What Is “Fraud for Profit”?

by Peter G. Miller
February 20th, 2008

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Testifying before the Senate’s Special Committee on Aging, attorney Rachel Dollar, a representative speaking for the Mortgage Bankers Association, made an interesting point:

“Fraud in the mortgage context can be divided into two broad categories: “fraud for property or housing” and “fraud for profit.” Fraud for property occurs, typically, when fraud is committed so that a home buyer can purchase a house for personal use. Historically, such fraud carries a lower financial risk to lenders because the fraud is a one-time occurrence on a loan the buyer intends to repay. Frauds for profit schemes, on the other hand, typically involve a person or a group of people that abuse the system for financial gain. These persons are often well versed in mortgage finance and know how to exploit the system at the expense of lenders, taxpayers, consumers and communities.”

Nowhere in her testimony does Ms. Dollar use the term “predatory lending.” However, the idea of “fraud for profit” is interesting.

For instance, if a lender has a borrower who qualified for an FHA mortgage and sells that individual a higher-cost subprime loan that yields a larger fee, is that an example of “fraud for profit”?

If a lender offers to refinance a loan to a lower rate — but not the lowest available rate for which the borrower qualifies — is that an instance of “fraud for profit”?

How, exactly, does “fraud for profit” differ from ordinary lending? Is there some percentage to separate the two, some dollar amount?

If a borrower is being abused by a lender, what good does it do to contact the lender first if the borrower is having financial trouble?

Is “abusing the system for financial gain” actually illegal? If a borrower overpays for a loan is that an example of abusing the borrower but not abusing the system — and thus perfectly lawful?

A selective definition of “fraud for profit” is useless. Borrowers, too, deserve protection under the law, not just lenders.

The entire statement can be found by pressing here.

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