Data provided by analysts at CoreLogic indicates mortgage fraud increased by about 37% from the second quarter of 2020 to the second quarter of 2021. As Mortgage News Daily reports, one out of every 120 mortgage applications showed one or more categories of intended misrepresentation.
Applications for investment properties displayed the highest risk of fraud. One out of every 23 applications to buy or refinance an income-producing property contained some form of deception. Applications for loans backed by the Department of Veterans Affairs held less misrepresentation.
Various forms of mortgage fraud could surface
The largest year-over-year increase in mortgage fraud risk involves transactions. Transactional deception includes agreements made between parties that remain undisclosed to lenders. Parties may also note false numbers as down payments on their loan applications.
Some deceptive applicants may use “straw” buyers. As described by Fannie Mae, a straw buyer hides the identity of a true purchaser who may not qualify for a loan. Straw buyers may also engage in occupancy fraud by misrepresenting the loan’s purpose. Because of lower interest rates, an applicant may claim to buy a home as a primary residence. The intent, however, could reflect a different use, such as a vacation or rental home.
Creditors may investigate a potential buyer
The Corporate Finance Institute describes mortgage fraud as intentional misrepresentation to qualify for a loan. Falsifying income statements or overstating a home’s appraised value reflects mortgage fraud. To help avoid a complicated foreclosure procedure, lenders may choose to investigate borrowers for potential deceit.
Lenders may prevent a dishonest buyer from profiting through mortgage fraud. An aggressive legal action could help recover lost or threatened assets. Creditors may also provide information to law enforcement for possible prosecution.