Financial institutions rely on correct information to adequately process and provide loans to homeowners. When a form of misrepresentation, misstatement or omission of information in relation to a mortgage loan happens, mortgage fraud occurs.
The information included in a mortgage fraud scheme must influence a bank’s decision. When egregious enough, this type of fraud can lead to the failure of financial institutions.
The two types of mortgage fraud
The FBI states that there are two primary types of mortgage fraud: fraud for housing and fraud for profit. In fraud for housing schemes, a borrower will typically take illegal actions to acquire or maintain ownership of a home. For example, a borrower may misrepresent income information on an application to increase how much money he or she can borrow from a lending institution.
In fraud-for-profit schemes, industry professionals use their authority and access to privileged information to commit fraud. This type of fraud misuses the lending process to take away equity and cash from either homeowners or lenders.
Common mortgage fraud schemes
Some of the most common types of mortgage fraud include foreclosure rescue schemes, illegal property flipping, loan modification schemes and equity skimming. Other common types include fraud involving commercial real estate loans, air loans and home equity conversion mortgages.
Regardless of the type of mortgage fraud scheme, a conviction for this crime comes with serious penalties, such as prison sentences, the requirement to pay a fine, community service and other consequences. Those accused of committing mortgage fraud should carefully move forward to preserve their interests, reputation within the mortgage industry and finances.
