Why would you lie on your mortgage application? Would it be to get a higher mortgage than you really qualify for? Would it be to get lower interest rates? Would it be to hide existing debts and loans? Whatever the reason, lying on your mortgage application is considered fraud and you could face serious jail time.
Despite being as illegal as it’s possible to get, mortgage fraud is increasing around the world. The US has had several high profile cases in the past few years, and so has the UK.
In August 2012, the Daily Mail reported that the incidence of mortgage fraud has risen by 23% in the UK. In fact, the number of fraudulent mortgage applications in Q2 increased by nearly 25% year-on-year. The findings come courtesy of finance firm Experience, which also found that the most common form of mortgage fraud is income related. People claim they earn more than they do so they can qualify for the loans they want rather than the loans they can afford.
Other common practices (or malpractices) include lying about credit history, false employment information and the purpose of the property – for example, people claim the property will be for residential purposes when instead they intend entering the buy-to-let market.
In the US
According to Wikipedia, way back in 2004 the FBI cautioned the US government that mortgage fraud was reaching the kind of proportions that would trigger a financial crisis. In December 2005, the FBI called mortgage fraud one of the fastest growing white collar crimes in the country. The FBI didn’t stop there. It announced that the incidences of mortgage fraud increased by 50% between 2005 and 2008.
According to Justice.gov, in September 2012, eight people in New Jersey were charged with mortgage fraud amounting to $30 million. It was one of a trio of headline grabbing mortgage fraud cases around the country.
According to FBI, which reported that the country losses $10 billion per year to mortgage fraud.
Don’t feel too sorry for the banks
Mortgage fraud doesn’t only target banks or mortgage providers. Many home owners also fall prey to mortgage fraud. In times when foreclosure is a very real threat, people will believe and do anything if it means they get to keep their homes. So, when someone says that for a small (or not so small) fee they can halt foreclosure proceedings, well, many homeowners fall for it.
A slightly more believable scam tricks homeowners into paying a fee to a company which will arrange lower monthly payments and lower interest rates.
Whoever the perpetrators are, the upshot of mortgage fraud is that banks and mortgage providers crack down on applications and start going every application with a fine tooth comb. This makes it even more difficult to get a mortgage than it already is, and may lead to an increase in mortgage fraud.
It’s cyclical and, as yet, there are no real solutions. It would be nice to know, however, that the FBI (and other law enforcement agencies) is taking its own warnings seriously and doing all it can to bring the perpetrators to justice.