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Mortgage Fraud Risk

Greed, ignorance, and good intentions are the various starting points for mortgage fraud. Whether a person is looking for a home to live in that’s nicer than he can legitimately afford, or he’s looking to flip a property to make a quick buck, mortgage fraud entails lying or hiding information from the bank to get more favorable loan terms.

There are two main types of mortgage fraud: “fraud for profit” and “fraud for house.” While “fraud for profit” schemes are fairly clear-cut in their dubiousness, “fraud for house” is often committed by people who aren’t aware of the seriousness of their actions. Some truly don’t think of what they’re doing as wrong.

“Fraud for house” is committed when a person falsifies her income or credit information in order to qualify for a home loan that she knows she couldn’t qualify for based on her true financial circumstances.

Oftentimes this type of fraud seems innocent—after all who’ll get hurt if I fudge the numbers just a little bit? However, as we’ve seen with the record number of foreclosures happening in recent years, too many people have gotten themselves involved with real estate deals that they simply couldn’t afford.

A single foreclosure can reduce the property values for everyone on the street, which can lead to entire neighbourhoods with slumping real estate values. Thus, one little lie on an application can have serious consequences: for the bank who never recoups their money, for the homeowners who lose their homes, and for the rest of the economy that takes a hit right alongside the real estate market.

“Fraud for house” cases commonly involve a buyer exaggerating their income on the application form, or in some cases, by getting financial aid from the seller without notifying the lender. This type of loan is known as a “silent second,” where the seller offers to help the buyer come up with the down payment, while keeping the bank in the dark. This is problematic because the bank gets a false picture of the buyer’s financial resources. The bank then authorizes a loan based on inaccurate information, and risks not ever getting their money back.

Another popular form of mortgage fraud involves what’s known as a “straw buyer” or a “nominee loan.” In this type of fraud, a buyer uses someone else’s credit and income information on their loan application. He may decide to pay a person to use their information, or he might steal somebody’s identity to get their data.

The person whose financial information is being used is known as the “straw buyer.” She is simply the buyer on paper, and has no intention of ever living in the home or of making the mortgage payments.

For the bank, this situation is very risky. There is a person that they don’t know that’s living in the home. They could have very low income or a poor credit history, which means that the bank’s chance of getting their payments is very slim. Fortunately, if the bank doesn’t receive its monthly payments, it’s within their rights to go after the straw buyer for remuneration.

Lenders check borrowers’ financial information for a reason. They want to make sure that you get a home that you can actually afford. Buying beyond your means can result in a financial disaster for you, and major losses for the bank. While you may have your eye on an upscale property, if it’s beyond your means, it’s beyond your means. Lying to the bank to get the financing you need is illegal and unethical, no matter how sincere your intentions were.

About the Author:

Complete Calgary real estate listings search: View all Southwest Calgary homes including Signature Park homes for sale. Access photos, virtual tours, neighbourhood info, maps and more at JustinHavre.com.

Article Source: ArticlesBase.com – “Fraud for House” Mortgage Scams

JKCH-5 Part 1of 6

Mortgage Fraud Risk Report

The Citizens Advice Bureau (CAB) has issued a report which has shown that hundreds of thousands of Britons are falling further into debt, ending up in court and facing the repossession of their homes due to irresponsible lending practices, inaccurate advice and in some cases, downright fraud.

The CAB’s report; Set Up To Fail: CAB Clients Experience of Mortgage and Secured Loan Arrears Problems (December 2007) has revealed that some mortgage brokers are issuing loans, named aptly ‘liar loans’ or self certification loans, to people with inadequate credit ratings and poor financial acumen, without them having to prove their incomes.

Many people interviewed in the report said that they completely relied on the broker to guide and advise, and most of them were not told the severity of the consequences they would face is they fell behind with payments. As well as criticising brokers, the report says that the regulatory authorities and Labour government are not doing enough to protect vulnerable home owners from such scams.

The chief executive of CAB, David Harker said: “The cavalier behaviour of some brokers and sub-prime lenders is seriously undermining home ownership and hitting the most vulnerable borrowers hardest. Our research suggests that many aspiring homeowners have been mis-sold unsuitable and costly home loans that are doomed to fail from the start.

“Many sub-prime lenders are flouting the rules on responsible lending by granting loans when it’s clear the borrower will not be able to afford to repay it from the very outset, then getting tough immediately things go wrong. Far from providing housing security and a valuable asset, home ownership has proved a fast track to debt and homelessness for many vulnerable borrowers on low incomes.â€

The report from the CAB was based on a case study of 1,200 customers from 360 advice centres nationwide, the organisation was involved in 57,000 cases of mortgage and secured loan arrears from 2006-2007. The CAB also said that as many as 770,000 people had missed at least one secured loan or mortgage payment in the previous year. Brokers sell secured loans through purchasing secured loan leads from other companies or following up leads from their own websites.

Another revelation made by the CAB report is that the number of rejections for secured loans from high street banks and mortgage lenders is rising, this is resulting in people seeking credit with other, less reputable companies.

Mortgage payments of one kind or another, are claiming more and more of people’s monthly income. A third of people involved in CAB’s study paid more than 50% of their income in mortgage and secured loan payment, and for 12% the repayments amounted 70% of their salary.

Recent months have seen a huge increase in house possessions, this is partially due to the credit crunch and house price slumps alongside rising interest rates. The Council of Mortgage Lenders (CML) reported a 75% rise in house possessions last year to the staggering figure of 30,000.

The many difficulties faces by homeowners is reflected in the recent growth of the debt collection industry which has quadrupled in size since 2003.

This evidence shows that “homeowners in a financially and emotionally vulnerable situation end up selling their houses for less than they are worth, in return for a tenancy that offers little security of tenure.†Shelter, a UK housing charity, is cited in the report, highlighting that people are increasingly using credit cards to pay their rent or mortgage.

Shelter’s chief executive, Adam Sampson, said: “Clearly, this is a huge problem which will only become more widespread as housing costs continue to rise. We would urge anyone struggling with the cost of their mortgage or rent to seek independent financial advice. The number of people hit by the credit crunch, interest rate hikes and unaffordable housing costs are rapidly rising.â€

About the Author:

Jemma is an author of several articles pertaining to Mortgages, Insurance, Life Insurance, Van Insurance, Car Insurance, Loans, Credit, Debts and other Business and Finance related articles.

Article Source: ArticlesBase.com – Customers’ Homes at Risk Due to Bad Advice

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