There is hardly a more pervasive problem in lending than of mortgage fraud.  It always involves a conspiracy between a loan originator and an appraiser. Additional conspirators can include a buyer’s broker (who may also be the mortgage broker), a title company, and the seller’s real estate agent. An overlooked conspirator could be the secondary market who is encouraging loan originators to make loans as fast as possible, so the loans can be purchased in the secondary market (even though they are the “victims” who sue!). Since the vast majority of these loans are packaged, processed, and sold based on credit scores and tax returns, most of them are sold with very little due diligence as to the quality of the borrower.

The properties also fall into a pattern. They are (1) on the market for a long period of time, (2) in a good neighborhood with higher appraised values, and (3) involve sellers that need to sell. The homes may have failed to sell for a number of reasons. The house was originally over-priced, became “stagnant,” and brokers don’t show it. There may be something quirky about the house that turns buyers off. The sellers may be difficult to work with, then become desperate to sell. These things don’t show up in an appraisal.

It could also involve builders who sell several homes in a “volume discount” to buyers (1) who resell to unsuspecting borrowers or investors, or (2) have “special incentives” for buyers ("use my title company and mortgage company").

In the next article of this section, we’ll introduce a series of scenarios in which mortgage fraud transactions manifest.   In the coming days and weeks, be on the lookout for postings discussing the following scenarios: “The Flip,” “The Old Switch,” “The Contractor’s Scheme,” “The Ultimate Lie,” “The Innocent Investor,” and “Trust Me."  Until next time, wishing you continued success.