Calculating Mortgage Loan Fraud |
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The flipping of properties with inflated
appraisals and outright fraud on mortgage loan lenders was a major factor in the persistently high level of foreclosures in the Chicago metro area. In today's low interest economy, there are lots of great deals available from mortgage loan companies. But you should still shop around. There are several ways to get the best deal from a mortgage loan company. Make the largest down payment you can afford. The larger your down payment, the less money you need to borrow, and the less money you'll pay interest on for the term of your mortgage loan. In addition, you'll have instant equity in your house; this means that if you have an emergency, you'll be able to get another mortgage loan to take care of any financial problems. Know what you're paying, and know what you're getting. You need to be familiar with fees charged by your mortgage loan company and, if you use one, by your mortgage loan broker. Ask them to calculate the amount of money you're actually paying back to them; add that to their fees and subtract your new home's value to find out how much your mortgage loan is really costing you. Also, you should know exactly what you want in a new home, and how much you can realistically afford to spend. Your real estate agent and your mortgage loan company can help you figure these things out; just don't be oversold. Of all homes purchased in the United States each year, 8% are financed with FHA mortgage loan insurance. Each year FHA accounts for 30% of all insured mortgage loans. FHA activity has fallen off nearly 20% from the same period a year ago. FHA-insured mortgage loans may be more prone to mortgage loan fraud because FHA insures mostly first-time homebuyers with limited credit histories and little money down. A closer look at the makeup of the FHA portfolio would indicate that FHA's insurance risk is increasing. A comparison of active insured FHA cases to FHA claims cases over the past two years shows an increasing claim rate. As you can see from our chart, our investigative workload is increasing with more than 450 open criminal single-family investigations and our arrests in the single-family mortgage loan area have increased by 800% in a four-year period. We believe there is a direct relationship between our increasing workload and FHA's increasing claims rate. Mortgage loan frauds can go undetected and not all fraud results in losses to the government. This makes it difficult to quantify the exact amount, or even an estimated amount, of mortgage loan fraud. Every month, one out of every nine FHA mortgage loans is reported as delinquent. That means 600,000 FHA borrowers are a month behind in paying their mortgage loan. Some portions of these delinquencies may be due to mortgage loan fraud in new mortgage loans, where the underwriter intentionally misrepresented the borrower's ability to pay the mortgage loan. One common predatory practice is to impose on a borrower excessive fees and points, with the promise that the borrower can refinance to a lower rate a few months after origination. The end result is that the borrower pays origination fees twice, to obtain mortgage loan terms they should have received with their initial mortgage loan. Predatory loans harm borrowers by making it difficult or impossible for them to keep up with payments. If they miss their payments, they risk losing their home, their credit standing and their initial investment. Even if they remain current in their mortgage loan, a homebuyer may owe more than their home is worth, making resale of their home impossible. Predatory lending can rise to the level of criminal activity and constitute mortgage loan fraud. Mortgage loan fraud is a criminal activity, knowingly undertaken by individual's intent on profiting at the expense of others. Actions include deliberate manipulation of property valuations; falsification of borrower financial information; forgery of licenses; certifications and titles; and misrepresentation of property ownership and conditions. Fraud is often only discovered when the borrower defaults on the mortgage loan, and the lender, http://www.hud.gov (espanol.hud.gov.investor), or insurer - such as FHA -performs a quality control review on the loan. By statute, FHA refers all potential fraud to HUD's Office of Inspector General (OIG). FHA has the authority to monitor lenders for program compliance. During the last four years, FHA has completed 3,623 lender-monitoring reviews. As a result, FHA made 1,345 referrals to the OIG to investigate findings of possible fraud during this period. Borrowers are not the only victims of mortgage loan fraud and predatory practices. Within the FHA mortgage loan insurance program, lenders are financially liable for the portion of the costs associated with delinquency and foreclosure that HUD will not reimburse (usually higher-than-customary servicing expenses and a portion of the foreclosure costs). Lenders whose employees violate FHA guidelines may also be required to indemnify loans (thereby reimbursing HUD for all losses associated with the loan) if the lender failed to use proper, early due diligence and effective control measures to detect fraud associated with a loan. In addition, a lender's FHA default and claim rate calculated by HUD will be negatively impacted due to fraudulent loans, which could affect the lender's ability to continue to do business with FHA as an FHA approved lender. Lenders who purchase fraudulently originated loans from other lenders may incur significant costs as well. To avoid these risks, credible lenders must incur expenses to strengthen internal control processes. Concern over lawsuits is certainly a motivational factor for lenders to aggressively address risk associated with mortgage loan fraud. Civil actions resulting from mortgage loan fraud can be expensive. The most effective approach for lenders to mitigate such risk is to demonstrate that effective internal controls and due diligence procedures are in place to detect fraud, that actions are swiftly taken to terminate relationships with the perpetrators, and to ensure that the victims of fraud are appropriately compensated. Property flipping through inflated appraisals and phony loan documents leads to people winding up owing much more than their homes are worth. So stay tuned! |
