Now, aside from the typical, average W2 employee, we have income that can be more difficult to predict, document and prove. This would be income from commissions, overtime, bonuses, and of course, the self employed borrower where the income is a combination of salary and/or profits and cash flow.
If the loan officer and borrower are unable to or unwilling to document income in the manner required by standard lending guidelines (2 year tax analysis, year-to-date profit and loss statement, etc) they often choose one of the many more exotic or creative loan programs where there is a reduced requirement for documentation.
These are known in terms such as: stated-income, no-income, no-ratio, and no-doc, among others. And it is here where we see the greatest potential for fraud. Let me first state what the actual guidelines intend in these type loans...
The reason these programs exist are in reality simply to make it easier for the borrower that would rather not give their personal information or due to time constraints, can not gather all the information in time for a full-documentation loan. These were originally targeted only to those borrowers with very high credit scores but have been expanded to borrowers with scores in the lower ranges.
That said, they were never intended for the borrowers to be able to misrepresent their income, exaggerate their numbers and in so commit fraud to be able to qualify for more house than they can actually afford. This, unfortunately is the area where the lender (loan officer) is guilty of committing fraud just as often as the borrower and in fact often does so without the borrower realizing. Loan officers get paid to close loans. If they don't see the documentation needed to qualify by standard underwriting guidelines, they simply change programs to a reduced income documentation loan and either in agreement or in secret, exaggerate the income just enough to qualify. That is fraud.
Now if the borrower truly does believe they make that income, and either due to very creative accounting or unavailable documentation chooses not to provide the documentation and go with a reduced document type program, that is within the true intent of those programs. There may even be times there a borrower has income sources that they can not document (side jobs they do for cash, or income the get from roommates or some other non-wage income) and that is still within the guidelines and intent of that program. All those are OK.
In closing, just remember... if you are flat-out lying about the income, it is fraud, PERIOD. I would estimate that half the time the borrower knows it is fraud and goes along with it and the other half the time the borrower didn't realize it at all. The programs exist that allow a borrower to exaggerate and commit fraud and as long as they exist, they will be exploited. Fraudulently so.
Be careful, because if you ever go late or delinquent on your mortgage payments, the first thing the lender will do is look for fraud and any reason they can to support a foreclosure action.
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