Loan Officer Training with The Mortgage Calculator

Loan Officer Training - 11/21/2024 - Understanding and Preventing Mortgage Fraud

The Mortgage Calculator

In this episode of Loan Officer Training, we tackle the crucial topic of mortgage fraud—what it is, how it happens, and how loan officers can identify and prevent it. Learn about common schemes like income misrepresentation, identity theft, and property flipping, and discover the red flags to watch for during the loan process.

We’ll also discuss the legal consequences of fraud and best practices for protecting yourself, your clients, and your organization. Equip yourself with the knowledge to uphold ethical standards and maintain the integrity of your business. Tune in to stay informed and proactive!


Join The Mortgage Calculator at https://themortgagecalculator.com/join

About The Mortgage Calculator:

The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation! 

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!

Our team of over 350 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as access thousands of mortgage programs using Alternative Income Documentation such as Bank Statement Mortgages, P&L Mortgages, Asset Based Mortgage Programs, No Ratio CDFI Loan Programs, DSCR Investor Mortgages, Commercial Mortgages, Fix and Flip Mortgages and thousands more!

Our Mortgage Loan Originators are trained to be loan consultants to guide borrowers throughout the entire loan process. A licensed Loan Officer is only a phone call o

Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

Loan Officers for Unlimited Free Non-QM Leads & Trainings Join The Mortgage Calculator at https://themortgagecalculator.com/join

The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as thousands of Non-QM mortgage loan program variations using alternative income documentation!

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!

Our team of licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as acc...

Restream recording Nov 21, 2024 • 05:02:33 PM:

