Recent estimates suggest that mortgage fraud in the United States has increased by 36% over the last year. The Federal Bureau of Investigation (FBI) suggests that the sharp increase has been a desperate attempt by homeowners, in particular corporate professionals, to maintain the standard of living they enjoyed before the economic crisis. In the UK, police estimate that mortgage fraud is now one of their largest areas of criminal investigation, particularly after two mortgage lenders revealed they had been targeted by mortgage fraud and organized criminal gangs. Furthermore, the City of London police reported a 72% increase in incidents of financial fraud, to which mortgage scams have contributed to significantly. It is expected that the extent of the problem will not be fully known until more frauds come to light over the coming months and years.
What is Mortgage Fraud?
The FBI defines mortgage fraud as being “the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan.”
It is not only individuals who have been committing mortgage fraud to maintain their standard of living. Mortgage brokers have come under fire since it came to light that they have been known to allow customers to inflate their incomes to be eligible for larger mortgages. The fraud often only comes to light when the customer can no longer afford to pay the loan.
Even more seriously, organized criminal gangs have been buying homes at deliberately inflated prices. Using such purchases as a basis for future valuations enables the mortgage fraudsters to gain inflated mortgage applications on other homes. The gangs then pocket the extra money obtained, which in turn funds further inflated purchases or the criminals move abroad. During the property and economic boom, such fraud went undetected because mortgage lenders were not carrying out their own checks on third party valuations. It has only recently come to light during the economic downturn. After the mortgage fraudsters pulled-out, lenders realised that their property assets were worth much less than they originally believed.
Who are the Victims of Mortgage Fraud?
There are a number of different methods of mortgage fraud, meaning that the victims can include borrowers, lenders and investors. Those living in the areas where mortgage fraud has occurred can also be victims, as local property values can fall after borrowers default on their mortgages, leading to foreclosures and the potential deterioration of the neighbourhood.
Banks, building societies and other mortgage lenders are also victims of mortgage fraud. The two mortgage lenders in the UK – Bradford & Bingley and Chelsea Building Society - who have been targeted by fraudsters recently, estimate their combined losses to be £141m. These losses will go on to impact innocent homeowners and potential homeowners, who will suffer less favourable interest rates and fewer opportunities to borrow money.
Mortgage fraud is often misconceived as being a victim-less crime. Mortgage fraudsters face up to 30 years imprisonment and a fine of up to $1bn.
Mortgage Fraud and Identity Theft
Mortgage fraudsters can use an innocent person’s name and credit to commit their crime, making it vital for individuals to protect themselves against identity theft more generally. Individuals can be victims of identity fraud at home or abroad – identities can even be stolen via medical records. Identity theft insurance is not a foolproof solution, but should be considered.
Victims of mortgage fraud are at risk of losing their property, savings and credit rating. As well as following general identity theft prevention advice, homeowners should also be wary of related scams. These include overly friendly realtors or estate agents visiting unexpectedly, or calling, emailing and mailing. This may be a scam to gain personal and financial information to commit some form of mortgage fraud. Also be wary of ‘new homeowner’ information arriving via the mail, as this may indicate that personal information has been compromised.
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