According to the FBI, mortgage fraud is classified as a sub-category under Financial Institution Fraud as it involves criminal schemes targeting financial institutions.
In 2021, 65.5% of American citizens owned their own homes, and with continued demands for real estate, it’s not surprising that more people want to take on the housing market.
These mortgage fraud statistics give us a preview of how big these scams could be and how deceiving these illegal companies are. More scam operators seem to be running their ‘business’ as they see opportunities arise.
It pays to know what to watch out for and stay vigilant whether you’re looking to buy a home, are a homeowner, or working in a financial institution.
Noteworthy Mortgage Fraud Statistics (Editor’s Choice)
- One of the highest mortgage frauds was $47 million
- A convicted individual could be imprisoned for up to 30 years or pay a fine of up to $1 million
- Around 500 mortgage fraud tips are received every quarter
- 1 out of 123 mortgage applications is at risk of fraud
- The Mortgage Application Fraud Risk Index is 11.4%
- Idaho, Alabama, Mississippi, New York, and Delaware have the highest fraud risks
- The number of loan applicants with less than one year of job tenure is increasing
- A scam operator could involve up to 800 properties
Mortgage Lender Frauds
1. In Q2 2020, somewhere around 0.61% of all mortgage applications included fraud.
(Core Logic)
That translated to about 1 out of 164 applications containing fraud. Then again, it showed a decrease from the year before. In other words, in the same quarter of 2019, approximately 0.81% of all mortgage applications (or 1 in 123) included fraud.
2. Mortgage fraud cases from 2021 involved a mortgage company loan officer confessing to long-running, large-scale mortgage fraud.
(Justice)
He confessed it in December. More specifically, Isaac DePaula was a long-time fugitive charged by criminal complaint 10 years ago and by indictment 6 years ago. Then he came back to the United States in March 2020 to face the charges in the indictment.
Moreover, according to mortgage fraud data, DePaula and his conspirators engaged in this large-scale mortgage fraud through a company called Premier Mortgage Service from 2006 to 2010. The offense to which Isaac pleaded guilty has a maximum fine of $1 million and a maximum potential penalty of 30 years.
3. In 2020, 12 defendants were charged for approving over 100 mortgages based on fraudulent files and false data.
(Justice)
So, similar to other real estate fraud cases, it entailed several individuals. The mortgage fraud allegedly lasted for over four years.
Moreover, the Federal Housing Administration (FHA) insured a great part of these loans, ending in claims paid for mortgages that have undergone loan modification.
4. A man conned elderly victims and charged monthly fees for illegal foreclosure and eviction delay services, gaining $10 million from the scheme.
(Federal Housing Finance Agency)
One of the mortgage fraud cases in 2019 involved a San Fernando Valley swindler who collected $7 million from unknowing homeowners. Furthermore, his total netted gains from the theft portions of the scheme was $10 million.
Types of Mortgage Fraud
5. There are two main areas of mortgage fraud.
(FBI)
These cover crimes of misstatement, misrepresentation, or concealing critical information that could affect a bank’s decision to approve a loan, accept a reduced payoff amount, or agree to certain repayment terms. Any lie that would affect the bank’s decision would be considered fraud. Mortgage statistics indicate that there are two types of mortgage fraud, and they are listed below:
Fraud for Profit
These mortgage lender frauds are usually from industry insiders with the particular knowledge and capabilities to take on certain transactions that will lead to fraud. Fraud for profit aims to get cash illegally during the mortgage lending process.
Fraud for Property
This type of fraud aims to take over home ownership where a borrower or applicant provides inaccurate information on income details or lures an appraiser into tweaking the property value.
6. There are at least nine mortgage fraud schemes.
(FBI)
The types of mortgage frauds vary in nature, and the FBI has widened the scope of financial institution crimes to cover fraud affecting homeowners.
7. The Corporate Finance Institute categorizes three types of mortgage fraud.
(CFI)
More specifically, they are the following:
- Income fraud (An example of such fraud may include a borrower claiming self-employment income that isn’t real or providing a false job title. A variation of income fraud is identity theft.)
- Appraisal fraud (This is one of the mortgage fraud trends when the property appraisal that a borrower is requesting a mortgage loan on is purposely overstated or understated. To commit this fraud, a potential borrower must collide with a dishonest appraiser.)
