Mortgage loan fraud can be extremely costly to both homeowners and lenders. The most common types of mortgage loan fraud occur when a prospective borrower misrepresents or omits information on a home loan application or inflates the value of their home for the purpose of misleading a lender.
As with most types of fraud, there are certain situations that scammers like to target. Factors that increase the risk in a mortgage loan transaction include borrowers facing foreclosure or loss of employment, applicants with credit issues, reverse mortgages, and first-time homeownership. Scammers will often falsely promise victims that their homes will be saved from foreclosure with term modifications and debt management. When it comes to buyers, tactics include offering mortgage rates that are significantly lower than market rates, scheduling payments that are considerably larger than disposable income, over-extending property values, and devaluing credit scores. They may also prey on vulnerable homeowners or inexperienced buyers who lack education or financial security.
Mortgage loan fraud can take many forms, but the four most prevalent scams are listed below.
- Mortgage Wire Fraud: Mortgage wire fraud happens when a scammer persuades homebuyers or the closing agent to route the closing cost payment to an illegitimate bank account, usually without the possibility of reversal. Always double-check the transaction details with your bank or closing agent and always verify any last-minute instructions that you receive by email.
- Foreclosure Scams: Foreclosure scams exploit insecure homeowners financially to either pocket the equity or take outright ownership of your home. Check with your lender before working with a third-party and always verify the credentials of mortgage relief providers.
- Reverse Mortgage Scams: Reverse mortgage fraud takes advantage of the “Home Equity Conversion Mortgage” (HECM) program which offers seniors (persons over 62) a lump sum payment in exchange for home equity, which scammers will then try to steal. Be especially wary of programs that imply reverse mortgages are a government benefit instead of a loan with a unique repayment structure.
- Bait-and-Switch Scam: Bait-and-switch scams tempt buyers with deals that offer low mortgage rates or impressive terms, then flip the offering to a deal with much higher rates or less attractive terms. If possible, ask your mortgage lender to lock your rate and provide a breakdown of fees. After filing an application, you’ll receive a Loan Estimate that can be used to compare rates and terms across other lenders.
Buyers and sellers can reduce the possibility of falling prey to mortgage loan fraud scammers by following some simple, yet crucial guidelines:
- Stay observant during the entire process and ask questions about items you don’t understand;
- Although it can be complicated, read through all documentation and make sure everything is clear before signing;
- Be especially cautious when paying upfront fees to non-lenders, and;
- Work with lenders and professionals that you know and trust. Be suspicious of offers and guarantees from providers you don’t know;
- Most importantly, choose a lender that will work closely with you throughout the process and consult him or her with anything that appears to be questionable or vague.
First Keystone Community Bank has a staff of loan professionals with extensive mortgage experience who can assist you throughout the mortgage loan process from application to closing. For more information and to discuss your options, contact FKCB Mortgage Services Manager Leighton Walsh at 570-752-8929.