4 Ways to Spot Mortgage Fraud

[Jun 4, 2009.]

 

The headlines keep rolling in from around the country: “Five indicted in mortgage fraud scheme that targeted banks and home sellers,” and “Man gets 65 months in prison for mortgage fraud.” Scams involving mortgages have been around a long time, but have taken on a new life as the credit crisis has deepened and desperate homeowners look for a way out of their mortgage woes.

President Barack Obama recently said the Treasury Department received 62,000 reports of mortgage fraud last year. He just signed the Fraud Enforcement and Recovery Act that is aimed at helping law enforcement officials crack down on mortgage fraud and predatory lending, which both contributed to the current financial crisis.

As recent headlines show, mortgage fraud can happen anywhere. Here are four ways to spot a scam.

—Homebuyers are asked to buy and resell homes with falsified mortgage loan documents and phony appraisals. Dishonest people who work in the mortgage industry may be involved in this type of scam and may encourage people looking for a mortgage to inflate their income or assets to qualify for loans they can’t really afford. In the past, mortgage lenders didn’t always check loan applicants very thoroughly, but now they are scrutinizing mortgage applications and requiring a lot of documentation so there is a bigger chance of getting caught.

—Homebuyers are asked by dishonest mortgage brokers to use fictitious credit profiles to purchase homes. People are enticed to participate  by the promise of a large sum of money after the transaction is completed.

—Homeowners are approached by strangers who promise to help them avoid losing their homes. Foreclosure rescue schemes often involve the fraudster promising to pay off a delinquent mortgage if a homeowner deeds the title to their home to them. Homeowners get pulled into this scam because they are told they can continue renting the home until they are able to buy it back. In some cases the scammer may actually pay off the delinquent mortgage loan, but they also will help themselves to the equity in the home and disappear with the money, leaving the homeowner in worse shape than before.

—The deal to obtain a mortgage loan is too complex to understand. It’s a bad sign if a mortgage lender won’t explain how a loan works or is evasive about the details of a real estate transaction.

Mortgage fraud costs the lending industry about $4 billion to $6 billion a year, according to the Prieston Group, a diversified risk management consulting company. People who are buying and selling homes should guard their wallets and investigate anyone wanting to do business with them before entering any contracts.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.