I just came across this absolutely great article that I'm reprinting in its entirety, unchanged from our local Realtor Association put out by NAR about mortgage fraud. Coincidently, I have a close associate that has fallen victim to mortgage fraud of which she was involved in a transaction over  Five (5) years ago. Thank goodness she has all the documentation in order counter all the accusations. Take a moment to read and answer the question, the answer to the question are located below as well.

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Mortgage fraud results in an estimated $4 billion to $6 billion in annual losses in the United States, and the number of cases reported continues to skyrocket each year. Mortgage fraud can encompass elaborate schemes that involve anything from inflated property values, undisclosed kickbacks, identity theft, and preying on home owners facing foreclosure. Even more alarming, sometimes the perpetrator may be your client. How much do you really know about mortgage fraud? Take the quiz below to test yourself.

1. Which of the following is a common type of mortgage fraud?

Property flipping
Equity skimming
Inflated appraisals
All of the Above

2. Mortgage fraud can involve a person with good credit who agrees to provide his or her name to help someone with bad credit to obtain a loan. What is that person usually referred to?

Impostor
Guarantor
Straw buyer
Grantor

3. Which government agency investigates mortgage fraud?

Internal Revenue Service
FBI
U.S. Secret Service
All of the Above

4. In a foreclosure rescue scam, home owners are often told that their homes can be saved from foreclosure if they do what?

Complete a short sale
Pay upfront fees and transfer the deed
Use a straw buyer
All of the Above

5. What is the mortgage fraud scam called when a buyer borrows the down payment from the seller without the lender's knowledge?

Equity skimming
Air loan
Silent Second
All of the Above

6. Which of the following constitutes mortgage fraud?

Selling a home for less than the seller's mortgage
Buyer immediately rents the property without notifying the lender
Borrower refinances mortgage every year
All of the Above

7. Which of the following items below could serve as a warning sign to possible mortgage fraud?

No money-down loans
Overstating income on documents
Signing a document containing blanks
All of the Above

8. What are the two distinct areas of mortgage fraud that the FBI investigates?

Bank fraud and illegal steering
Straw buying and bait and switch
Undisclosed kickbacks and electronic crimes
Fraud for profit and fraud for housing

9. Who are usually the perpetrators found to be involved in the majority of mortgage fraud losses?

Family members
Housing industry and mortgage professionals
College roommates
Ex-cons

10. What do many experts believe is the key to combating the majority of the largest losses from mortgage fraud?

Tougher penalties for perpetrators
Outlaw property flipping
Mandatory background checks for all parties
Accurate appraisals

Answers to above Questions:

1. Which of the following is a common type of mortgage fraud?

All of the Above
Mortgage fraud consists of misrepresentation, misstatements, and omissions during the loan process. One common scam of equity skimming involves a fictitious company that threatens bankruptcy or foreclosure to trick home owners and investors. Illegal property flipping is when properties are purchased, values then inflated through false appraisals, and the property is repurchased numerous times at a higher price. With inflated appraisals, an appraiser, working with a borrower, provides a higher property value than what the home is really worth.

2. Mortgage fraud can involve a person with good credit who agrees to provide his or her name to help someone with bad credit to obtain a loan. What is that person usually referred to?

Straw buyer
The straw buyer (or nominee) pretends to be a legitimate buyer by allowing his or her name or credit history to be used when applying for a loan for someone who is unable to obtain one or who wants to keep his identity concealed. The straw buyer is usually given cash in exchange for the use of their name on the mortgage application.

3. Which government agency investigates mortgage fraud?

All of the Above
No centralized reporting agency exists for mortgage fraud complaints or investigations. As such, several national, state, and local agencies collaborate to investigate mortgage fraud, including the FBI, IRS, and the U.S. Secret Service. To report any mortgage fraud or suspicious scams, visit www.stopfraud.gov or contact your state and local consumer protection agency.

4. In a foreclosure rescue scam, home owners are often told that their homes can be saved from foreclosure if they do what?

Pay upfront fees and transfer the deed
The number of foreclosure rescue schemes continues to increase. Home owners in foreclosure or who are at risk of defaulting on a loan are misled by perpetrators into believing that their homes can be salvaged by transferring the property deed and paying upfront fees to an unlicensed company. The perpetrator often will just run off with the upfront fees collected or, in extreme cases, get a second loan on the property or even sell the home without the home owner's knowledge.

5. What is the mortgage fraud scam called when a buyer borrows the down payment from the seller without the lender's knowledge?

Silent Second
A borrower commits mortgage fraud when he or she takes part in a silent second mortgage. This is when a buyer borrows the down payment from the seller in order to purchase the house but fails to disclose the source of the down payment to the lender. Since this is a loan that will need to be repaid, it counts as debt, and the lender needs to figure it into the borrower's debt to income ratio.

6. Which of the following constitutes mortgage fraud?

Buyer immediately rents the property without notifying the lender
If the buyer does not intend to live in the property, he or she must disclose that to the lender. Lenders charge higher premiums to buyers who will not be taking occupancy or who are purchasing it as an investment property, since lenders perceive them as a higher risk/

7. Which of the following items below could serve as a warning sign to possible mortgage fraud?

All of the Above
These all can serve as warning signs of mortgage fraud. Overstating income to qualify for a larger mortgage is fraud. Also, blank lines should never be left on loan documents because information can be added by someone else after the borrower has signed it. If there are any blanks, "N/A" (or not applicable) should be added or the blanks should be crossed through.

8. What are the two distinct areas of mortgage fraud that the FBI investigates?

Fraud for profit and fraud for housing
With fraud for housing, which usually only involves a single loan, a borrower misrepresents or provides false information (such as by overstating income on loan documents) in order to purchase a home or get a lower interest rate. The borrower usually intends to make mortgage payments. However, with fraud for profit crimes, the borrowers generally have no intention of paying the mortgage and the objective is usually to default on the loan so that the home lands in foreclosure. Fraud for profit crimes are usually more severe since these schemes are often more complex and  involve more parties, multiple loans, and higher dollar losses.

9. Who are usually the perpetrators found to be involved in the majority of mortgage fraud losses?

Housing industry and mortgage professionals
Industry insiders who work in the mortgage and real estate business are the most familiar with the mortgage loan process and, therefore, often are the perpetrators of mortgage fraud for profit crimes. In fact, it's estimated that about 80 percent of the mortgage fraud losses come from those who work in the housing industry, such as appraisers, accountants, attorneys, real estate brokers, mortgage underwriters/processors, settlement/title company employees, mortgage brokers, and loan originators, according to the FBI.

10. What do many experts believe is the key to combating the majority of the largest losses from mortgage fraud?

Accurate appraisals
Appraisal fraud tends to be linked with the most significant losses in mortgage fraud. "Inflated appraisals are at the root of most real estate scams, including illegal flipping, cash back at closing schemes, and refinancing rip-offs," authors Ralph R. Roberts and Rachel Dollar write in Protect Yourself From Real Estate and Mortgage Fraud (Kaplan Publishing, 2007). The authors note that an unbiased and accurate appraisal protects everyone in a transaction -- buyers are assured they're paying fair market value and lenders know the property is worth enough to justify the loan.

Source: NAR

Printed from REALTOR® Bytes dated September 17, 2010

© 2010 Greater Las Vegas Association of REALTORS®

This article, with this notice and attribution, may be reprinted and/or distributed by GLVAR members, but cannot be altered. All other rights reserved.

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