Engaging in loan fraud is tempting, especially with loans that require very little or no documentation. However, loan fraud is bad news. It doesn’t just lead to a slap on the wrist; people go to prison for it.
And it’s not small potatoes. With the advent of the Internet, AUSs, identity theft, and each subsequent technological advance in mortgage lending, good old-fashioned crime finds new ways to get to the table. There are plenty of ways to commit loan fraud on an application, and they all involve the same thing—lying. The most common lie may be about income. In cases of mortgage fraud, it’s usually the borrower who makes arrangements with others to help pull the wool over the lender’s eyes.
Let’s say a borrower has paid his rent more than 30 days past his due date nearly every month for a year. Knowing that getting approved with such a lousy rental history will be tough, he makes arrangements with a friend to pose as his landlord. The lender then sends the ‘‘landlord’’ a form asking how much the borrower’s rent is and if the borrower has ever been late with his rent. If he was late, then how late was he?
Or the borrower fakes her income by changing some information on her paycheck stub or makes a fake W2. How does a lender combat such fraud?
Lenders have been around the block a few times. And no, the borrower just mentioned didn’t invent a new way to get around a bad rental history. Several years ago, a lender would accept a rental verification form from an individual just as easily as it would accept a mortgage rating from a credit report. Not anymore. Lenders now want something a little more than someone’s verbal or written verification.
Why? Well, let’s say it’s tempting to fudge a little when your credit history is less than stellar. A lender will now ask for 12 months’ cancelled checks. Not 12 months’ worth of checks made out to the fictitious landlord, but the front and the back of those checks, showing a cancellation date.
What, no cancelled checks? The borrower paid with a money order? Fine; let’s see the copies of the money orders. All 12 of them. I’m sorry, no copies? You sometimes paid with cash? Then we’re sorry, too. No loan approval.
It’s also not too much of a stretch to imagine a real landlord giving out a sterling rental history verification when the renter was anything but sterling. Why would a landlord do such a thing? To get that no-good deadbeat renter out of his rental house, that’s why. No, a lender wants to get just a little more than warm fuzzies when approving a loan.
Did the borrower provide a fake pay stub? Lenders can verify employment and payment history by making a phone call to the employer. There are even businesses that specialize in employment verification that the lender can call. Lenders can also get copies of previously filed tax returns when the borrower gives them IRS form 4506, asked for on almost every loan application.
Lenders get real serious when it comes to fraudulent loans. People go to jail, plain and simple. There are advertisements that promise to erase all your bad credit legally by having you simply ‘‘start all over’’ with a new identity. Sounds easy enough, right? But it’s against the law. It also goes against the mortgage application, which asks, ‘‘Have you ever been known by any other name?’’ If you say no, then you just lied on your application. Loan fraud has actually been made easier by the lenders themselves with the advent of low and no documentation loans, where applicants cross their hearts and hope to die that what they put on the mortgage application is true. Buying a house, moving in, and being paranoid that every time there’s a knock at the door, it’s the FBI isn’t worth it. There are so many loan options available that loan fraud simply isn’t worth it. If the loan is properly structured, almost anyone can get a mortgage.
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