And that is what others do just to have their home sweet home. This is little bit disturbing since the number of people doing it is growing. Income misrepresentations on home-loan applications were up 22.1 percent in the second quarter of this year compared with the same period in 2017 as reported by mortgage-fraud researchers. It is increasingly what researchers call “bona fide” borrowers who don’t have the incomes to qualify but are determined to get a home mortgage, even if they have to mislead the lender.
Researchers say many applicants can now go online and find websites that will help them create customized pay and employment records, sometimes even confirmable by a phone call by the loan officer to an “employer” that doesn’t exist. It’s all part of one of the least-reported issues in the real estate market of 2018: Home-purchase mortgage frauds are on the rise and are posing cat-and-mouse challenges to major players, including banks and big investors like Fannie Mae.
The modus that Fannie Mae recently warned lenders via several alerts about a loan-fraud technique in which candidate claim to work for specific companies and provide income and employment information that appears to be bullet-proof.
Candidates frequently claim to have been students immediately prior to their current employment. This makes it difficult or impossible for lenders to pull tax transcripts from the IRS for the year spent as a “student.” Candidates also claim salaries that appear to be high for their age or experience. Fannie Mae has observed the scam mainly in California, but CoreLogic says it is now spreading across the country.
As reported by Core Logic “The typical scenario is a new job with a significant pay increase or a high-paying first job out of college”. “Some fake employer setups are well-organized and provide pay stubs, phone verifications” and even fake diplomas. “Some of these services are openly advertised on the internet” and feature multiple levels of services and fees.
About 12.4 percent are the Overall fraud in mortgage applications a year ago, according to realty analytics firm CoreLogic, which has access to a massive national database of loan applications and issues periodic reports on the subject. Falsifying income is the fastest- growing form of application fraud, but other types of misrepresentations also are on the rise, including occupancy fraud, where applicants tell lenders they plan to live in the house they are buying but instead they rent it out, sharply raising the risk of default and loss for the unsuspecting lender.
Bridget Berg, CoreLogic’s senior director of fraud solutions, told Mr. Kenneth Harney that the increase in fraud by home-purchase applicants is partially a “function of what’s going on in the real-estate market” — large numbers of would-be buyers squeezed out by rising prices, frustrated by not being quite able to afford what they want, and motivated to “embellish” or simply make stuff up. Berg noted, however, that although “fraud risk” as measured by her company’s research is on the rise and troubling, it still represents a small fraction of total loans being originated — just under 1 percent.
William Raveis Mortgage in Middletown, Connecticut and George Souto, a loan officer says that although he doesn’t see many applications containing outright fraud, he does encounter situations where applicants make overly generous estimates of their incomes. These applicants don’t do this with the purpose of defrauding the lender, but because the income they report to the IRS is lower than their actual earnings before tax deductions for expenses.
But other lenders say too many borrowers don’t see scrupulous truth on mortgage applications as all that important. Joseph Metzler of Mortgages Unlimited in St. Paul, Minnesota, says they “feel it’s OK to pad information or leave it out, to improve their chances of getting approved.”
But it’s not. It’s bank fraud and comes with serious potential penalties, including fines and imprisonment.