A private sampling of Rural Housing Service loan originations discovered that lenders have become more lax this year in verifying income and the employment of borrowers.
Executive vice president and owner of Quality Mortgage Services, Tommy Duncan said "fraud for housing" is up nearly 220% since 2009. If they were more diligent, "some people won't have gotten a loan," Duncan said.
Fraud for housing occurs when consumers exaggerate their income or the length of time they have worked for their current employer in order to get a mortgage — and a lender fails to catch it. (Fraud for housing is very different from "fraud for income," where straw buyers might default shortly after closing.)
Although Duncan thinks there could be problems with RHS loans, the government agency thinks otherwise. "USDA Rural Development adheres to stringent underwriting standards — including verification of income and employment," said RHS spokesman Jay Fletcher.
He noted the QMS finding are not consistent with RHS internal and external audit findings.
But Duncan said there is no evidence of RHS lenders pulling tax returns to verify income, which some major lenders require. RHS only requires tax returns for self-employed borrowers.
Based in Franklin, Tenn., QMS performed quality control audits of RHS mortgages for clients and verified the borrower's income and employment. The sampled loans were approved by the RHS automated underwriting system which is known as GUS.
Incidences of fraud for housing jumped to 3.77% of GUS-approved loans in 2010, compared to 1.18% in 2009, according to QMS data.
RHS said an independent audit it received in April indicates only 2.8% of GUS-approved loans were missing complete documentation. The audit covers loans originated from September of 2009 to March of this year.
