Mortgage Fraud Trends Part 2

In Part One of the series, I presented an overview of mortgage fraud outlining Fraud for Housing and Fraud for Profit Schemes.

The Federal Bureau of Investigation (FBI) has identified eight different schemes that are commonly seen in the US real estate market.  Part Two will cover the first four schemes.

Property Flipping – In this scheme a property is purchased at deflated prices through false documentation, deflated Broker Price Opinions, and deflated appraisals. The property then has minor cosmetic work complete and is sold at a much higher price. This scheme usually involves several individuals. Kickbacks to the individuals involved in the scheme are common. An older variant involved the appraiser on the buyer’s side with over-inflated appraisals. These are less common since the implementation of HVCC.

Silent Second – In this scheme the buyers do not have enough funds to close the transaction. The seller agrees to carry a second, undisclosed loan for the down payment amount. Some sellers go so far as to deposit the funds in the buyers bank so it looks like seasoned funds to the lender. According to the FBI, this type of fraud is more prevalent with builders than a traditional resale seller.

Nominee Loans / Straw Buyers – A straw buyer is a person who purchases a home on behalf of another buyer. They have no intention of living in the house and are simply “lending” their good credit and financial status. In return, the straw buyer is compensated for taking part in the scheme. This usually takes place with higher payments to the straw buyer over the amount due on the note.

Fictitious / Stolen Identities – The buyer uses a false or stolen identity to qualify for the mortgage. The buyer poses as the borrower and uses their credit and documentation to qualify for the mortgage.

In Part 3, I’ll cover the final four schemes.