Mortgage Scams

Of late, the incidence of mortgage scams has increased manifold. Not everyone can qualify to get a mortgage loan. Often it has been observed that loan officers increase the income of the “subprime” buyers so that they can qualify to get a loan. The manipulation is accepted by the buyers too as they have the greed of their property being valued at a higher price than what it is actually. The mortgage lenders on the other hand get a higher commission. It also leads to rampant adjustable rate mortgage loan scams.

Over the past couple of months, there has been an increase in the number of foreclosures. Many unsuspecting investors suffered huge losses owing to manipulation by real estate operators at various levels. Reports suggest that Goldman Sachs, a leading seller of CMO or collateral mortgage obligations sold approximately USD$100 billion worth of CMOs to investors.

Given below are some of the widely practiced mortgage scams which eventually result in adjustable rate mortgage loan scams too.

Fraud to qualify- The debtor provides fake information about himself. It may include his income, employment history, how he is sourcing his down payment and his purpose of occupancy of the property.

Silent second- Silent second is a type of fraud when the seller lends out some money to the buyer so that the intending buyer can make the down payment. An unrecorded or a “silent” second mortgage provides the necessary fund for the down payment. The lender is of the impression that the money belongs to the buyer. This scenario usually misrepresents the actual financial condition of the intending buyer.

Fraud for profit- It includes scams in which industry insiders like lenders, closing attorneys, real estate agents and appraisers are equally involved.

There are variations of this type of mortgage fraud but some of the common forms are given below-

Straw buyers- Straw buyers are referred to as individuals who are used to hide the identity of the actual borrower. Straw buyers usually have a good credit history. They are made to believe that they are actually investing in real estate property that will be rented out. They are usually given the impression that the rent will be used to make mortgage payments. They are also a party in the fraud as they make profit from earnings.

Flipping - In house flipping, houses are purchased which undergo renovation or improvement and they are resold again. This generates quick profits and the seller conceals the real value of the property and gets the property falsely appraised.

Foreclosure scams- An individual who is in the initial stages of foreclosure is approached by a scammer pretending to help the individual so that the house can be saved from foreclosure. The scammer usually takes an upfront fee and disappears. There is another variation of this scam. An individual whose house is in the early stages of foreclosure is approached by a scammer who suggests methods to refinance the mortgage. The scammer makes the individual sign papers. The individual discovers that he has actually sold the house to the scammer.

Appraisal fraud- The property value is appraised to a great extent. An appraiser usually does this. The seller gets his dues and makes payment to the appraiser involved. However, the debtor is not able to shell out this high amount and the house goes into foreclosure.

Such ARM loan scams are rampant and no matter what may be the type of mortgage fraud, the sole purpose of the scams is to help non-qualifying buyers qualify for a mortgage loan.