According to CoreLogic’s Mortgage Fraud Report, fraud has been on the rise since last quarter, especially with purchase mortgages. 

CoreLogic estimates that 1 in 131 mortgage applications for the second quarter of 2022 contained fraud. FHA mortgages had the greatest risk, with 1 in 95 applications containing fraud. 

The most common type is income fraud, up 27.3% from a year ago. Income fraud involves misrepresentation of the existence, continuance, source, or amount of the income used to qualify for a mortgage loan. 

Property fraud is the second most common, involving misrepresenting the value of the sold property. It is up 22.6% from a year ago. 

Both are a hot mess for everyone involved. Here’s what you need to know. 

Top ten metros with the highest risk of fraud

Mortgage risk is higher in some states than others. The top five states with the highest risk of mortgage application fraud are:

  1. New York
  2. Florida
  3. Rhode Island
  4. Nevada
  5. Connecticut

At the metro level, here are the top 10 Core Based Statistical Areas (CBSAs) facing the highest risk of mortgage application fraud:

  1. Miami-Fort Lauderdale-Pompano Beach, FL
  2. Poughkeepsie-Newburgh-Middletown, NY
  3. New York-Newark-Jersey City, NY-NJ-PA
  4. Stockton, CA
  5. New Orleans-Metairie, LA
  6. McAllen-Edinburg-Mission, TX
  7. New Haven-Milford, CT
  8. Las Vegas-Henderson-Paradise, NV
  9. Los Angeles-Long Beach-Anaheim, CA
  10. Bridgeport-Stamford-Norwalk, CT

These are not “minor edits”

It’s hard to pinpoint why mortgage fraud is up. Perhaps desperate home shoppers feel they must state false claims to secure a property. Or, lenders and agents may be feeling the effects of a slowing market. No matter the reason, it’s not something you want to get involved with. 

Helping your clients become homeowners or sell their homes at a profit is a beautiful thing. But becoming involved in mortgage fraud (or simply looking the other way) is no way to make it happen.

Mortgage fraud often involves elaborate falsifications tied to W2s, pay stubs, and tax returns. And surprisingly, real estate agents and mortgage lenders are getting involved. 

We know the value of homeownership. Obviously, we need more homeowners in this country….But, risking your license? That’s insane.

Byron Lazine

Turning a blind eye to it when you know your client is committing fraud makes you an accomplice (at best) in a transaction that can only hurt them down the road. Encouraging them to “fudge the documents a bit” to get approved for a loan makes you the instigator. 

Both can easily ruin your career as a real estate agent. And in a slowing market, with fewer mortgage applications, fraud is easier to detect. 

Even if you did get away with it, you’d be helping your clients buy a home they can’t afford, making foreclosure or bankruptcy all but inevitable. 

My concern is they are helping these buyers qualify for a home that they can’t even actually afford. So, are you even really helping them?

Nicole White

5 things you can do as an agent

In this week’s episode of The Real Word, Byron Lazine and Nicole White discussed the Inman article on the Mortgage Fraud Report. 

Let’s look at some things you can do to help your clients. 

And by “help,” we mean getting them closer to owning a home they can afford—without committing fraud: 

#1—Talk to your clients

Help your clients understand what they can do to improve their chances of getting a loan without resorting to fraud. There are no “white lies” in the world of mortgage lending. If a lie is the only thing giving your client a shot at the loan they want, it’s not a minor thing; it’s a big deal. 

Hopefully, the more your clients know about the risks involved, the less likely they will go that route, no matter how badly they want to buy a house. 

#2—Use your social media presence

Use your social media presence to help your audience qualify for loans without fraud. One idea is to create a Reel detailing the risks involved with mortgage fraud. 

You could also create a series of Reels on mortgage fraud— focusing on the types of fraud mortgage lenders are looking out for now (more than ever) and what the risks are for those committing fraud. Talk about the impact of a fraud conviction on someone’s record and how that would follow them for years to come, affecting their ability to get a job or buy a home. 

#3—Become an information resource for your community

Make yourself available for public presentations or conversations on the dangers of mortgage fraud—not just for the perpetrators but for all those affected by fraudulent mortgages. 

Talk to mortgage lenders and share what you learn from them. Talk about what they’re seeing and doing to prevent mortgage fraud. Learn the reasoning behind income guidelines—why someone might not qualify even if their credit is good or they’ve just taken a job with a much higher income. 

Then share everything you learn with your clients and with your larger audience. 

#4—Talk about the technology available to mortgage lenders 

Talk about tools like Ocrolus Detect, a new fraud detection software for lenders. The easier it is for mortgage lenders to detect fraud, the harder it will be for people to get away with it. 

That’s good news for clients committed to honesty and transparency throughout the mortgage and home buying process. Fewer fraudulent mortgages mean more options for those not committing fraud. 

#5—Make clear your refusal to help clients commit fraud

You won’t help any client commit fraud, nor will you pretend not to notice anything if you see a client actively altering their income documentation or having something fabricated for them by someone who shall not be named. 

One would hope your clients would take this for granted, but if necessary, it can’t hurt to make it clear, even at the risk of losing a client, exactly where you stand on mortgage fraud. 

No client should expect you to endanger your license to help them get a house by dishonest means. And no commission is worth setting up a client for failure down the road.