This is a great topic, uh, very important to, uh, understand, uh, to avoid any issues you may have because, uh, Fraudulent loans, um, if they get caught in a, in a post closing audit, is a loan that is going to have to be repurchased, usually, by the, um, company, by the lender, and any commissions, uh, earned, returned. And that's assuming that the MLO didn't have anything to do with the fraud because if there was any collusion by the MLO and the fraudsters, then besides giving your money back, you're looking at additional legal ramifications. So it's very important in our business that we be proactive. Uh, when we are, um, discussing with customers, uh, prospective deals, uh, processing loan applications, reviewing documents, uh, at submission, reviewing documents provided for conditions. All of that is, uh, important in light of not just, um, closing the deal, but closing the deal that should be closed and staying out of trouble. So let's get right into it here, because it's, like I said, Very important, especially in moments like now when interest rates are higher, it's harder to qualify. Uh, people still need housing. People still want to make money and, uh, you know, close loans, whether it's a realtor wanting to close a transaction, a sale, a loan officer wanting to close a loan, a borrower wanting to get into the properties. When we get into these types of situations where the market's a little soft in transactions or the costs are higher on the borrowers. We're at the extremes. That's when things can occur. So what do we mean by mortgage fraud? Mortgage fraud is a falsification of any information that is given in order to receive a mortgage on real estate property. It's going to involve usually a material misstatement. Misrepresentation or omission, right? Omitting information, you're just as guilty of fraud as giving bad information. So material misrepresentation, misstatement, or omission in relation to a mortgage loan, which is then, this information is then relied upon by the lender to issue a decision. So, you know, just imagine if, All the documents are fraudulent and the lenders approving it based on fraudulent info, that's going to be a big problem. Now, most of you, uh, when you're doing your loan applications in Encompass and or in your approvals, you're going to see FraudGuard or the requirement for a clean FraudGuard. Uh, that's an industry tool. It is applied in every loan and it searches for incorrect info related to the borrower. What are the things that we're looking at here? Well, some of the things we're going to cover in this Presentation here, right? Um, straw purchases where the borrower may not be the real, not going to be the real occupant of the property, just, um, letting their credit be used, um, flipping, uh, or selling a property to somebody and then buying it back from that same person. That's another, uh, scheme that fraud guard catches, uh, or if you've had foreclosures in the past that may be not disclosed, or if you have properties. That you haven't disclosed on the application. Maybe property is held in a personal name, not disclosed. Maybe property is held in an LLC, not disclosed in the application, which is obviously going to result in additional liabilities, potentially for the borrower, right? Minimum additional tax liability on the property can have also additional liability from the insurance. And then if there's any loan on that property, because it may not be in their personal name, maybe in the LLC. And they're doing the closing the loan in that particular LLC. That's definitely something that we have to consider. So, uh, fraud guard. Great tool tries to, you know, find all of the issues that may be going on, or at least identifies issues you're going to have mainly the ones that we're asked to address are the critical risk issues that are in front of guard. So, what is the impact of mortgage fraud? Well, you know, there's a lot, but we're looking at damages and communities because if there's a lot of fraud that goes on. In a particular community. All right, those could be properties that end up going into foreclosure and then sell at a reduced price. So they, they, they did the fraud. Maybe it was a collusion to a non arms and limbs transactions where they inflated the price, no intention of paying for it. And then they let their property go into default and then it sells at a reduced price. And you end up then with declining values in that community. It can lead to riskier lending. It is usually affiliated with money laundering and criminal behavior. And it creates greater losses due to higher defaults. This last one is particularly damaging as well because that increases the operating costs. To the companies, and then they have to increase the interest rates to cover the additional expenses. So again, borrowers are being damaged by that. What are the types of mortgage fraud, right? Um, the two types of mortgage fraud, the two categories, the first one is fraud for profit. That is where there is financial gain from the fraud and it involves multiple misrepresentations, right? So, um, and it could also involve multiple Participants like a borrower, an MLO appraiser, real estate agent, and it could also involve multiple loans and properties resulting in a significant significant amount of money being involved. You know, fraud for profit is like usually a professional fraud. Let's call it that right. Where everybody's colluding to do the fraud like, um, prior, you know, that's why they enacted. The Dodd Frank Act and a lot of the, um, the, the rules in the Dodd Frank Act. One of the main one has to do with the appraiser, right? The, you cannot communicate directly with the appraiser when putting in the order and, uh, or when having any issues with the valuation, they don't want the appraisers being, um, I guess, intimidated. To say the least to do anything or coerced or enticed right by offering them money, they want to keep the appraiser totally separate. So that's fraud for profit again is going to be for financial gain. Now fraud for housing. You know, is the primary motivation there is home ownership, whether it's a primary home or an investment property. The borrower is committing some type of fraud because they want the property, right? They either need somewhere to live or they want that investment property to create income. Now in fraud for housing, the borrower does intend to occupy the home if it's a primary and does intend to pay or does intend to pay, make payments if it's an investment property. But they need, they want to get the property and they probably wouldn't qualify if they didn't do some type of fraud like alter their pay stubs, alter their bank statements or whatever else altering the borrower, uh, misrepresents. To own property or occupancy, right? Um, they may state that it's in, that they're going to buy it as an investment property when it's really going to be a primary, right? Or buying it, you know, because they need the extra income from the investment, or buying it as a primary because they wanted to hire LTV. And the lower rate, but it's actually going to be an investment and fraud for housing usually is only going to involve that one particular loan that the borrower has applied for. So what are, um, now some of the more specific fraud actions. Well, uh, we have straw buyer. Now, a straw buyer, that's where you allow someone else to use your credit. To buy the home like you're, you're listed as the buyer, you're listed as a borrower, but you're really not going to live there as a primary, somebody else is going to live there. They have bad credit. They don't have verifiable income. Maybe they have lots of money to put to the deal, but they don't have anything else. So they, um, get a straw buyer to help them out. Now, straw buyer can be used in fraud for housing or a straw buyer can also be used in fraud for profit, depending what's the transaction you're trying to do. And the straw buyer may be paid for their involvement, whether it's for helping out that primary buyer or somebody wanted to buy an investment property. They have money, they want to, they want investments, but again, their credit is not good, their income is not good, whatever may be the issues. They get the straw buyer, they pay him, you know, five, eight, 10, 000 to use your credit so they can get the home. And so be it. Now, what are some of the red flags here that you want to look for to try to identify a straw buyer transaction? Well, for example, you could have a first time home buyer with a substantial increase in their housing expense, right? They're paying 500 a month rent and all of a sudden they're going to pay 2, 800 a month, you know, that has to make sense. I mean, we're not saying that's not true, but it just has to make sense. Another red flag for the straw buyer is gift funds are used for the cash to close. Again, no money being used of their own. Who's that donor? That donor really a relative? Is it really a parent? Is it really a close personal friend? Or is it, uh, the person who they are in collusion with so that to commit the fraud? And another red flag for a straw buyer transaction is that no real estate agent is involved. Another specific type of fraud is affinity fraud. That is where you rely in a common bond to exploit the trust and friendship. For example, you belong to the same church, you work at the same employer, um, you know, you, whatever may be, uh, that binds you together, you know, common group, or you go to the same church, right? Those are three common, uh, areas where we would be bound. You know, together in a common bond. But again, something, this is another, uh, type of fraud because it can't, the red flags to look for are, for example, common surnames, uh, for multiple parties in the transaction, right? I mean, a little less. Um, glaring. If it's for example, uh, you're in South Florida and the name is Gonzalez like mine. Got a lot of people with Gonzalez. You would want to investigate to make sure. Is that a relative or is that just a coincidence? Is it because if it's a relative or is it a non, you know, some type of non arms links transaction, right? Somebody that that, you know, maybe your employer, whatever it may be that hasn't been identified in the transaction. Um, another, um, red flag for affinity fraud is excessive assets do not align with the profession of the borrower. You got 200, 000 in the bank and you work in a job making 25, 000 a year, you know, that, that may raise a red flag and a big red flag would be that the down payment is a large gift from the group members, you know, to make sure that this is not something where it's being bought. as a group investment, but it's not being disclosed that way. And the last one that I wanted to cover here is reverse occupancy. This is a really big one. Reverse occupancy could be, I touched on it previously, it, this is where someone buys the home as an investment property, but uses it as a primary. Or conversely, buys it as a primary but uses it as an investment property. Um, obviously they do that because if they're using, if they're putting it as an investment property, they're gonna be able to get extra income from that rental income that is going to be used to qualify but is not actually going to be received. So that's a, that's a big issue for the bank there. Total misrepresentation there of occupancy. Or just as bad, they state that it's going to be a primary, but they use it as an investment. And obviously the reason they do that there is because they're going to get a lower rate as a primary, and they're going to get a higher loan to value. And the red flags to look for here also is it's a first time home buyer. Uh, if it's an investment property, no current housing obligation, they're living rent free. That's a real big red flag for the investment property. Are they going to stay living rent free, right? Are they going to move into the investment property and make it a primary? And, um, last red flag here is they provide evidence of insurance for an owner occupied property, but the property is actually an investment property. So, that, that would probably be more, uh, occurring more when it's a, uh, refinance as opposed to a purchase, but if they're dumb enough to request, uh, owner occupied insurance, evidence of insurance on a purchase that's going to be an investment property, then, uh, you know. Be on the lookout. So are there any questions regarding fraud? Really important stuff here, especially when you're taking those loan applications. I'll give it a moment. See if anyone pops a question in there, but I do not see any questions. So, all right, everybody, thank you for joining us, uh, for today's training, and I will see you all again on Tuesday and have a great day.

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