This refers to a crime whereby the intent is to materially misrepresent information on a mortgage loan application to get a loan or a larger loan than the previous loan which could be obtained had the borrower known the truth. Several types of mortgage fraud exist, and this include air loan, straw buying, and double-sales. In addition to individuals that partage in mortgage fraud, it is not common to fine large scheme mortgage fraud. This has posted a big problem to an extend that, the United State Department of Justice and Federal Bureau of Investigation introduced “Operation Malicious Mortgage” which serves as a special operation for the investigation and prosecution of such cases.
Mortgage fraud in exist in two distinct areas which are: fraud for profit and fraud for housing.
- Fraud for profit: this type of mortgage fraud is committed mostly by industrial insiders who used their specialized knowledge or authority to encourage or commit the fraud. Some investigations recently carried out shows that high percentage of mortgage fraud is because of collusion by industry insiders, mortgage brokers, loan originators, appraisers, bank officers and other professionals that are engaged in the industry. Fraud for profit does not aim at securing housing but rather to mismanagement the mortgage lending process to steal cash and equity from those who serves as the lenders or homeowners.
- Fraud for housing: this is a type of mortgage fraud whereby it is typically practice by a borrower through their illegal actions taken to acquire or maintain ownership of a house. For instance, the borrower may decide to misrepresent income and asset information on a loan application or lure an evaluator to fraud a property’s assessed value.
Apart from the two main areas whereby mortgage fraud does exist, there are also several types of mortgage fraud. This include;
- Straw buyers; these are loan applicants which are used by fraud committers to get mortgages and are also used to mask the real buyer.
- An air loan on the other hand refers to a loan whereby a non-existing buyer on a property that does not exist.
- A double sale refers to the sale of a single mortgage note to more than one investor thereby creating a problem to the investors and causing the sale agent to have a double profit on a single mortgage note.
- Illegal property flipping is also another form of mortgage fraud. This is a situation where a property is bought and resold quickly at an insincerely exaggerated price using falsely inflated assessment.