by a group of people and it leads to massive loses to the lending organizations or investors.

How Does Mortgage Fraud Work?

Fraud can be defined as a lie or half-truth that is told concerning the aspects of the subject property, income, employment or any other aspect of a mortgage loan application. A fraudster’s goal should be to make the applicant appear as more credible thus increase the odds of being granted the loan. This can be accomplished through several schemes:

• Straw Buyers: Using someone else’s identity or financial information to apply for a mortgage.
• Air Loans: Creating fictitious properties or borrowers to obtain loans.
• Double Sales: Flipping refers to the process of marketing the same piece of property to different buyers or lending institutions.

What are the types of mortgage fraud?

Mortgage fraud can be categorized into two main types: fraud for profit and fraud for housing.

• Fraud for Profit: This kind of fraud is often conducted by those who are experienced in the industry including mortgage brokers, appraisers, and bank officers. The primary motivation is likely to get home equity from homeowners or to act as a scam of lenders. There are among them; Fraudulent conversion, Building speculation, and Kiting or bare skimming.
• Fraud for Housing: This is an act that entails conning, with an aim of getting a mortgage that the fraudster has no right to obtain. Some of these are; Income/Asset Fraud and Occupancy Fraud. The aforementioned activities consist of falsifying income or assets and the intended use of the property for better terms on the loan.

How to Detect Mortgage Fraud?

Mortgage fraud detection can be a rather proactive as well as intricate process that minimizes numerous aspects into consideration. If there is a proper documentation of processes followed in an organization and attention to details are observed, then there are high chances fraudulent activities are detected before they go to greater extent.

• Check for Discrepancies in Financial Documents: Review income statements, tax returns, and bank statements for inconsistencies. Look for altered or forged documents.
• Investigate Sudden Changes in Income or Employment: Verify recent job changes and significant income variations. Contact employers to confirm employment details.
• Scrutinize Property Appraisals: Analyze the appraisal against the trends that exist from the sale of other properties of like kind in the region. The hazard of high-balling is that such action does not conform with market trends and appraisals.
• Cross-Check Borrower Information: Use third-party sources to verify the accuracy of the borrower’s information. Ensure all provided documents are authentic.
• Monitor Unusual Property Flipping Activity: Identify patterns of properties being bought and sold at significantly different prices within short periods. Investigate frequent transactions involving the same parties.
• Be Aware of High-Pressure Tactics: Be careful with those agents that want to make a deal immediately. Do not take rash decisions without doing adequate research in relation to the decision.
• Utilize Advanced Data Analytics: Software that is used to analyze activity patterns and flag those that may be fraudulent should be incorporated.
• Conduct Regular Audits and Training: Perform routine audits to uncover potential fraud. Train employees on the latest fraud schemes and detection techniques.