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Buyers Committing Fraud-Here’s Their Tactics!
Home/Buyers Committing Fraud-Here’s Their Tactics!
Buyers Committing Fraud-Here’s Their Tactics!Daniel Dobbs2025-03-13T09:33:59-07:00
Bad news for unwitting agents and MLOs who get pulled into these schemes if taken in by fraudsters.
Remember this: When the FBI calls, they’ll bring bracelets, but they won’t be from Nordys!
What is the first line (and best) of defense for agents to avoid being used by fraudsters? A close relationship with an MLO, with all the client’s financials, is the first to notice irregularities.
Because prices are up, interest rates are rising, and it’s becoming harder for buyers to qualify to buy a home, the lending industry is experiencing a wave of frauds not seen since the Great Recession.
Fannie Mae has seen scams mainly in California and Florida, but CoreLogic says they are nationwide.
And it’s being done by everyday buyers, compared to 2004-2008, when sophisticated rings consisting of fraudster appraisers, MLOs, straw buyers, and other real estate professionals perpetuated the fraud.
But fraudsters have just downsized their operations, become more sophisticated, and are trying to stay one step ahead of the investigators, FBI, and Treasury Department.
How’s this happening? –The Internet Makes it Easy.
Researchers say applicants can go online to find sites to create customized pay and employment records, which the loan officer sometimes confirms by calling an “employer” that doesn’t exist.
Here’s a quick overview:
This is the fastest-growing form of application fraud, but other misrepresentations are also rising.
Fannie recently warned lenders via several alerts about a loan fraud technique in which applicants claim to work for specific companies that provide income and employment information that appears valid but is fraudulent.
Applicants often claim to have been students immediately before their current employment. This makes it difficult or impossible for lenders to pull tax transcripts from the IRS for the year spent as a “student.”
Applicants also claim salaries that appear to be high for their age or experience.
“The typical scenario is a new job with a significant pay increase or a high-paying first job out of college,” CoreLogic said in its fraud report. “Fake employer setups are well-organized & provide pay stubs, phone verifications” & fake diplomas. “These services are openly advertised on the internet” and feature multiple levels of services and fees.
In an interview, Bridget Berg, CoreLogic’s senior director of fraud solutions, said, “The increase in fraud by home purchase applicants is partially a function of what’s going on in the market”—large numbers of would-be buyers squeezed out by rising prices, frustrated by not being able to afford what they want, and motivated to “embellish” or make stuff up.
Most applicants don’t consider their actions fraudulent; they self-delude themselves because the income they report to the IRS is lower than their actual earnings before tax deductions for expenses.
Other lenders say too many borrowers don’t consider ethical truth on mortgage applications to be all that important. However, it’s bank fraud, and it comes with severe potential penalties, including fines and imprisonment.
Other Most Common Mortgage Fraud Schemes
1) Undisclosed Liabilities such as alimony, child support, tax payment programs, or any other debt that doesn’t appear on a credit report.
2) Misrepresentation of Credit. “My credit is pretty good” is always a precursor to finding out their FICO scores are low, usually very low!
3) I.D. theft and Social Security number discrepancy is rare due to the credit reforms enacted in 2016
4) Misrepresentation of assets. Borrowers frequently add their names to parents’ or other persons’ accounts and then try to claim the money as “joint” ownership—but it’s not!
5) Occupancy Fraud: Applicants tell lenders they plan to live in the house they are buying, but instead, they rent it out, sharply raising the risk of default and loss for the unsuspecting lender.
6) Equity Skimming / Straw Buyer: An investor may use a straw buyer, false income documents, and false credit reports to obtain a mortgage loan in the straw buyer’s name. After closing, the straw buyer signs the property to the investor in a quit claim deed.
7) Silent Seconds: The property buyer borrows the down payment from either the seller or another 3rd party and declares the loan as “gift money.”
The lender believes the borrower has invested their own money in the down payment when it is borrowed and in a non-disclosed second mortgage.
The 2nd mortgage may /or may not be recorded to conceal its status from the primary lender further.
How to Report Mortgage Fraud
HUD: If the case involves a mortgage insured by HUD, agents can report directly to HUD’s Office of the Inspector General (OIG). The OIG has a law enforcement arm that conducts criminal investigations.
To contact: Phone: (800) 347-3735 Email: hotline@hudoig.gov
Address: HUD OIG Hotline (GFI), 451 7th Street, SW, Washington, DC 20410
Fannie/Freddie: If the case involves a mortgage owned by Fannie or Freddie, you can report the fraud directly to them.
While they don’t conduct criminal investigations, they will open an internal investigation and, if they prove fraud, report to the criminal authorities.
Report possible fraud directly to Fannie at Mortgage Fraud Tips at 1-800-2FANNIE (1-800-232-6643).
Freddie Mac’s Mortgage Reporting information is:
Phone: (800) 4FRAUD8 (437-2838) 8 am-5 pm (EST)
Fax: 571-382-4883
E-mail: mortgage_fraud_reporting@freddiemac.com
Mail: Attn: Financial Fraud Investigation Unit
8200 Jones Branch Drive..McLean, VA 22102-3110
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