MORTGAGE FRAUD & REAL ESTATE FRAUD NEWS
Current Updates & New Mortgage Fraud Articles

	Curt Novy Article Released: January 26, 2012 FINANCIAL FRAUD ENFORCEMENT NETWORK: WILL BANKERS BE PROSECUTED FOR FRAUD?   Curt Novy Article Released: January 5, 2012 HOW IS MORTGAGE FRAUD INVESTIGATED?   Curt Novy Article Released: January 11, 2010 MORTGAGE MODIFICATIONS: DON’T GET SCAMMED!

CA DEPARTMENT OF REAL ESTATE ALERTS

MORTGAGE FRAUD & PREDATORY LENDING PRACTICES
The term "predatory lending" encompasses a variety of home mortgage lending practices. Predatory lenders often try to pressure consumers into signing loan agreements they cannot afford or simply are not in the consumers' best interest. Often, through the use of false promises and deceptive sales tactics, borrowers are convinced to sign a loan contract before they have had a chance to review the paperwork and do the math to determine whether they can truly afford the loan.

Predatory loans carry high up-front fees that are added to the balance, decreasing the homeowner's equity. Loan amounts are usually based on the borrower's home equity without consideration of the borrower's ability to make the scheduled payments. When borrowers have trouble repaying the debt, they are often encouraged to refinance the loan into another unaffordable, high-fee loan that rarely provides economic benefit to the consumer. This cycle of high-cost loan refinancing can ultimately deplete the homeowner's equity and result in foreclosure.

Predatory lending practices specifically prohibited by law include:

Flipping - the frequent making of new loans to refinance existing loans

Packing - the selling of additional products without the borrower's informed consent

Charging excessive fees - Homeowners in certain communities, particularly the elderly and minorities, are especially likely to be targets of predatory lending but almost anyone can fall prey to abusive lending practices. You can protect yourself by knowing what you can afford; choosing a reputable, licensed broker/lender; understanding the loan application and contract; and being aware of commonly-used predatory lending tactics. Informed decision-making is your best defense!

The FBI defines mortgage fraud as "any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan." Here are a few examples of common mortgage fraud:

Undisclosed kickbacks
If you strike a deal with a home seller to give you a big wad of cash or to slip a check across the closing table, say, to pay for a new roof, and if the lender doesn't know about it -- because it's not disclosed in the purchase contract nor addendum nor your estimated closing statement -- it's mortgage fraud.

Silent second mortgage
A borrower without a down payment can commit mortgage fraud by borrowing the down payment from the seller in exchange for giving the seller a silent second mortgage, which is unrecorded (or records after closing) and hidden from the lender.

Falsifying employment income
Stated income loans were originally created for self-employed individuals whose income is difficult to verify, but some employed borrowers inflate their income above and beyond a W-2.

Non-owner occupant claiming occupancy
Lenders offer higher interest rates and less favorable terms to non-owner occupants because the lender's risk is higher. If you don't intend to live in the property, don't promise that you will.

Down payment gifts you will repay
Both parties, the giver and the recipient, commit loan fraud if the gift is to be repaid. Gifts cannot be repaid.

Inflated purchase price
If you have two purchase contracts and send the false contract with the higher sales price to the lender in hopes of obtaining a higher appraisal, it's mortgage fraud.

Falsifying deposits
Dishonest borrowers who do not have an earnest money deposit might state in the contract that the deposit was paid outside of escrow, which is fraudulent.