Loan Fraud: A Four Part Special Report
Sometimes Committed By You And You Know It...
Sometimes Committed For You Without You Realizing It!
And… You Are Liable In Either Case!
Loan Fraud is being committed each and every day in mortgage lending. That is a fact… Period.
Fraud is getting more attention today than ever before. Why? Because there is a rippling effect of seriously rising rates of delinquency and foreclosure; and as I read recently, it is like the shockwave after an earthquake; the media, the Feds and every possible governmental and private regulating agency will be seeking reasons for the problems and solutions to them.
Below are the areas of fraud typically seen in home mortgage transactions:
1. Income: In most 99% of all mortgage transactions, one of the key areas of your financial picture that the lender is required to verify in writing and with documentation from your own records, a two year or more period of annual and monthly gross income and employment history. If a borrower is salaried or hourly W-2 type fixed income, it is pretty difficult one would think; to commit fraud.
That used to be the case. Now with technology, color and laser printers, lenders are seeing ‘manufactured’ employment pay stubs and W-2 forms. Sometimes it is obvious and blatant while at other times, it is nearly impossible to tell. Add to that, borrowers then have “their friend” (co-conspirator) perform the verbal verification or write the verification of employment for them. Yes, this does happen.
Those types of income or employment verification fraud are most often committed by the borrower and the lender doesn’t know.
When the business is booming and the lenders are extremely busy, many of the details and red-flags go undetected. When it is a more normal business pace, the lender has more time to dig deeper into the transaction and documentation and look for possible fraud. The sad thins is that it is a rising problem with seemingly declining honesty and morals… but that is for another discussion at a later time.
The other cases of fraud when it comes to income and employment are more often seen in the arena of the self-employed borrower and/or the executive that has a percentage of ownership in a company they work for. It is unbelievable how often we find completely ‘made-up’ tax returns and income documentation for self-employed and executive borrowers.
There is one set of tax returns that go the IRS, of course to show as little income as possible to save taxes; and there is a completely separate set of returns for the banks and mortgage companies to show as much income as possible to help qualify for their lending needs.
Then there is divulging ownership in a company. If a borrower has more than 10% ownership in a company, they are considered self employed and must not only divulge the ownership, but it causes the requirement of additional documentation and tax returns of the company itself to show stability and the ability to continue to pay income to the borrower. Whether it is not disclosed so that they do not want to or have to the supply the information or simply because the borrower didn’t realize the requirement, if it is not disclosed, they have committed fraud. More often than not, it is because the borrower wants to appear as a salaried; W2 employee.
Next we will discuss the other areas of income and employment fraud committed in mortgage lending that is much more prevalent and often committed by the loan officer as well as the borrower.
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