Over the course of the second quarter of 2018, mortgage fraud climbed 12.4% year over year. Income misrepresentation in the second quarter increased by 22.1% over the same period in 2017. Currently, approximately 1 in every 109 mortgage applications has false or misleading information. Since the housing market is booming, prices are climbing and demand is cutthroat, mortgage fraud is on the rise, and the buyers engaging in it might surprise you.
The State of Mortgage Fraud
Fraud is most common with conforming mortgages that have loan-to-value ratios of <80%. The states with the highest prevalence of mortgage fraud are New Jersey, New York and Florida. Currently, the type of fraud increasing the fastest is income fraud, as home buyers struggle to prove income that meets the requirements for purchasing a home. As prices continue to rise, lenders and realtors should be aware that fraud will become even more prevalent.
Income fraud occurs whenever a mortgage applicant misrepresents the existence, continuance, source or quantity of income. In most cases, the applicant will overstate income with the hopes of being approved for a larger loan. Due to the rising costs of homes in a competitive market, many homebuyers who would never consider altering important information are feeling pressured to do so or miss out on a dream home.
This type of fraud is also slightly growing in prevalence thanks to home-renting services like Airbnb. In occupancy fraud, a mortgage applicant will intentionally misrepresent the intended use of a property as an investment, primary residence or secondary residence. Airbnb blurs the line between what is an investment property and a primary residence, and investment properties will often receive less-favorable interest rates.
This type of mortgage fraud occurs whenever the buyer is misrepresenting the nature of the transaction. If there is a behind-the-scenes agreement between the seller and the buyer, falsified down payments or the utilization of a straw buyer, those would all be classified as transaction fraud. Transaction fraud can also occur when a buyer borrows money from a family member off the record to make a down payment. By treating that loan as a gift, the buyer will appear to have less debt and potentially be approved for a loan that otherwise would have been denied.
Identity fraud still remains a common type of mortgage fraud. Identity fraud is more far-reaching than many real estate agents understand, as it can include using a false identity, altering identity or altering credit history.
Prevent Title and Mortgage Fraud with Homeland Title & Escrow
Homeland Title & Escrow offers a broad range of title services, including complimentary consultations for first-time homebuyers. To learn more about our services, give us a call at (410) 544-6700.