Smart Borrower Blog

Mortgage Fraud Hurts Lenders

Sep 25th, 2007 @ 6:19 PM by MortgageMentor

Have you heard about Mortgage Fraud?

Mortgage fraud is becoming more prevalent now that there is no equity cushion for most sellers.

It’s a scheme that goes something like this:

Say your home is listed on the market for $300,000. The listing agent raises your sales price to an even higher amount. The appraiser then values the home at the new higher price–so the lender approves a loan.

Let’s say the new price is $425,000. A buyer comes along and offers to pay you that overinflated price, he only asks that you kick him back the difference. You reason that it makes sense. After all, you are getting your home sold without having to compete with the glut of homes that are on the market in your price range. The agents still get their commission. If you do have a niggle of conscience, you might brush it aside in the excitement of getting your home – finally – sold.

So who is being defrauded?

The lenders. Usually the buyer will take off after making a handful of mortgage payments. The home falls into foreclosure while the buyer gets the $125,000 cash.

It also harms the neighborhood: prices were artificially inflated. Property taxes can go up. The home is abandoned and may begin to look unkempt. When it is finally auctioned, it may be for a loss.

Mortgage fraud is one of the fastest growing crimes in the U.S. Whereas loans used to be adjusted one, two, or three percent in order to help buyers pay closing costs or make alterations to the property, now buyers may purchase several properties at once and finance all of them with 100% loans. It’s a white collar crime, and one that law enforcement may not have a great deal of time to deal with. However, it is costing tons of money in terms of mortgage fraud complaints, Department of Real estate investigations, and the devastating effects on lenders—some of whom have gone out of business.

To learn more about Mortgage Fraud, please visit the FBI website.

One Response to “Mortgage Fraud Hurts Lenders”

  1. Israel Donne says:

    The Government helped out the big corporations, but who bails out the average Joe on the street? No one. Banks are dragging their feet with loan modifications. Why? Because if real estate values go up, they wont have to show as big a loss. In the meantime, hundreds of good people are losing their houses. We now reveal Insider tips to avoid foreclosures. Its a free report you can get at Save My House Tips.

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