Mortgage Fraud is a growing problem in the United States and according MortgageDaily.com, reported cases of fraudulent mortgage loans amounted to more than $4 billion in 2007, up from $1.6 billion in 2006. According to many sources including the FBI and Freddie Mac, mortgage fraud is committee for two main reasons: fraud for property and fraud for money.
Fraud for property also known as fraud for housing, generally occurs when a borrower wants to purchase a property they know they cannot afford. Borrowers are often aided by dishonest mortgage industry professionals who submit or encourage the submission of false information about the borrowers employment, income or assets in order to qualify for a loan. Borrowers are often tempted to engage in this type of fraud by a strong desire for home ownership and the belief that no one will check the information. However, lenders detect fraud for housing schemes by thoroughly reviewing and validating documents and keeping diligent records. It is a federal crime to lie in connection with the loan application and these individuals may be at risk of criminal prosecution.
Fraud for profit schemes often involve a group of people who defraud a prospective home buyer or mortgage lender. For example, a dishonest mortgage broker may partner with a loan processor to create a fictitious credit profile, and with an appraiser to inflate the property value. Additionally, "straw borrowers," who falsely represent themselves, may be enticed to participate through the promise of financial gain. Fraud for profit schemes are also attractive to criminal enterprises lured by the opportunity for greater profits, fewer dangers than those commonly associated with violent crime, and reduced sentencing or jail time. Illegal property flipping is the fraud scheme commonly employed.