Monday, October 22, 2007

Mortgage Fraud - Fake Documentation

Fake Documentation is a gigantic problem in the industry. The Chart above represents the rise in reports of mortgage fraud to the FBI since 2003. False documentation is able to infiltrate every part of a mortgage application. Most people don't understand how a loan process works, but its actually pretty simple. On a basic level, the borrower submits an application to the lender, asking for an approval on a loan program. The application is received, reviewed, and either denied or approved. If the loan is approved the lender will require certain conditions to be met. Most of the conditions are simple documents that must be provided to the lender to prove the claims on the application, such as employment, assets, proof the property exists, and proof of the value of the property. Examples of these documents would be pay stubs, bank statements, property profiles, property appraisals, social security cards and photo IDs.

Since lenders have increasingly moved to electronic transmissions, such as faxes and emails, most of this documentation is not in a paper format. Although this has increased the efficiency and speed of loan closings, it has also opened a window for fraudulent activity. Since many documents are accepted via fax, an unscrupulous person can, using document editing software as simple as Microsoft paint, alter documents in moments, and send them over as "Faxed Originals".

Some attempts are extremely well done fakes, and others that look like a child was the culprit. Borrowers and loan officers will stop at nothing to close loans, whether it be changing or outright creating their own pay stubs, banks statements, rental verifications, credit reports, appraisals, photo IDs and social security cards. At times the borrowers and brokers are working together on the scam, and in other cases the broker or borrower is acting independently of one another.

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