Mortgage Fraud Responsible for Foreclosures?
The prevalence of foreclosures in the United States these days may make you wonder what exactly went wrong, especially if you're one of the millions of Americans worried about losing your home. Recent reports from the FBI suggest that various kinds of fraud may be part of the problem.
If you're like most people, you probably think of evil, malicious corporations cheating people out of millions when you hear the word "fraud." In reality, fraud is much more mundane and commonplace. In fact, the FBI has found that many homeowners may have inadvertently committed some form of fraud when applying for their home loans.
The FBI report on 2006 mortgage fraud divides fraud into two major types: borrower fraud and lender fraud. You may already be familiar with lender fraud. In fact, you may be a victim.
Lender fraud consists of misrepresentation of a home's value or the terms of a mortgage. Not explaining that a low introductory rate may reset after a specific period of time, for example, is a form of mortgage fraud.
Another common practice is "flipping," in which someone buys a property, invests a minimal amount of money to superficially fix it up, gets a falsely-inflated appraisal, and resells the property for a significant profit. The false appraisal is the key factor that makes flipping illegal.
In one example of mortgage fraud, reported by the department of Finance and Accounting at Arizona State University, scammers asked investors to "lend" their names and social security numbers for a minor amount of cash as compensation.
The scammers then used the information to buy properties with outlandish mortgages, kept the profits, and left the scammed individuals with heavy mortgages on their hands. In many cases, the department reports, the victims didn't even have keys to the properties they were paying for!
But there are other kinds of fraud, too. According to the FBI, any "intentional misstatement, misrepresentation or omission" by someone trying to get a loan is considered fraudulent. Such behavior was common during the housing boom, the report states, and the borrowers involved usually had good intentions.
In most cases, borrowers "embellish[ed] income and conceal[ed] debt, [but] their intention [was] to repay the loan," the report states. For many well-meaning borrowers, the sudden bursting of the housing bubble meant that mortgages reset or property value plummeted before they were able to resell their house or alter the terms of their loan.
Now, many families are facing the consequences of a practice they may not have even realized was illegal. And, according to FBI investigations, fraud of this kind is on the rise.
The housing boom made "biting off more than you can chew" all too easy, and now too many Americans are left with more house than they can afford. While fraudulent practices did not specifically lead to the rise of foreclosure rates, they have certainly allowed riskier home-buying behavior.
Be aware of any kind of fraud-even if it may seem beneficial to you at first, it will probably not pay off in the long run.