Borrower Fraud: Don’t Let Your Guard Down

APR 23, 2013 4:12pm ET

WE’RE HEARING that despite the talk about tight underwriting and mortgage market participants’ wariness in the wake of the downturn, the possibility remains that borrowers who are not on the up-and-up still could get through the origination process and potentially into securitizations from time-to-time.

Some recent Federal Bureau of Investigation reports highlight some instances of borrowers pleading guilty and being sentenced for mortgage fraud, and we think both lenders and investors should make sure not to let their guard down when it comes to this risk, even if product becomes scarce.

Be particularly careful when it comes to the jumbo market, where there may be investors/homebuyers who are financing purchases of multiple properties, increasing the possibility that one apple gone bad could ruin the whole bunch. This is duly noted in disclosures and rating agency reports when it occurs in transactions and there is a reason for that, so keep a close eye on this potential risk to pools.

Want an example? Consider the couple recently sentenced to some prison/home confinement and years of supervised release for committing mortgage fraud. The husband and wife team was convicted last summer in a scam where they used falsified documents to obtain mortgages to buy and refinance five parcels of residential real estate in Chittenden County, according to the office of the U.S. attorney for Vermont.

According to a federal grand jury indictment, the two were charged with conspiracy and mail fraud because they “made false statements and used falsified documents to obtain mortgage loans” to buy the properties.

“The couple allegedly bought the properties for investment purposes, with the intention of reselling them in a rising rate environment.” According to the indictment, the husband and wife “obtained more than $2 million in loans for which they otherwise were not qualified by, among other things, inflating the income they reported in mortgage applications; overvaluing assets and understating liabilities; and supplying falsified documentation concerning their financial affairs to the lending institutions.”

The FBI also recently released information on a borrower who recently was sentenced to more five years in prison on charges that he, among other things, used straw buyers to get a home loan, which he used to buy a place to house an illegal marijuana production facility. According to the FBI’s information he claimed he was growing “medical marijuana” for 10 people under the state’s program that allows this, but the lack of authorization to do so for anyone other than himself and the fact that his grow sites had not been registered with the program cast doubt upon those assertions.

Bonnie Sinnock is managing editor of National Mortgage News and editor of Origination News. She has been covering the mortgage industry since 1995.

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