Liar Loans Recede, But Still Common
HOME LOANS, INDUSTRY NEWS
April 5th, 2010
A reporter for The Wall Street Journal recently outlined the latest mortgage fraud strategies. James Haggerty points out that the rate has declined but hotspots remain. He quotes data published by First American Core Logic, a company which tracks real estate related information. “Liar loans” as they are called in the business, were common during the subprime boom that peaked in 2007.
The most common types of fraud as it relates to mortgage loan origination include:
- Misstating a borrower’s income
- Misrepresenting the borrower’s identity
- Incorrectly designating who will occupy the property upon purchase
- Misleading information about the type of property or its condition
- Misrepresenting the borrower’s employment
- Misrepresenting the borrower’s debts and/or assets
Specific areas of the country have fraud occurring at a rate several times the national average. They include:
- Orlando, Fla
- Miami, Fla
- Jamaica, NY
- Atlanta, Ga
- Detroit, Mi
Government backed loans, including FHA, are estimated to have fraud rates of 1.22%. Conventional loans had a corresponding rate of 0.55% according to a First American representative. He estimates 25% of all loans currently in foreclosure show “some evidence of fraud”.
During the subprime meltdown, I heard estimates of fraud of 50% for these hard-money loans from staff at the California Association of Realtor’s business meetings. They stated the fraud was perpetrated by the borrower, the loan officer, or both. In response, lenders are requiring more documentation from borrowers than is actually needed. This action is apparently due to banks being required to buy back billions of dollars of “fraud-infested” loans.
I guess the new mantra in today’s lending environment is “trust but verify”!
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN A QUARTER CENTURY LOCAL SALES EXPERIENCE
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