FHA Cautions Borrowers Against Mortgage Fraud Schemes
June 19th, 2010
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The Washington Post reports the urgency of federal agencies in attempting to recover billions of dollars lost in a mortgage fraud scam perpetrated by a now defunct mortgage lender. Legal experts doubt that parties affected will fully recover their losses, and HUD inspector general Kenneth Donohue estimates that government housing agencies FHA and Ginnie Mae could withstand losses totaling $3 billion. Although this scam involved selling questionable mortgage backed securities to Ginnie Mae, this news demonstrates the damage caused by mortgage fraud schemes. Unfortunately, these schemes are often targeted toward consumers vulnerable to such scams.
FHA Tips for Avoiding Mortgage Fraud
Mortgage fraud likely to involve consumers includes identity theft, and submitting false information on mortgage loan applications and documents. Borrowers can also be impacted by the activities of mortgage lenders involved in mortgage fraud after their loans are approved. Mortgage lenders may abruptly close or file bankruptcy; this can cause problems with making mortgage payments. FHA provides the following tips for identifying mortgage fraud:
- False mortgage loan documentation: Consumers should never sign blank mortgage applications or loan documents. Before signing, verify that all information is accurate. Ask for clarification or correction if you don’t understand or don’t agree with information shown on your mortage application or documents.
- Inflated appraised values: This may not be immediately apparent to borrowers, but if the home you’re buying or refinancing doesn’t appraise for enough to qualify for the FHA loan amount needed, lenders may ask appraisers to inflate the actual value for the purpose of meeting FHA guidelines.
- “Silent” second mortgages or cash gifts: Although FHA loans require low down payments, meeting closing costs and FHA up-front mortgage insurance premiums (UFMIP) may be challenging. Don’t fall for schemes where a lender or other party offers a “silent” second mortgage or “gift” to help with meeting these costs. This type of scheme involves a third party providing undisclosed cash to borrowers; when the mortgage loan is closed, the third party may record a second mortgage. FHA guidelines do allow cash gifts, but they must be documented in writing.
- Fictitious or “straw “buyers: Borrowers who cannot qualify for a mortgage loan may be offered “assistance” through the use of a fictitious or “straw” buyer. Mortgage lenders using this scheme underwrite a mortgage loan using a fictitious or third party borrower, and convey title to the actual borrowers after the loan has closed. Immigrants and others unfamiliar with real estate laws and practices can be vulnerable to this type of mortgage fraud.
When shopping for a mortgage loan, getting mortgage quotes from several FHA lenders can help you identify favorable loan terms and lenders. Walking away from suspicious activity can help with avoiding criminal prosecution and conviction. Mortgage fraud involving FHA loans is a federal crime and can result in prison sentences and costly fines.
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