False Moves, Real Consequences

Mortgage fraud comes in many different forms, but there are some common misrepresentations listed by the FHFA. Examples include:

• Providing false information regarding employment status, income level, or employer;
• Misrepresenting the source of funds for a borrower’s down payment;
• Falsifying a borrower’s credit score and/or outstanding debts and liabilities;
• Misrepresenting a borrower’s intent to occupy the property;
• Providing false information concerning a borrower’s identity;
• Using inaccurate appraisal figures to misrepresent the true value of a property;
• Obtaining multiple loans on a single property based on false information;
• Providing false property information to secure or modify a loan; and
• Misrepresenting income, hardship, or related information to halt foreclosure or influence a short-sale decision.

Repercussions

Whether intentional or unintentional, providing inaccurate information on a mortgage application is a crime. Be clear about this with your borrowers. They may think small inaccuracies are immaterial, but borrowers should be careful to ensure they provide the most accurate information. No matter how big or small (or unintentional), misrepresentation of a material fact is still a felony — and, depending on the circumstances, sentences for offenders may include years in prison and fines.

Of course, there are financial repercussions for fraud as well. In their 2024 The True Cost of Fraud report, LexisNexis reported that for every dollar of fraud loss, financial institutions lose $4.41. Mortgage fraud is costly for lenders, and your keen eye can help prevent fraudulent transactions.

Red Flags

In order to prevent fraud, you have to be aware of potential red flags. Red flags on a file can range from misspellings and math errors on a pay statement to a questionable watermark on an asset statement. Read through all your documents carefully and do additional verification when something appears suspicious.

Other red flags may not be as easy to spot. Technology is making it easier for bad actors to get away with fraud. AI and deepfakes add another complicated layer to verifying your borrower really is who they say they are, and they earn what they say they earn. Fake IDs and other documents are easily available online and many of these can look incredibly convincing.

To stay ahead of fraud, take some time to brush up on common tactics so you can help stop misrepresentation in its tracks. There is an abundance of resources on fraud, including:

• Consumer Financial Protection Bureau — Fraud and Scams
• Federal Bureau of Investigation — Financial Institution/Mortgage Fraud
• Federal Trade Commission — Home Loans
• Fannie Mae — Beware of Scams or 1-800-2FANNIE
• Freddie Mac — Avoiding Fraud or 1-800-FREDDIE (select option 2)

The consequences of mortgage fraud are real, and it’s your responsibility to be on the lookout for red flags. As technology evolves, fraud will continue to become more sophisticated and more difficult to detect. Regardless of difficulty, it is not impossible, and it’s your responsibility to be paying attention and staying up to date on the latest fraud trends.