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Whenever money is involved, there is a good chance that someone will try to obtain it by fraudulent means. Mortgage lenders rely on credit checks, employment verification, along with many other tools to protect themselves from falling victim to possible schemes. What types of fraud are most common? Keep reading to find out.
Fraud for Profit
Lenders can face a type of mortgage fraud that is called fraud for profit. This kind of fraud is usually performed by industry insiders with authority and knowledge, like appraisers, bankers, mortgage brokers, and even attorneys. These insiders will perform fraud through misrepresentation or omission. Their goal is not to secure a loan to obtain a property. Their goal is to steal equity/cash from lenders. This kind of fraud can be difficult for lenders to detect because the individuals who are involved are within the industry and thus are meant to be trusted.
Monitoring for Common Fraud Types
Some of the more common frauds are identity theft, false income claims, money laundering, and undue influence. These are all forms of misappropriation that can be committed by anyone in any industry. One means to watch for these issues is through the use of third-party due diligence companies to provide monitoring services for lenders. These monitoring services are free for companies to use, but companies are expected to pay what they refer to as a “transaction fee” or “administration fee.”
The problem is that the cost of the monitoring is paid for by all customers of the company.
So, if anyone’s customer’s loan is [flagged] through an investigation, all customers are penalized. This means the lender can end up paying more money out of their pocket for this service than what it would have cost them had they paid only for the monitoring of their clients.
The importance of monitoring is that it allows a system to be put in place that will not allow fraudulent actions to go entirely unnoticed. If a lender’s company is using another company to monitor their clients, and they notice something is wrong, they can go in and fix it and not have to pay the third-party company any fees. This saves the lender unnecessary money and avoids charges of fraud or theft.
4 Common Types of Fraud
The most common [types of] real estate fraud that mortgage lenders deal with include:
- foreclosure fraud
- identity theft
- predatory lending schemes
- false asset and income reporting
Some people will falsify documents to be approved for loans they otherwise would be denied from. Borrowers who intend to purchase and live in properties commit mortgage fraud as often as investors, who commit appraisal fraud to increase their chances of flipping homes! You must be transparent in your intentions and goals with your lender so you can work together in compliance with the complex laws.
