How to Protect Yourself from the (Growing) Risk of Mortgage Fraud

Tina Russell/The Penny Hoarder

Everyone’s wary of mortgages with bad terms. But you may not be aware of another kind of mortgage danger: fraud.

Analysis of residential mortgage loan applications by CoreLogic revealed this week that the risk of mortgage application fraud has increased in the past year.

In the second quarter of 2017, an estimated one in every 122 mortgage applications contained fraud. In the second quarter of 2018, that estimate increased to one in every 109 mortgage applications.

The overall risk of mortgage application fraud has increased 12.4% since last year, the report notes.

One of the factors influencing this risk increase? In the years during and after the recession, the housing market was thick with refinancings rather than new mortgages. As the economy has improved, more new mortgage applications have been submitted.

“Because home prices are rising and demand for homes is strong, most mortgage fraud in this type of market is motivated by bona fide borrowers trying to qualify for a mortgage,” Bridget Berg of CoreLogic explained in a release. “Undisclosed real estate liabilities, credit repair, questionable down payment sources and income falsification are the most likely misrepresentations.”

What Is Mortgage Fraud?

The FBI categorizes mortgage fraud in two categories: fraud for profit and fraud for housing.

Fraud for profit is often committed by industry professionals who take advantage of homeowners and lenders.

Fraud for housing occurs when a borrower commits fraud in order to get or keep a home.

Within those categories, CoreLogic tracks six specific types of mortgage fraud risk:

  • Income fraud: When income sources or amounts are falsified.
  • Occupancy fraud: When mortgage applicants aren’t honest about whether a home will be a primary residence, secondary residence or investment property.
  • Transaction fraud: When anything about the exchange of funds, such as a down payment, are falsified.
  • Property fraud: When claims about the property or its value aren’t true.
  • Debt fraud: When a mortgage applicant doesn’t disclose their past foreclosures or other real estate debt.
  • Identity fraud: When an applicant’s identity or credit history are altered, or a stolen identity is used to get a mortgage.

CoreLogic found that income fraud risk increased the most since last year’s report.

How to Recognize — and Avoid — Mortgage Fraud

It’s easy to say you’re savvy enough to avoid being the victim of mortgage fraud. But the process of buying a home is stressful, and red flags can be tough to spot when you’re looking at a potential home through rose-colored glasses.

Andrea Oh, policy advisor at the Mortgage Bankers Association, said that requests from real estate and mortgage professionals deserve your close examination.

“Emails cannot always be trusted, and any exchange must be held on a secure portal,” she warned. “When preparing to wire funds, confirm recipient account information specifically on the phone with your representative, and contact your bank or financial institution if any request looks suspicious.”

In addition, don’t give in to pressure from anyone who wants you to alter information on your mortgage application. By fudging the details, you could be participating in mortgage fraud without even realizing it.

Lisa Rowan is a senior writer at The Penny Hoarder.