Mortgage fraud refers to an intentional misstatement, misrepresentation, or omission of information that is used by an underwriter or lender to fund, purchase, or insure a mortgage loan. It is generally categorized in one of two ways: fraud for profit (typically insiders using their knowledge to steal cash and equity) and fraud for property (typically committed by borrowers to gain or maintain ownership of a property, like lying about their income).
Increased homebuying competition and higher-than-normal property values and interest rates can signal increased risk for mortgage fraud, so lenders and originators should be extra cautious moving into 2022. This need for caution intensifies given the expected increase in interest rates, which essentially puts consumers on a time limit for maximizing their purchase power.
Recently, on the organizational level, a lawsuit from loanDepot’s former chief operating officer alleged that the company had been undertaking “one of the most egregious wide-scale fraud for profit schemes since the years leading up to the Great Recession”. According to the lawsuit, loanDepot founder and CEO Anthony Hsieh allegedly encouraged his sales team to cut corners on underwriting loans in order to drum up money during the refinance boom and prepare for the company’s IPO. He allegedly ordered the sales team to “trust all borrowers” and close all loans without checking documentation, personally identifying over 8,000 loans that were to be closed without proper documentation.
Higher risks for income and property fraud are expected as purchase loans are more susceptible to fraudulent activity: CoreLogic