Mortgage fraud can be broken into two, distinct categories: mortgage fraud for profit and mortgage fraud for housing, says Merle Sharick, vice president and national manager for business development at the Mortgage Asset Research Institute (MARI).
Mortgage Fraud for Profit is mortgage fraud that law enforcement focuses more intently on in their mortgage fraud investigations. Sharick believes this is because, “it represents the largest financial risk to government-regulated financial institutions.” He says mortgage fraudsters, people purposely trying to steal money from financial institutions, are the ones committing mortgage fraud for profit.
Mortgage Fraud for Housing is the subtler of the two types of mortgage fraud Sharick said. For example, borrowers qualify for a 1200 square foot house, but really want a 1500 or 1700 square foot house so they fudge their debts, build up their assets and do a little misrepresentation to get the house that they want.
Mortgage fraud also occurs because of human error, even on the lender’s side of things. “Originations have been so strong over the last four or five years that a lot of corners got cut,” Sharick said, “A lot of people that weren’t really trained well were involved in originating loans or processing them” leading to cases of accidental mortgage lending fraud.
However, the FBI reports that nearly 80 percent of the mortgage fraud cases it is investigating involved mortgage industry insiders. That combined with the fact that very few mortgage fraud instances involve only one person makes it difficult to classify cases as just one of the two types of mortgage fraud.
Sharick believes mortgage fraud is a constant in the marketplace, but just not as obvious when times are good. “Property values are soaring and a lot of loans are being made, but then when that changes, we start seeing depreciation in some markets,” he said, “we see a large amount of money leave the market from non-prime and subprime lending,” and that is when mortgage fraud becomes much more noticeable.
Consumers may confuse mortgage lending fraud with predatory lending, but they are very different. Predatory lending deals more with taking advantage of a particular group of borrowers, usually by ethnicity or by location Sharick said, and charging them exorbitant fees and rates to get the loan.
In some cases mortgage fraud could be involved in a predatory lending case, but the two also exist independently.
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