Fraudulent loans take on many different forms. The victims may be individuals or financial institutions. Fraudulent loan schemes generally prey on vulnerable consumers. The unemployed, those who have bad credit ratings, or those in immediate need of money for emergencies. Here we’re going to take a look at some of the more common forms of fraudulent loans, and how you can avoid becoming a victim, or even accidentally committing fraud yourself.

Mortgage Fraud

Mortgage fraud is the most common form of loan fraud, and the most costly. The victims can be banks or individuals. And sometimes individuals can perpetrate fraud without even knowing it. “Creative financing” is a term that has been used in the mortgage industry for a long time now. Unfortunately, many times it forces the consumer to commit fraud without even realizing it. Here are a few examples of some things that a mortgage applicant may do which would constitute mortgage fraud:

  • Over appraising a property value. Happen to be good friends with an appraiser? Maybe he bumped up your house value by a little bit to help you get a higher selling price. If that’s the case, it’s mortgage fraud.
  • Applying for a “stated income” mortgage? Maybe you exaggerated your income a little bit to help get a lower interest rate. That’s not creative financing, that’s mortgage fraud.

Kickbacks, false deposits, lying about residency, lying about employment, repayment of gifts, and many other common activities may be construed as fraud. Unfortunately, some unscrupulous mortgage brokers looking for a quick buck may actively encourage you to engage in fraud, and even convince you that it’s perfectly legal. According to the FBI, mortgage fraud is defined as “any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.” If you feel that you may be asked to break the law on your mortgage application, at the very least consult your attorney. Ignorance of the law is no excuse, and mortgage fraud is a federal crime.

Mortgage Fraud By Insiders

The mortgage industry is just as competitive as any other industry, and unfortunately many companies are willing to do whatever it takes to make a profit, even if that means breaking the law. A very common form of mortgage fraud comes from mortgage brokers. Whether it’s encouraging clients to lie on documents, or forging documents without their knowledge, insider fraud is very common.

Other Types Of Fraudulent Loans

Other types of fraudulent loans may include applying for a loan with a fake identity, forging loan documentation, or even posing as a financial institution in order to collect a down payment on an alleged loan, and disappearing after receiving the cash.


Reproduced with permission from Urban Sotensek. To read more articles by Urban Sotensek , click here  Copyright 2008 Urban Sotensek. All rights reserved worldwide.


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