The Effect of
Mortgage Fraud
By Summer Banks
Photo: © JC Hix / Dreamstime
In the debate over what went wrong in the housing market, the issue of mortgage fraud arose as a culprit in many foreclosure situations. Borrowers were given loans that they were unqualified to receive—many times without proper income verification.
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In its simplest form, mortgage fraud occurs when a borrower lies about their income on a loan application in order to be approved for a larger loan amount. The lender unknowingly takes on a high-risk loan without benefiting from the higher interest rates associated with such loans.
Another example of mortgage fraud commonly occurs with investment properties. A borrower wants to obtain a mortgage to buy an investment property, but says the loan is for a property that they will occupy as their primary residence or as a second home. The borrower is able to get a lower interest rate for a property that they will occupy as their primary residence. Most lenders charge a higher rate for non-occupied properties because they tend to have higher delinquency rates.
Because of past abuses, the current lending environment has tightened considerably. With loan applications being scrutinized, it is imperative for loan applicants to collect financial documentation and maintain utmost honesty. |
