Incidents of attempted loan fraud skyrocket during credit crunch
An epidemic of attempted mortgage loan fraud is sweeping the country as the credit crunch lingers on. Consumers should be aware of what constitutes loan fraud to avoid committing it. Penalties for mortgage loan fraud include jail time and hefty fines.
Attempted mortgage loan fraud jumps 57 percent
Attempted loan fraud skyrocketed to nearly 60 percent of all loan applications in 2010, according to Experian. The credit reporting agency said seven out of every 10,000 personal loan applications submitted in the third quarter were fraudulent–a 57 percent year-to-year increase. Attempted mortgage fraud surfaced in 27 out of 10,000 loan applications. As lending standards have tightened, would-be borrowers are trying to hide black marks in their credit histories. Nine out of 10 attempted loan frauds were “first person fraud,” in which people misrepresent their credit history or employment status.
How to avoid mortgage loan fraud
Even though borrowers may be tempted to fudge a little bit, the slightest fib on a loan application can be constituted as first person loan fraud. Things to avoid when applying for a mortgage or any other loan include any deal between buyer and seller than isn’t included on the loan application. Lying about income is a classic. Trying to get more favorable terms by saying you will live in a property when you intend to rent it out is mortgage fraud. Sending in a bogus purchase contract with a higher price in an attempt for a higher appraisal is also mortgage fraud. Saying an earnest money deposit was paid outside of escrow without making the deposit is blatant mortgage fraud.
Penalties for mortgage loan fraud
Sometimes real estate professionals will present schemes that sound too good to be true. They are likely fraudulent and borrowers should protect themselves by reporting them to the FBI. As incidents of mortgage fraud increase, the consequences have gotten harsher as well. Penalties for mortgage fraud can range from one to ten years in prison plus hundreds of thousands of dollars in fines. Recently loan officers who committed mortgage fraud by submitting false data on properties received prison sentences from 25 to 40 years. A fraudster who purposely set up bad real estate loans to sell to banks was hit was a $160 million fine.