Seven Ways Mortgage Applicants Lie to Lenders
December 8, 2015 1:53 PM
Signs of fraud in mortgage applications fell 8.9% from a year earlier in the second quarter, according to an index from the data firm CoreLogic. Lower-than-expected interest rates reduced the incentive for consumers to misstate their qualifications. But since then applicants have become more prone to deceptions like hiding additional debt or inflating incomes, and lenders have had to heighten their vigilance.
Stolen Identity
Indications of identity fraud fell almost 23% in the second quarter. But if home equity lending increases this type of deception could become more prevalent, said Bridget Berg, senior director of fraud solutions at CoreLogic. Home equity loans are more prone to identity fraud than a traditional first mortgage because there is less face-to-face interaction at origination.
Overinflated Appraisals
Signs valuations might be overstated were down more than 7% in the second quarter, but with purchase loans on the rise, it's becoming a greater risk.
'Flopping'
In the opposite of flipping schemes, buyers con servicers to sell distressed homes for less than the properties are worth so they can reap an excessive gain. Flopping scams have subsided, but remain a risk.
Misrepresented Income
Loan application anomalies suggesting consumers might have lied about their incomes dropped more than 7% in the second quarter. But this deception could become more common if rates rise and it becomes harder for consumers to qualify with their actual incomes.
Employment Deceptions
There were 7% fewer indicators that consumers were lying about jobs listed on their applications in the second quarter. But Robb Hagberg, director of fraud and anti-money laundering prevention at Freddie Mac, recently found in loan reviews that a leading deficiency was situations where the borrower was not employed at closing as represented in the approved application.
Undisclosed Debt
Signs that consumers might not have revealed all their mortgage debt in an application, a potential indicator of high-risk straw-buyer schemes, were up 1.7% in 2Q. Fannie Mae stressed in a recent seller guide that it expects lenders to have processes to facilitate borrower disclosure of changes in financial circumstances during origination.
Occupancy Fraud
Indicators of this type of deception were down more than 17% in the second quarter, but it is very common. Forms include traditional investor claims of owner-occupancy to get a better rate, as well as more recent owner-occupant claims to be an investor to avoid ability-to-repay requirements.
