Mortgage Fraud Essay

659 words - 3 pages

Beginning in 2008, mortgage companies had begun to start making loans to individuals as a way to promote home ownership. With the help of Fannie Mae and Freddie Mac, there was increased pressure on these mortgage companies to loan to individuals who did not meet certain requirements that would qualify them. For obvious reasons, these qualifications were in place so that a crisis like this would have never happened. Additionally, the mortgage backed securities and collateralized debt obligations attracted investors due to their high return on investment because of the higher interest rates charged to the mortgagor. When these subprime mortgages had defaulted, both the mortgage/lending and ...view middle of the document...

On the other hand, fraud for profit is a more complex scheme. It involves gross misrepresentation in appraisals and loan documents on multiple loans as a means to gain proceeds from property sales. Both of these schemes have a commonality in that they involve falsifying borrower’s financial information. More specifically schemes like backwards application, fraudulently inflated appraisals, and illegal property flipping are used in the loan origination category.
Backwards Application involves the fabrication of the borrower’s income and assets to meet the minimum loan requirements. This is essentially the most basic form of mortgage fraud since it is relatively easy to inflate income, “create” assets, alter credit reports and modify the prior place of residence.
Fraudulently inflated appraisals are used by mortgagors to generate false equity in the property they own prior to the application. This is done by falsifying an appraisal document or use their own biased appraiser to inflate the value in their property.
Lastly, and most complicated, illegal property flipping revolves around the fraudulent appraisal again. However, this...

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