Bloomberg: New Mortgage Rules Could Lead to More Fraud

Stricter mortgage rules are making an impact on some parts of the mortgage business, but when it comes to borrowers who lie on their mortgage applications, the new standards are not making a difference, writes Bloomberg Businessweek in an article this week. 

“The run-up to the housing market crash of 2008 was marked by iffy tactics to wring profits out of a hot market. New regulations and stricter lending standards have made it harder to engage in some types of bad behavior,” Bloomberg writes. “But there’s a twist: Those new rules may also be leading some mortgage professionals to engage in fraud, out of desperation.”

Bloomberg analyzed a recent mortgage fraud report, finding 74% of fraud cases reported to one source last year involved falsified applications—those with borrowers lying about income, employment history, or whether they are buying a first or second home. The factors can weigh on the interest rate they are ultimately offered.

But the changes are also working, to some extent, Bloomberg writes”

“At least some doors to bad behavior appear to be closing. During the run-up to the housing crisis, mortgage brokers were given free rein to select home appraisers for the deals they sourced. Higher valuations justified higher prices—and by extension, bigger commissions for brokers. New rules implemented in 2008 made it more difficult for brokers to influence appraisals…Fraudsters have also been less apt to doctor closing documents or falsify documents that verify their deposits.”

View the Bloomberg Businessweek article.

Written by Elizabeth Ecker

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