Mortgage fraud is a criminal offense where, in an effort to acquire a mortgage or in order to get a larger mortgage than is warranted, the borrower misrepresents or omits info that is important to the judgment of the mortgagor. Under United States federal law, mortgage fraud is punished under a variety of separate heads and the duration of incarceration for somebody found guilty can extend up to 30 years. You shouldn`t confuse mortgage fraud with predatory lending, where the lender misleads the debtor. Nonetheless, you may probably find the two of them in the exact same transaction. Some common examples are as follows:
Occupancy fraud occurs when the debtor declares on the application that he`ll utilize the property being bought as a main or a second house when his purpose is actually to make use of it as an income property. Mortgagors will normally charge a higher interest rate for mortgages on properties that aren`t occupied by the proprietor because of the higher rate of delinquency in such properties. The debtor can then escape with a lower rate of interest whereas the lender is insufficiently compensated for his gamble. The lenders are also handicapped since they permit a higher loan to value ratio on homes utilized by the proprietor. That is considered fraud because the borrower, in order to acquire better terms, has lied about the usage of the property to the mortgagor.
Income fraud happens when the debtor exaggerates his or her income to get a mortgage or to obtain a larger loan rather than what is right within the circumstances. It is fairly common in “stated income” mortgages for the mortgage official, with or without the prior knowledge of the borrower, to state that the profits are ample for the loan without going through checking. This can be regarded as fraud since the mortgagor has been misled into granting a mortgage for which the borrower will not be qualified. Many of the subprime disaster was brought on by earnings fraud in which debtors bought homes without the financial capacities to pay the mortgage appropriately.
Employment fraud is a variation of earnings fraud wherein the debtor justifies a statement of bigger income by claiming self-employment in an enterprise that doesn`t exist or by stating a higher position in a real enterprise than he really fills. One other frequent kind of fraud is for the debtor to omit liabilities or debt obligations in his application form in order to show a superior debt to income ratio.
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