- June 30, 2020
Financial mortgage fraud
FINANCIAL MORTGAGE FRAUD
The world economy is on a knife-edge due to ethical violations orcriminal acts in the financial and housing sectors. Leading financialcompanies, the private sectors, government agencies, as well asindividuals, have increasingly continued to engage in financialcrimes. According to Nicole, Pacini, Schmidt, & Keller (2014),the Federal Bureau of Investigation reported a 71% increase inmortgage fraud cases awaiting investigation in the fiscal year2008-2009. Millions of dollars are lost due to ill-motivatedmisinterpretation or omission by the underwriter. This paper aims todiscuss mortgage fraud from the financial perspective.
This is an agreement that gives a financial lender the legalauthority to take the property of the borrower to raise the money incase of failure to pay in time. A mortgage is a form of security forloans given by banks.
This is a deliberate omission, misstatement or the misrepresentationof the details used in the approval of financial transactions that isrelated to mortgage. The transactions can be in the forms ofpurchase, modification and refinance. This is a financial criminalactivity that has huge monetary consequences for businesses,individual homeowners, and a country’s economy.
Types of mortgage fraud and how they are carried out
Mortgage fraud isa deliberate deception committed by borrowers and professionals inthe financial institutions. The lender or an underwriterintentionally omits facts or statements necessary for the completionof mortgage loans. Individuals also use fake document and use them toborrow money for housing (Nicole D. et al., 2014). Similarly,groups of connected individuals use similar surnames to clear debtsor purchase properties which they immediately sell at higher prices.
Mortgage fraudscan be grouped either as a fraud for profit and housing, with severaltypes of schemes and scams as discussed below. These classificationsfurther clarify how this modern white-collar crime is committed.
Mortgage fraudfor profit is convicted of helping the offenders gain illicitproceeds. There are multiple loans where a group of people developselaborate schemes with numerous roles throughout the transactionprocess of the property sales. These people intentionally forwardmisinterpreted versions of documents of appraisals and loans, withthe participants paid later.
In other cases,statements are produced where there is no property or borrower. Suchfrauds are called air loans. Here, the borrower has no interest inthe loan type, interest rate, and closing fee, while the parties usegeneric names or fictitious character names. All these applicationsare completed on their behalf by someone. There are discrepanciesbetween the credit report and applications differ in the addresses oremployment is the order of the day. Similarly, misleading photos areprovided as the identity of the lender, usually identified as theblank or unknown. What is more, an unlicensed appraiser performsthese whole processes.
The names and thesocial security number (SSN) of somebody are used without theirauthority to access loans. The SSN can be inconsistent with the dateof birth of the borrower, be a dead owner or the state of the issueshows that the borrower had resided (Bernstein A., 2015).
Money is alsolost through a pre-planned overvaluation of real estate property. Itsvalue is deliberately higher than the true market value. This iscalled appraisal. It involves using null comparable sales,inaccurate subject, and market information.
In this case, thefraud involves a false identification of the intention to occupy thehouse that is about to be purchased. The borrower fakes that thiswill be their place of residence, but they intend to make it a rentalinvestment property. It then priced at a higher value.
Senior lien release
This is wherefraudulent documentation is filed to release a senior lien. Thedocument number is not similar
The closing agentreceives funds from a mortgage lender for a loan closing and retainsthe loan proceeds without satisfying the existing liens. The fees areexcessive closing fees. On the same note, sales prices vary from thecontract contained in the contract document.
Other types ofmortgage frauds include short-sale where a home is resold after aninitial sale and straw buying. Straw buyers permit others to usetheir profiles to get a mortgage since they are disqualified fromdoing so. The buyer is paid when the case is a large fraud scheme ina property they will not use, but used by the law offenders in rentalearnings.
Mortgage fraud schemes
This scheme isdone by the collective efforts of people with attachment to oneanother, where the individuals having financial interestrelationships like professional, ethnic or religious connections. Thecommon surnames are provided for multiple parties in the commontactics like straw borrowers, altered income or asset documentation.
