Loan Fraud is typically committed with intent. Not normally by the home buyer, but by the Originator or Real Estate Professional, or both in partnership. To avoid this situation, the first step is to insure that neither the Real Estate Professional (Realtor®) nor the Loan Originator has an existing relationship. i.e. Preferred Lender or Preferred Realtor® "because we work together all the time". In other words, you want each party independent of one another.
In banking, we call this checks and balances. The more you have, the less likely your loan will contain fraudulent activity. Working relationships between the two parties can create far to many opportunities for fraud. This applies to appraisers, home inspectors, septic etc. etc. etc... All vendors you have control over. One missed bit of information here, or "I 'm not going to tell - you the buyer - about this problem or it will kill my best referral sources deal". This is one of the biggest mistakes most state statutes allow.
In addition, by allowing these "in house" relations to exist - whether through home builders or real estate offices. They cost you, the average consumer, millions of dollars in higher costs by tying in "incentives" that you cannot get without using "preferred" partners. The same partners that can negate your ability to control your costs and your ability to maximize your return. Remember, in lending, it is not about the company alone, but the individual who is originating your loan that will determine how much it costs you.
Amazingly, states allow these in house relationships which are ripe for fraudulent activity from Legalized Kick Backs, i.e. a bonus for the Real Estate Professional for keeping a deal with the in house mortgage person, to illegal activities such as on the side payoffs one might never know about. A Loan Originator provides; New refrigerator, a nice vacation package, nice plump gift certificates to their favorite Real Estate Referral source etc. etc. etc. The motivation moves from just taking care of you the buyer to the "what's in it for me" business mentality from both parties.
Next, you want to insure you have copies of everything you submit to your Loan Originator. This includes the application to all income documents, bank statements, everything. Never provide original personal documents to anyone. Yes, you can hand them over to have copies made, but stand by them until you get them back. Don't mail them, don't say "just mail them back to me when you're done with them". Either provide copies yourself, or don't allow them to leave your site.
Review everything your Loan Officer provides. Most specifically, your typed credit application. This is typically the sure tell sign of potential future problems. Scrutinize it for accuracy from dates of employment to residence to that most important income line.
Insure you keep copies of everything. Make notes. If you disagree with something on the typed application, make a note, contact the Loan Officer, and have it corrected if the Loan Officer cannot justify the changes made in the typed application and you disagree. Listen closely to the explanation.
If you find to many question marks on changes to your credit application Vs. what you originally submitted, this is the BIG RED SIGN. Stop! Think hard about whether you want to continue the process with this Loan Originator.
Remember, Loan fraud is rarely institution based, i.e. My Local Mortgage Store, Loan Fraud typically involves individuals, whether one, or several working together. Rarely will it involve an organization.
At this point, you need to consider reporting the activity to the Manager of the office in writing. Provide your documentation and your concerns. Do not make accusations. Simply point to the original information submitted and what was returned. In case of honest errors, it is VERY IMPORTANT not to make accusations of fraud. You need only document discrepancies. Allow the institution to determine which is which.
Almost all offices/organizations will then begin an audit investigation of that Loan Originator. They take fraud seriously and need you to help them find those that would commit it.
You can then ask for a new representative, or, simply change Companies. Is this a knee jerk reaction? No. It is much better to address these matters one week into the application process vs. facing a nightmare at closing.
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