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Mortgage Fraud presentation from Freddie Mac
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Topics
Mortgage Fraud Defined
Common Fraud Schemes and Fraud Elements
Tips and Best Practices
Resources
Reporting Mortgage Fraud
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Mortgage Fraud Defined
“The intentional misstatement, misrepresentation, or omission by
an applicant or other interested party, relied upon by a lender or
underwriter to provide funding, or to purchase, or to insure a
mortgage loan.”
– FBI, 2007 Mortgage Fraud Report
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Common Fraud Schemes/Fraud Elements
Common Fraud Schemes:
Investment Property Schemes
Illegal Property Flips
Common Fraud Elements:
Appraisal Fraud
Straw Buyers
Affinity Fraud
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Investment Property Schemes
Investment property schemes usually occur when there are one or more investment properties sold to a buyer.
The buyer is usually told by the person running the scheme that they are not required to place any money down for the purchase of the property/properties, that the rents will cover the mortgage payments, and they may receive an incentive such as cash back at or after closing for purchasing the property/properties.
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Investment Property Fraud
“No, I never went to look at this investment property that I was
buying. I believed what I was told.”
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Illegal Property Flips
Illegal property flips involve a scheme where recently purchased properties are quickly resold to obtain an illegal profit based on an inflated appraisal report. Illegal property flips typically involve a conspiracy between the fraud organizer, real estate appraiser, loan originator, and the closing agent.
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Illegal Property Flips
Common elements of an illegal property flip are:
– Use of a fraudulent, artificially inflated appraisal
– Usually done with investment property originations
– Organized by the property seller and/or another third party
– Property flips may not be illegal – you need to know what the intent is
– The buyer of the property may not be aware of the illegal property flip
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Appraisal Fraud
Appraisal fraud is not a difference of opinion. Appraisal fraud occurs when the property appraiser deliberately overstates the value, misstates, and/or omits facts that impact the property value relied upon by the lender to originate the loan.
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Appraisal Fraud
What you see:
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Appraisal Fraud
What you get:
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Appraisal Fraud
Renovations never done!
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Straw Buyers
A straw buyer (straw) is a person whose credit profile is used to serve as a cover in a loan transaction. They are sometimes referred to as a nominee borrower or straw borrower.
Straw buyers may be deceived, thinking that they're investing in real estate that will be rented out, with the rental payments paying the mortgage.
Straw buyers are chosen for their ability to qualify for the mortgage loan. Straws can be willing participants in the transaction, or victims whose identity is being used unbeknownst to them (identity theft).
Straw borrowers can cause loans to be approved that would ordinarily be declined.
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Straw Buyers
Straw Buyers usually have good credit and high Fair Issac Corporation Scores (FICO) scores
Straw buyers are often enticed by “get rich quick” come-ons…
“Your total contribution is your credit and qualifying for the loan.”
“Make $$$ per deal…for your partnership contribution!”
“At which point, we will put you on another deal to keep the money coming in for you!”
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Straw Buyers
Straw buyers:
May be helping a friend or family member purchase a home
May be paid a large fee for their involvement in purchasing investment property/properties
Usually never intend to own or occupy the property
Are used in combination with many other scams
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Affinity Fraud
Affinity fraud exploits the trust and friendship that exist in groups of people who have something in common. The scam artists who promote affinity fraud schemes frequently are – or pretend to be – members of the group.
“You can trust me, because I’m like you.”
“I’ve made money on this deal and you can too.”
“Believe me, I can help you.”
“You remind me of how I was…”
“I can help; I understand.”
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Affinity Fraud
Affinity Groups
Schemers prey on their own community:
National origin
Religious affiliation
Friends
Family
Co-workers
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Affinity Fraud
Affinity GroupsHow it works:
Immediate level of trust
Others in the group have done it, and made money
High returns are paid to early investors and become walking and talking “commercials”
Immigrants are often targeted due to language barriers and isolation
Loyalty to the group – not reporting schemers or monetary losses to authorities
Shame – keeping quiet and maintaining honor
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Tips and Best Practices
Beware of unsolicited offers to buy real estate
Beware of enticing offers or sales concessions
Seek legal advice prior to buying in any investment property opportunity
Physically inspect the property you are buying with a licensed home inspector
Beware of investment property opportunities where you are offered cash back after closing – say NO to “easy money”
Seek legal advice if a “too-good-to-be-true” incentive is part of the purchase transaction
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Tips and Best Practices
Do not lend your name and credit for investment opportunities
Get important information in writing
Provide accurate information on your loan application
Check the accuracy of the information on the loan application, purchase contract and loan documents
Beware of requests to pay funds to parties not involved in the transaction
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Tips and Best Practices
Know your finances and how much of a mortgage payment you can afford
Consult a lender of your choice for mortgage pre-approval
Get lender references from known reputable sources and know who you are working with
Know your market or contact a real estate agent of your choice to familiarize yourself with the neighborhood and what homes are selling for
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Tips and Best Practices
Do not sign any documents you don’t understand. If you're not sure, don't sign
Do not sign any blank documents
Familiarize yourself with your HUD-1, Settlement Statement
On the HUD-1, make sure that it:– Is issued by the closing agent– Indicates your loan amount– Indicates your down payment and funds needed to close– Shows complete accounting of all loan fees and charges
Do not sign any document containing false information
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Resources
www.mbafightsfraud.mortgagebankers.org
Reporting Mortgage Fraud
Freddie Mac’s Fraud Hotline: (800) 4FRAUD 8 or (800) 437-2838
Contact your state's attorney general office
– Locate your state attorney general through the Consumer Fraud Reporting Web site available atwww.ConsumerFraudReporting.org/StateAttorneyGeneralList.php
