Fraud in connection with home mortgages is on the rise, ranging from little white lies about the intended use of the property all the way up to much more sophisticated schemes.
But what, you ask, does this have to do with me? Maybe more than you think, especially if you end up on the wrong end of it and have no clue about what’s going on.
Overall fraud risk in the home mortgage field is up by 16.9 percent in the most recent 12-month period tracked by data analytics firm CoreLogic. And of all types of application fraud, the risk of so-called “occupancy” misinformation — when “applicants deliberately misrepresent their intended use” of the property — is rising the fastest. This includes cases in which borrowers lie about whether they intend to live in a house or rent it out. Applicants who promise lenders that they will live in the property generally qualify for lower interest rates and down payments; rental home investors get charged more.
Application fraud was found in one of every 122 mortgage applications during the first two quarters of 2017, according to Bridget Berg, CoreLogic’s senior director of fraud solutions strategy. During the same period in 2016, one of every 143 loan applications had signs of fraud. Among the varied types of fraud tracked by Berg’s company were misrepresentations on the sources of down-payment money as well as on income amounts and employment; undisclosed debts; and games played with appraisals.
Other companies that monitor mortgage fraud confirm that fraud has increased and could be headed in worrisome directions. Mark Fleming, chief economist for First American Financial Corp., says the recent massive hack of personal data at credit bureau Equifax, where files on 145.5 million consumers were accessed, could open the door to far more sinister forms of application fraud.
In an interview, Fleming told me that given the unprecedented range and depth of the information stolen in the Equifax breach, “the risk of identity-based fraud and misrepresentation is certainly elevated. To the extent that more people have their information out there,” the greater the danger, he said.
That risk may be increased further by the apparently slow-moving pace of many American consumers to protect themselves from potential mortgage and credit card fraud by freezing or locking down their files at the three major credit bureaus — Experian, Equifax and TransUnion — as well at the fourth, albeit smaller bureau, Innovis. According to an estimate by one expert, Avivah Litan of Gartner Research, only about 2 to 3 percent of consumers now have freezes on their credit files, and only around 5 percent ultimately may be jolted into doing so following the Equifax heist. A study by Credit Sesame, which operates a popular online credit scoring and monitoring service, found that as of Sept. 25, less than half of a percent of 4.5 million TransUnion credit profiles had a freeze on their reports, according to a report by Bloomberg.
Why is this troubling from a mortgage fraud perspective? And what’s the relevance for me as a homeowner or buyer? With the extraordinarily detailed and sensitive information that hackers and their customers may now possess on millions of Americans — Social Security numbers, drivers licenses, credit card numbers, home addresses and more — they may be able to create fake identities that are credible enough to fool banks and other lenders into granting home equity lines of credit and other mortgages in their names, making off with thousands of dollars in the process.
Consider the arrests last fall in New Jersey of a team of alleged identity thieves following an investigation by federal agencies. The scammers allegedly used stolen and fictitious personal identities they created to convince lenders to approve three home equity lines of credit (HELOCs) and four mortgages. The total reported take: nearly $1 million. Though most major lenders have software packages that are designed to spot signs of identity fraud, cases like this keep popping up and could become more frequent with the availability of so much detailed information from Equifax files floating around on dark websites — whether now or in the months and years ahead.
What does this all mean for you? At the very least, be aware that any form of mortgage fraud — including falsehoods about intended occupancy — may constitute bank fraud, which is a federal crime. And get defensive if you haven’t already: Freeze your credit reports at all the credit bureaus. Identity thieves should find it much more difficult to take out a new loan in your name if your credit files are locked down.