- Occupancy fraud (An example of such fraud is when a potential borrower states they plan on occupying a property as their primary residence to obtain the most favorable loan terms when they don’t plan on living in the property. That’s because loans on primary residences have lower interest rates.)
Mortgage Fraud Trends
8. A lender is required to complete a minimum of 10% sample size of the Quality Control review.
(Fannie Mae)
The Federal National Mortgage Association, more commonly known as Fannie Mae, has released a Selling Guide that lenders use when conducting their business.
It lists down comprehensive and essential details on the process of lending. One of the reviews it requires is a mortgage post-closing investigation or a quality control review performed every month. According to it, a lender must provide a 10% of mortgage loan or at least one loan sampling, whichever is higher.
9. In 2020, Undisclosed Real Estate Debt Fraud Risk decreased by 24.5%.
(Core Logic)
Generally speaking, this happens when an applicant provides misinformation about outstanding debt or previous foreclosures. In 2020, this mortgage lender misrepresentation showed a decrease from the previous year when it was 37.9%.
10. At least 500 fraud tips have been received every quarter since 2019.
(Fannie Mae)
Moreover, from Q3 2019 to Q2 2020, the majority of received fraud tips were from lender self-reports. On the other hand, most fraud tips received from Q3 2020 to Q2 2021 were from FNMA Internal.
11. Income Fraud had the highest count in mortgage fraud stats on closed fraud tips.
(Fannie Mae)
Out of the fraud tips received through the Fannie Mae fraud reporting line, Income Fraud was the most common with more than 900 tips, followed by Employment Fraud with 800 and Liabilities with 500 tips.
12. California had the highest percentage of closed fraud tips with findings from Q3 2019 to Q2 2021.
(Fannie Mae)
Mortgage fraud statistics share that the top 10 states having the highest number of closed fraud tips with findings from Q3 2019 to Q2 2020 were California, Florida, Texas, New York, Illinois, Michigan, Georgia, Nevada, North Carolina, and Arizona.
From Q3 2020 to Q2 2021, California, Texas, Florida, New York, Colorado, Arizona, Georgia, New Jersey, and Washington were in the top 10, mortgage fraud facts show.
13. There has been an increase in loan applicants with young job tenure.
(Core Logic)
False college transcripts and diplomas are typically added to the short tenure of young borrowers. Since 2018, mortgage loan applicants having less than one year tenure have an increasing trend falling around 4.5% for first-time home buyers.
14. Fraud risk growth is the highest in Idaho, Alabama, Mississippi, New York, and Delaware.
(Core Logic)
Mortgage fraud statistics by the state show that several indicators are affecting year-over-year risk.
Property fraud is a top fraud indicator in Idaho, Mississippi, and New York and has decreased by 9.9% nationally from Q2 2018 to Q2 2019. That occurs when information, such as a property appraisal, is intentionally misrepresented.
Idaho and Alabama’s top fraud indicator is Transaction fraud, where transactions, such as agreements and down payments, are falsified or misrepresented.
Another loan fraud crime risk is Occupancy fraud, where applicants lie about the purpose of a property (residence or investment), which could affect pricing and underwriting guidelines. In fact, Alabama and Delaware have occupancy fraud as one of their fraud indicators. Nationally, this decreased by 2.0%.
Both Mississippi and New York have Income fraud as a risk indicator. This type of mortgage fraud happens as a misrepresentation of the amount, source, existence, or income continuance. It has decreased by 7.7% on the national level.
Mortgage Fraud Red Flags
15. Fannie Mae has listed 63 entities appearing to be fictitious.
(Fannie Mae)
These entities are listed as employment places in California, but the mortgage fraud program could not confirm their existence. Some of the red flags are: starting salary appears high, supported employer does not exist, and TPO / broker loans.
16. Occupancy Fraud is one of the most common red flags.
(Asurity)
To recognize this type of red flag, lenders need to keep an eye on several things. Namely, they include buyers who offer evidence of living “rent-free” in their residence, appraisals involving expected rent payments, and very large down payments.
