In fact, according to a recent report from the Mortgage Asset Research Institute in Reston, Va., occurrences of fraud among loan officers, brokers and other industry professionals actually outpaced 2007 levels by 45 percent in the second quarter of 2008, the most recent reporting period.
The Research Institute, a consulting firm, does not release specific figures, which it compiles from surveys of lenders that make most of the nation’s mortgages each year.
The report, released in early December, found that 36 percent of the fraudulent mortgage activity involved loan professionals’ misrepresenting borrowers’ incomes, while another 20 percent involved misrepresentations of borrowers’ employment.
Lenders did not specify how much of this activity was simply stretching of the truth by loan professionals on the applications, categorized as “fraud for property,” as opposed to “fraud for profit” schemes, in which bogus loans are taken out to defraud lenders of money. Fraud for property is far more common.
Jennifer Butts, the Research Institute’s director of operations, said the survey results surprised her. Some industry executives had believed that the more unscrupulous mortgage brokers and loan officers had fled the industry or lost their jobs in the recent downturn, once lending standards tightened and loan volumes dropped.
“But we have people in the industry who didn’t get weeded out,” Ms. Butts said. “And now they have fewer transactions on which to make a profit, so they’re just a little more desperate.”
Rachel Dollar, a lawyer from Santa Rosa, Calif., who specializes in mortgage fraud, said that many of the fraud incidents had probably occurred in 2006 and early 2007, when lending restrictions were far more lenient than they are now. “Lenders don’t always discover that until later,” she said, “when they see clusters of foreclosures in areas, which causes a lender to look more closely at the loans.”
Borrowers may also contribute to the trend, because they are often desperate enough to encourage loan officers to help them exaggerate facts on their applications and stretch for a loan for which they may not otherwise qualify.
Ultimately, mortgage fraud affects all borrowers, industry experts say, because lenders will eventually have to recoup their losses through additional fees or higher interest rates. Lenders rarely pursue legal action, they say.
Borrowers should resist any temptation to fudge a mortgage application, or to allow loan officers or brokers to do so, and not simply because it is against the law to submit false information. The real danger to borrowers is that they can end up with a loan they can’t truly afford to repay.
To help keep real estate or mortgage professionals from steering you toward a bigger loan than you can afford, Ms. Dollar suggested hiring your own appraiser during the mortgage process, rather than relying on the word of an appraisal that is ordered by the lender’s representative.
“It’s worth the extra $300 or $400 to have a professional on your side to tell you how much the house is worth,” Ms. Dollar said. “Otherwise, you just don’t know, because the seller, the real estate agent, the loan officer — they all want that loan to close.”
Other, less expensive options include checking Web sites like Zillow.com or HomeGain.com, for help in determining a home’s value. Or borrowers may also ask another real estate agent for a “broker’s price opinion.