Mortgages and Home Loans
Home Buying and Selling Essentials Common sense tells us that if our credit record is poor we shouldn't expect to obtain a low interest loan with other excellent terms, but attempts to bypass problem credit are resulting in some "creative" paperwork on the part of unethical people who work in the real estate industry. Has someone involved with your home buying transaction asked you to make false statements on your loan application or do something else that you feel uneasy about? Don't even think about it unless you're prepared to commit loan fraud, and don't think you can say later that you simply didn't know what you were doing was illegal--that won't work. Every home buyer and seller should have a good understanding of common loan fraud schemes so that they can avoid becoming involved in an illegal transaction. Loan Fraud Overview Loan fraud occurs when you (or a real estate agent, appraiser, mortgage broker, attorney, closing agent, others) make false statements in order to qualify you for a loan that's larger than you would be entitled to under the lender's guidelines. * Any false statement made to a lender is loan fraud. * Rebates and credits to any individual as a result of a real estate transaction must be disclosed on the settlement statement. Sponsored Links Lender Support SystemsMortgage Docs & Servicing Software Best Price Guarantee Since 1982www.lendersupport.com First Time Home BuyersFree Quotes, No Obligation Low or No Down Ok. Bad Credit too.1stTimeBuyer.HomeMortgageMatch.com Mortgage Fraud SolutionsLoan Loss Recovery. Prevention Prosecution and Insurancewww.priestongroup.com If they are not disclosed, it's loan fraud. Common Loan Fraud Schemes * Source of or actual amount of a buyer's downpayment * Actual amount of closing costs paid by the buyer * An inflated appraised value for the property that is collateral for the loan * False information about the borrower's creditworthiness * False statements about who will live in the property (for instance, you claim it will be owner occupied when you actually intend to use it as rental property) * Undisclosed rebates to any third party (real estate agent, mortgage broker, loan officer, etc.) Loan to Value Ratio Fraud Many loan fraud schemes involve falsifying the loan to value ratio (LVR), a ratio that designates the percentage of a home's value that the lender will give funds for. Here's how it works. When you apply for a loan, the lender looks at your real estate contract to see how much you are paying for the property. Then, when the appraisal comes back, they compare the appraised value to the purchase price. Let's say the lender has determined from your credit history that it can offer you 95% financing--a 95:100 LVR. Your loan will be 95% of the home's appraised value or 95% of the purchase price, whichever is lower. That's $95,000 for a home valued at $100,000. But what if you can't close unless you receive 98% financing--$98,000? Loan fraud occurs when documents are falsified or facts are omitted in order to help you obtain the additional funding. Secret Second Mortgages This occurs when someone loans money to the buyer so that the buyer can close on the home, but the second loan is not disclosed to the primary lender. A second mortgage (or deed of trust) is usually recorded a few days after the first, securing the debt by placing an additional lien on the property. Bogus Earnest Money Deposits The offer to purchase contract states that the buyer has paid more down than he or she really has. The settlement statement might show the bogus funds as "POC," paid outside of closing. False Gifts Buyers close with gift money all the time, but lenders verify that the money is not a loan, asking the donor to sign a statement that repayment is not required. Donors and recipients commit loan fraud when they falsify a gift letter. Contract Kiting In this loan fraud scheme, one contract shows the actual price of the house, but another, the one given to the lender, shows a higher price. The lender funds the qualifying percentage of the higher price, resulting in a skewed loan to value ratio. Undisclosed Concessions This type of loan fraud occurs when someone gives money to the buyer for closing, but it is not recorded on the settlement statement. The seller might contribute funds to complete the transaction, and sometimes real estate agents give back a portion of their commission to make the deal work. In both instances, the funds should be approved by the lender and recorded on the settlement statement. Falsely Claiming that the Owner Will Occupy Some loans are only intended for owner-occupants, not investors. If you obtain one of those loans, you'll be asked to sign a statement that you intend to occupy the home. Some loans ask you to verify that you'll be an owner-occupant for a specific length of time. The Bottom Line Making a false statement to a lender is a federal crime. Don't do it on your own and don't do it because someone encourages you to. If someone asks you to do something that doesn't seem right, start asking questions and don't stop asking until you are sure you have uncovered the truth.