Tag Archive: fraud

Jul 09

Searches Leading to The Hub

From POA to Me

Behind the scenes this web site tracks where my traffic originates and creates a list that shows what search terms brought them here.  Thousands of terms and phrases are on the list but a few dominate the top.  A few of the leaders are amusing, some are flattering (specifically looking for me) and a couple are disturbing.

Number one on the list and a winner by a long shot is Power of Attorney or POA.  It shows up more than twice as often as any other search, strange because I advise people not to use a POA if it is avoidable. 

The other words and phrases that head the list remain fairly constant over time with the top three staying the same month after month.  Searches for me personally slip back and forth between the fourth and fifth slots, rotating with the one that I find disturbing, Mortgage Fraud.  People actually search for “How to commit mortgage fraud.”  Good grief!

Here is the top five for the previous 12 months:

1.  Power of Attorney or POA

2.  Creditxpert

3.  Down Payment Assistance Kentucky

4.  Jim Simms

5.  Mortgage Fraud or How to commit mortgage fraud

Some of the phrases about fraud were alarming; many were questions beginning with “how to” while others were obviously worried about crimes they already committed.  

May 01

5 Ways to Commit Mortgage Fraud

Catchy title huh?  This article is not a how to guide, it is a candid commentary on some of the widespread crimes perpetrated by homebuyers during the financing phase of their real estate transaction.  I worded it this way because most of the people that commit these crimes are in denial.  They know it is wrong to misrepresent anything in order to be approved for a mortgage loan but do it anyway. There are two reasons they take the risk; 1) the desire to own a home is compelling  2) the industry implies it is okay to do it, wink, wink. 

It is NOT okay, you could loose the home, go to jail for a very long time, be fined an outrageous sum, or worse, all three!  Yet these things happen somewhere every single working day.  

  1. Credit Repair – There is an entire industry built on charging people to dispute accurate information on credit reports that is negative in nature.  It is wrong to do so! 
  2. Misrepresenting Funds to Close – Most common is on FHA loans, calling a loan a gift.
  3. Income – This one may be the craziest, misrepresenting income, up or down in order to qualify.  
  4. Work Around – Asking the loan officer to help circumvent anything.
  5. Occupancy – There is nothing ambiguous about “Owner Occupied” it either is or isn’t.

  Let’s look deeper at each of these. 

 Credit repair in the traditional sense is simply fraud.  The credit repair industry tells people to dispute anything that is negative on their credit report.  If you lie about something in order to qualify for a mortgage loan it is wrong, period!  That is what a dispute is if the negative information is accurate, a lie.  It is not the same as pleading not guilty in court regardless of what the repair people say.  One is a plea, the other is bank fraud.

 The really bad thing about this one is everything is in writing which makes it easy to prove malice.  The same government that audits mortgage companies and loan applications is the same government that audits the bank that has a copy of your checking account.  The last sentence also applies to the rest of the list.

 The credit repair industry quotes one federal law that protects consumers from inaccurate information in their credit file.  While it is true this law places the burden on the creditor to make sure the information is correct, it was never intended to be used to misrepresent credit worthiness.  Everyone knows if you dispute everything negative a certain number of disputes will not be answered by the creditor.  That is what fuels the credit repair industry. 

 It does not matter who tells you this is legal, lying about anything in order to get a loan is fraud and there is no statute of limitations on fraud.  If your Realtor® or loan officer tells you it is okay, you are working with the wrong person. 

 The second item on our list is about misrepresenting the source of funds to be used at closing for down payment or closing cost.  A very large number of first time homebuyers are guilty of this one.  FHA allows a borrower to use gift funds for the entire amount needed at closing.  A gift is a gift, a loan is a loan.  There is a warning on the bottom of the FHA Gift Letter that makes if very clear any misrepresentation on the form is a federal crime, this applies to everyone.  

 That is just one example; I have had borrowers try all kinds of crazy things from cash advances on credit cards to taking out personal loans. 

 Next on the list is misrepresenting income.  You may believe this refers only to inflating your income, not true.  Some special loan programs are for moderate to low income borrowers.  I have received loan applications where the individual stated a lower income than what they actually earning.

 Another very common statement I hear goes something like this, “I am good for the loan because I have a lot more income than what is on my tax return.”   My standard response when I hear this, “You want to put in writing that you cheat on your taxes?” 

 Item 4 on the list usually pops up when there is an issue with something in the loan application.  The borrower will ask the loan officer how to get around the problem.  Structuring the application properly from the beginning is one thing, trying to circumvent a guideline is something entirely different.  This one is not easy to explain, laying the cards on the table is okay, trying to hide something or making it appear different isn’t. 

 The biggest question for the borrower on this item is: if the loan officer is willing to lie to his or her employer in order to close a loan, what are they willing to do to you during the loan process?

 Last but not least, owner occupied vs. investment property.  Most investors know interest rates and points are higher on investment property than on owner occupied homes.  The standard Fannie/Freddie mortgage form states clearly in section 6 that the borrower will take possession of the property within 60 days of signing the mortgage.  It also says it will be occupied as a principal residence for at least one year following possession.

 In the past week I have had two people inquire about financing a second home in Louisville.  Okay, we are not known as a huge market for second homes, it’s possible but not common.  Turns out both of them wanted to buy a home to rent to a relative; this is an investment property, not owner occupied.  Before any loan officers out there bust my chops, I know FHA allows non-occupying co-borrowers.  That is not what these characters wanted to do.  They did not want their relatives on the deed.

 Another guy a few months ago wanted to buy a home for his girlfriend; again he did not want her on the deed.  I thought it was funny he was willing to borrow money but did not feel strong enough about the relationship to put her on the deed.   

 Contrary to what you may read about the mortgage industry, the rules are very liberal.  The minimum threshold for credit scores are very low, the maximum debt load for monthly payment is very high.  The best way to view the mortgage guidelines is they protect you a lot more than they do the lenders.  A default on your home is 100% for you, it is only a fraction for the lender.