Mortgagefraudsters sort the owners of homes late with the repayment or on thebrink of foreclosure. They falsely commit to saving such places ofresidence from foreclosure or even a much-reduced mortgage payment.This kind of trickery cheats the owners that they will still use thehomes as rentals, with an option to buy them back in the future.
Effects of mortgage fraud
Mortgage fraudhas immense consequences not only to the government and the lendingcompanies it also hurts individuals in their private activities orjoint businesses. When the financial institutions fail to recover thelosses due to fraudulent borrowing, they resort to increasing theinterest rates. The private developers or personal borrowing sufferfrom the hyped rates hence reduction in the running of theirfinancial operations. At the same time, mortgage losses result intothe increase in the charges when one requests for loans. AccordingBernstein A., 2015), the United States has the lowest fees in housingloans. This has increased the number of residential ownership.However, with the increased cases of mortgage frauds, the rates haveincreased hence a reduction in the number of house owners.
Other than thenegative implications on the individual development issues, there arehuge financial losses incurred due to fraudulent mortgages. Forinstance, a fraud scheme on the Mae sisters in Los Angeles isestimated by the FBI to have cost over 18 million dollars (Fligstein& Roehrkasse, 2016).
Additionally, thefinancial crime has adverse consequences for the individual consumersregarding identity theft, higher property taxes as well as acompromised rating in credit. The consumer will also suffer from thedefaulted lending while their properties risk foreclosure.Furthermore, individuals are more prevalent to the exploits of equityskimmers who take advantage of the homeowners with eminentforeclosure.
Ramifications on the lenders
Although the FBIargues the 80% of mortgage frauds are committed by the financialinstitutions, they incur serious losses (Fligstein & Roehrkasse,2016). Millions of dollars are lost due to the corporation betweenthe workers in the banks and the fraudsters. The bureau’s financialcrime investigation department indicates that a Colorado mortgagebroker, with the help of six others, was found guilty of this crimeinvolving identity theft and fraudulent loans. As a result, thefederal insured institution lost about 35 million. In another case,MO Real Estate Investment Company in Kansas City was convicted ofstraw borrowing schemes of up to 11.8 million dollars in loss to thefederal insured financial institution.
Similarly, the lenders with high cases of mortgage frauds lose thetrust of the customers. When either a current customer or employee ofa particular institution is convicted of such crimes, the potentialborrower will act cautiously (Ryder N., 2014). This implies that thebank has reduced customers applying for loans. Any business thriveson a positive reputation, which financial frauds on serve to deplete.Besides, other investments in the real estate by such banks riskrunning further losses as they may attempt to lower the prices toretain and attract new customers.
Mortgage fraud isreal world crime taking the economies of great nations by the neck.The number identity theft, air loans, foreclosures and affinityfrauds increase by the day. These criminal activities rob oureconomies multi-billion dollars, while many cases go undetected.Sadly, the atrocities are committed by members of the society whom weentrust with money. The steps taken by the government through theFederal Bureau of Investigation to track down the mortgage offendersare plausible. More stringent measures should be taken on theconvicts while creating public awareness is mandatory.
Bernstein, G. A. (2015). The Role of Expectations in AssessingIntended Loss in Mortgage-Fraud Schemes. In University ofChicago Legal Forum(Vol. 2010, No. 1, p. 12).
Fligstein, N., & Roehrkasse, A. F. (2016). The Causes of Fraud inthe Financial Crisis of 2007 to 2009 Evidence from theMortgage-Backed Securities Industry. American SociologicalReview, 0003122416645594.
Nicole Stowell, J. D., Pacini, M. C., Schmidt, C. M., & Keller,K. (2014). Mortgage Fraud: Schemes, Red Flags, and Responses. Journalof Forensic & Investigative Accounting, 6(2).
Ryder, N. (2014). `The global financial crisis and mortgage fraud–theuntold story`. Financial Regulation International, 14-16.