Mortgage fraud is a crime where, in order to obtain a mortgage or to get a larger mortgage than is warranted, the debtor misrepresents or omits info that is important to the decision of the mortgagor. Within United States federal law, mortgage fraud can be punished under a variety of separate heads and the duration of incarceration for someone found guilty can extend to as much as 30 years. You shouldn`t mix up mortgage fraud with predatory lending, in which the lender misleads the borrower. However, you could likely find both of them in the exact same deal. Some common examples are as follows:
Occupancy fraud happens when the borrower declares on the application that he`ll utilize the property being bought as a main or a second house while his intention is really to make use of it as a revenue property. Mortgagors will normally charge higher rate of interest for mortgages on properties that are not occupied by the owner because of the higher rate of delinquency in these properties. The borrower can then get away with a lower rate of interest while the lender is insufficiently compensated for his gamble. The mortgagors are also handicapped since they grant a higher mortgage to value ratio on properties occupied by the owner. This is regarded as fraud because the borrower, in an effort to get better terms, has misrepresented the use of the house to the mortgagor.
Income fraud takes place if the debtor exaggerates his or her income to acquire a loan or to get a bigger loan compared to what is warranted within the circumstances. It`s fairly ordinary in “stated income” mortgages for the mortgage official, with or without the prior information of the borrower, to declare that the profits are sufficient for the mortgage without going through verification. This is considered fraud since the lender has been deceived into approving a mortgage for which the debtor isn`t qualified. Quite a lot of the subprime crisis was brought on by income fraud in which borrowers acquired houses without the financial means to service the loan appropriately.
Employment fraud is a variation of income fraud wherein the borrower justifies a statement of bigger earnings by claiming self-employment in a business that doesn`t exist or by claiming a higher rank in a genuine business than he actually fills. One other frequent kind of fraud is for the debtor to omit liabilities or debt obligations in his application form to be able to present a superior debt to revenue ratio.
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