A mortgage is a long-term financial contract secured by the property that it helped to finance. Many people spend decades paying off their mortgages or even longer if they refinance and take equity out of their home for renovations or other expenses.
Securing a mortgage that is valued high enough to buy the home of your dreams can feel like a real challenge as a home buyer. So can helping well-intentioned clients if you work as a mortgage broker. Mortgage fraud often occurs with what the average person would consider “good intentions.”
The financial professional or real estate buyer usually actually intends to follow through with the transaction. In some cases, though, mortgage fraud is so extreme that it involves creating fake properties. Even if you don’t go to such lengths, you could still find yourself accused of mortgage fraud over much less involved schemes. What are two of the most common kinds of mortgage fraud?
Occupancy fraud
The best interest rates apply to mortgages for primary residences. Even those struggling with financial hardship will typically do everything in their power to keep their home, so banks are often comfortable taking a little bit more of a risk and charging less for financing for an owner-occupied property.
Occupancy fraud involves lying about your intention to live at the property full-time to secure a better interest rate. It can impact taxes and escrow withholdings, which can potentially lead to many messy situations.
Income exaggeration
Most lenders don’t want to finance you for a mortgage that equates to more than roughly 30% of your monthly income. If you are close to qualifying for the right amount, you might try claiming that you recently got a raise and will have a higher income in the future. Some people go so far as to set up fake phone numbers and create fake authentication for their supposed new and higher income.
Brokers can easily commit these kinds of mortgage fraud, too. They might check the box on the application so that it says owner-occupied or encourage their clients to artificially inflate their income. Some might even connect clients with the services to trick the mortgage company.
Homeowners committing mortgage fraud for housing and brokers committing fraud for profit could face criminal prosecution if lies on a mortgage application later come to light. Learning about different kinds of white-collar criminal offenses like mortgage fraud can help you avoid unintentionally breaking the law.