Mortgage Fraud in Economics

Mortgage fraud has become more prevalent over time and is a particular concern during an economic recession. It refers to an intentional misstatement, misrepresentation, or omission of information relied upon by an underwriter or lender to fund, purchase, or insure a loan secured by real property. It is harmful to lenders, who face higher risks of default when borrowers misrepresent their financial information. It can also be harmful to borrowers, particularly the foreclosure rescue scams that prey upon vulnerable homeowners. It is a criminal act that involves obtaining a mortgage by making false claims on your application and it is becoming increasingly common. The goal of mortgage fraud is to own a property or a more expensive property for which you would normally not qualify.

Mortgage fraud is popular with organized crime groups as it can be profitable and relatively low risk. Criminal offenses may be prosecuted in either federal or state court, and are typically charged under wire fraud, bank fraud, mail fraud, or money laundering statutes, with penalties of imprisonment for up to 30 years per offense. The most common individual mortgage fraud scams are identity theft and income/asset falsification. Identity theft occurs when the real buyer fraudulently obtains financing using an unwilling and unaware victim’s information, including Social Security numbers, birth dates, and addresses. Providing false or inaccurate documents to support the mortgage application is also part of the fraud. As the incidence of mortgage fraud has risen over the past few years, states have also begun to enact their own penalties for mortgage fraud. Frequently it is used as a way of laundering money obtained from illegal activities such as supplying drugs and trafficking.

Mortgage fraud for housing is when you provide false information on a loan application to qualify for a mortgage you would not otherwise get. It occurs when a potential homebuyer, seller, or lender lies or omits key information that leads to a mortgage loan approval or terms that the applicant wouldn’t normally qualify to receive. It happens when criminals defraud banks or private lenders out of funds through the mortgage process. It is not to be confused with predatory mortgage lending, which occurs when a consumer is misled or deceived by agents of the lender. It also includes representing the loan application that you are going to live in the home when you have no intention to do so. However, predatory lending practices often co-exist with mortgage fraud. It is a serious offense and can lead to prosecution and jail time for convicted offenders.