Real Talk: The chances that you could commit mortgage fraud unknowingly are minimal. The industry has become much more highly regulated in recent years to prevent issues like this.
"If you're working with a reputable lender or a bank and you're a fairly savvy consumer, it's probably not something you'll come across," say Ed Deveau, a realtor with Century 21 Mario Real Estate in Boston. The buyers most at risk are the ones who are only borderline ready for home ownership; people who, as Deveau puts it, "might not be approved from someone reputable, so they go to [lenders or banks] that prey on those types of consumers."
That's where you can potentially hit bumps — by not surrounding yourself with people you trust in the buying and selling process. Here are three things to keep in mind about mortgage fraud:
1. Mortgage Fraud is on the Rise
The FBI officially defines mortgage fraud as "misstatement, misrepresentation, or omission in relation to a mortgage loan which is then relied upon by a lender." Translated for us normals, that means a homebuyer, seller, or lender lies or leaves out key information that leads to a mortgage loan approval or terms that the applicant wouldn't normally qualify to receive. According to CoreLogic, mortgage fraud increased 16.9% in the second quarter of 2017 vs. the prior year. Why's this? First, the demand for homeownership is on the rise, since it hit a 50-year low of 62.9% back in 2016. With fewer homes on the market, the race to acquire a home can get even more intense, leading people to try to outdo each other. Add in higher interest rates and higher home values, and things can get a bit hairy.
2. Occupancy Fraud is the Most Popular Form
Occupancy fraud happens when mortgage applicants deliberately provide false information about their intentions on a mortgage application. For instance, a consumer may fraudulently disclose to a lender that they'll live in the house when they really intend to rent it out, with the goal to qualify for the lower interest rates and down payment terms available to buyers looking to finance their primary home as opposed to an income property.
3. Steer Clear of Steering & Do Your Research
Even if something isn't straight up illegal, it can be terribly manipulative. If a Mortgage Loan Officer is pushing you to accept a product that isn't the best fit for you, this is known as "steering." "The MLO will tell you all the pros about that product but won't spend much time talking about the cons," says Patrick Boyaggi, CEO of RateGravity, a Boston-based mortgage brokerage that helps consumers secure home loans at preferred rates through their network of local lenders. "MLOs may steer you to work with a real estate agent or a closing attorney that the MLO has a personal relationship with, but who might not offer the best deal on fees, or even the best services."
Do your research about your lender and their organization. Check out online reviews, and only work with someone who is open about their fees and how they make money. "If you work with local institutions, you know that they care about their brand, their communities and their reputations — they can be relied on to put customers first," says Boyaggi. "If you follow those steps, you'll be able to avoid most of these manipulative sales tactics."