Mortgage fraud is a growing concern that affects many homeowners, especially those experiencing financial difficulties or those eager to sell their homes.
Scammers often target these individuals, exploiting their vulnerability with fraudulent schemes.
To protect yourself and your home, it’s important to understand the types of mortgage fraud and learn how to recognize and avoid them.
This guide will provide you with practical steps to safeguard against mortgage scams.
Types of Mortgage Fraud
1. Fraud for Housing
This occurs when a borrower provides false or misleading information to qualify for a mortgage they otherwise would not be able to afford.
This type of fraud can be facilitated by dishonest mortgage professionals who may help the borrower falsify income, employment history, or asset documentation.
Motivation: The primary driver is the strong desire to become a homeowner. Borrowers may believe that the chances of detection are low and that the benefits outweigh the risks.
Consequences: Fraud for housing is a federal crime, and those involved can face criminal charges and severe penalties. Lenders use detailed verification processes to identify and prevent these scams.
How to Spot It:
- Pressure to Falsify Information: Be cautious if you are encouraged to misrepresent your income or employment details.
- Incomplete Documentation: Watch for loan officers who suggest shortcuts or overlook essential paperwork.
2. Fraud for Benefit
This type of fraud typically involves multiple parties collaborating to deceive either a lender or a homebuyer.
For instance, a mortgage officer may work with an appraiser to inflate a property’s value or use a “straw borrower” who poses as a legitimate buyer.
Examples:
- An appraiser overvalues a property to secure a larger loan.
- A loan officer collaborates with a processor to create fictitious credit profiles.
How to Spot It:
- Inflated Property Values: Be cautious if property valuations seem unusually high compared to similar homes in the area.
- Suspicious Relationships: Question any unexplained partnerships between professionals involved in your mortgage process.
3. Fraud for Profit
This type of fraud is often carried out by organized criminal groups looking for financial gain.
Fraud for profit includes schemes like falsifying property values or using stolen identities to obtain multiple loans on the same property.
Motivation: The appeal lies in the potential for high financial returns with relatively lower risk compared to other types of crime.
How to Spot It:
- Unsolicited Offers: Be wary of unsolicited help that promises to modify your mortgage or save your home.
- Upfront Fees: Fraudsters often ask for upfront payments for services that may never be provided.
Warning Signs of Mortgage Fraud
To protect yourself, recognize these common red flags:
- Guaranteed Loan Approvals: No lender should promise guaranteed approval, especially if you have poor credit.
- Pressure Tactics: Scammers often pressure you to act quickly without giving you enough time to read or understand the documents.
- Requests for Personal Information: Be cautious if someone asks for sensitive information without proper credentials.
- Offers that Seem Too Good to Be True: If a deal sounds much better than anything else you’ve been offered, it could be fraudulent.
Steps to Protect Yourself
1. Verify the Credibility of Professionals and Organizations
- Check Credentials: Ensure the mortgage lender or counselor is registered and accredited. Use tools like the Nationwide Multistate Licensing System (NMLS) to confirm their legitimacy.
- Consult the Better Business Bureau (BBB): The BBB provides ratings and information on complaints about companies, which can help you assess a lender’s reputation.
2. Get Everything in Writing
- Document Promises: If a loan officer or mortgage professional makes any promises, ask for them in writing. This helps ensure transparency and protects you if something goes wrong.
- Read All Documents Carefully: Don’t rush the process. Take your time to read and understand the terms, conditions, and fine print.
3. Use Reputable Sources
- Work with HUD-Approved Counselors: The U.S. Department of Housing and Urban Development (HUD) offers approved counselors who can guide you through legitimate mortgage assistance programs.
- Consult Your Lender Directly: If you are facing difficulties, speak directly with your current mortgage lender to explore refinancing options or assistance programs.
What to Do If You Suspect Fraud
- Report It: Contact the Federal Trade Commission (FTC), your state’s attorney general, or the Consumer Financial Protection Bureau (CFPB) to report suspected mortgage fraud.
- Preserve Evidence: Keep copies of all documents, emails, and communications related to the suspicious transaction.
- Alert Local Authorities: Depending on the situation, involving local law enforcement may be necessary to prevent further fraudulent activities.
Mortgage fraud can be complex and challenging to spot, but by educating yourself on the types of scams and their warning signs, you can better protect your home and finances.
Always work with trusted and verified professionals, stay vigilant, and report any suspicious activity.
Remember, being informed is the best way to guard against mortgage fraud and ensure a secure financial future.
