To begin, don't let the brief nature of this lesson mislead you into thinking this doesn't happen very often, or won't happen to you. It is far more common than you can imagine.
Lets start by defining what Loan Fraud represents. Fraud, in a very home buyer specific definition, is knowingly misrepresenting facts as they relate to your specific and personal information supplied during the loan process.
Types of activities that can be considered fraudulent:
Purchasing a home as an owner occupied property with no intent to occupy the home. This tactic is primarily used by investors to achieve a better interest rate increasing the investors ROI (Return on investment).
Falsifying Employment Information - This covers dates of employment, actual employer, salary and positions held.
Falsifying Residence - This includes where you've lived, the time, or length of time you resided in a location and the most common form of fraud relating to residence, falsifying rental history.
Falsifying Marital Status. Understand, when you're married, or separated, your spouse is required to sign certain legal documents. Typically by leaving this information out, it is caught at the worst time. At closing, by the title company. You will find even if you could still get approved, even if you could get the spouse to come in and sign, the lender will most likely NOT complete the transaction with corrected documents. Why? You've already shown you would knowingly commit fraud on the application, why would they allow you modify the application and then lend you tens of thousands of dollars at the further risk to more damaging fraud?
Falsifying Income - This is the most often used process overall for fraud purchases. It relates to falsifying income documents for the purpose of over stating annual income in order to qualify for a larger home purchase. Tactics include modifying W-2's, pay stub, bank statements and employment verification forms.
Falsifying Assets - This involves claiming assets which are not yours or do not exist for either down payment or cash reserve requirements. Typical techniques include stating funds you expect to have in the future but don't presently have - usually resulting in the modification of bank statements. The borrowing of funds from third parties to place into an account until closing, after which the funds are repaid to the source borrowed from. Sources used to gain fraudulent funds include Friends, Family members, credit cards, new undisclosed loans, and cash-advance loans. All without disclosure to the lender. A gift from a third party is NOT fraud so long as it is disclosed to the Lender. Understand, a gift is NOT repaid after closing. If the disclosed gift is subsequently repaid to the gifter, again without disclosure to the lender, this is indeed fraud if the gifted funds were needed for qualifying and closing on the home purchase.
For Grant Resource, failure to disclose ALL sources of income to the agency. This include income generated from online or "under the table" sources. From children who work, from live in Room Mates who work and any additional income generated that is required to be disclosed by the agency.
There are many additional aspects to loan fraud, but these are the primary ones that relate to you as the home buyer and can indeed impact your home loan. So how do you get sucked into a potentially fraudulent activity?
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