Mortgage Fraud Facts
17. In Q2 2019, there was 1 possible fraudulent application in every 123 mortgage applications.
(Core Logic)
That’s equivalent to 0.81% of mortgage applications with fraud indications. In addition, it had a minor decrease from 2018’s figures of approximately 0.92% or 1 in every 109 mortgage applications.
18. The mortgage application fraud risk index went up by 37.2% in Q2 2021.
(Core Logic)
The CoreLogic 2021 Mortgage Fraud Report shares that risk followed a significant decline in 2020. More specifically, the drop was primarily driven by the pandemic’s surge in traditionally low-risk refinances.
Furthermore, the fraud risk in the second quarter of 2021 is similar to that in mid-2019.
19. New York, Florida, and New Jersey are the top three states regarding risk ranking.
(Core Logic)
In fact, New York has had a risk increase of 8% year-over-year. The risk in Florida has dipped by 4%, while it has dropped by 21% in New Jersey.
Conclusion
These mortgage fraud statistics cannot be taken lightly after unknowing victims could lose their hard-earned money. Homeowners must practice utmost vigilance given that homeownership rates in rural areas go as high as 81.1% and identity theft usually targets seniors. Preventing identity theft is important, but If you become a victim, here is how to file a report for identity theft.
The whole process of buying a property or doing a refinance can be overwhelming. Factoring in the current pandemic crisis, it’s clear why everyone should be alert and remember to report mortgage fraud immediately.
People Also Ask
How to report mortgage fraud?
There are several options to report mortgage fraud. You may report through these various channels:
- Report threats and crimes to the FBI.
- Report details of a scam, fraud, or bad business practice to a Federal Trade Commission Complaint Assistant.
- Contact the Fannie Mae Financial Crimes team if you suspect fraudulent activities.
- Locate your district’s US Attorney and report through their respective numbers.
Who usually commits mortgage fraud?
According to the FBI, those who do fraud for-profits usually are in connivance with industry insiders such as bank officers, real estate appraisers, loan originators, and other professionals. They are aware of the process and possible weakness of the system, which they exploit.
Some buyers are not qualified; however, due to income, employment, or credit score requirements, they may feel tempted to tap scam operators offering to “fix” certain aspects of their documents.
What are the two types of mortgage fraud?
Mortgage fraud can be focused on profit or housing. Those involved in fraud for profit usually target the system or homeowners in financial difficulty to gain money. They either gain funds through the loan proceeds using fake identities or ask for upfront fees from the unknowing homeowner.
Fraud to gain housing is usually committed by potential homebuyers who want to take out a mortgage but are not qualified. These applicants intend to pay the amortization but could involve themselves with scam operators who engage in providing fake documents. Some, though, may involve ‘straw buyers’ where identity theft could take place.
Is mortgage fraud a federal crime?
Yes, mortgage fraud is considered a severe offense and is punishable by US federal and state laws. It can result in up to 30 years in jail and up to $1 million in fines. In addition, an investigation into accusations of mortgage fraud may lead to additional charges for bankruptcy fraud, tax fraud, or other types of fraud, which can result in bigger criminal penalties upon conviction.
How common is home title fraud?
Home title fraud is a forged deed. This type of fraud happens when an individual can gather personal information about a homeowner, make it legally appear that a property sale/transfer was done, and apply for loans under the homeowner’s name. Identity fraud covers 20.33% of all reported scams, and the elderly are at more risk.
What is the punishment for mortgage fraud?
Depending on the case’s gravity, convictions could go from imprisonment to fines, restitution, and probation. Federal mortgage fraud could include prison time of up to 30 years and a fine of up to $1 million.
State mortgage fraud could include prison time of a few years or more and a fine of a few thousand dollars for misdemeanor convictions or $100,000 or more for felony convictions.
A restitution payment to compensate the affected party may also be in place on top of the penalties mentioned. Probation could also be an option or an additional penalty to the fines and jail time.
What criminal acts may be included in mortgage fraud?
The FBI defines it as any “misstatement, misrepresentation, or omission concerning a mortgage loan, which is then relied upon by a lender.”
It happens when a potential homebuyer, seller, or lender can manipulate or remove important information that may affect the loan’s approval, pricing, or terms. Furthermore, conspiracy, money laundering, and racketeering provisions may provide an additional basis for federal criminal liability, mortgage fraud statistics show.
