Mortgage fraud continues to climb, will peak with onset of adjustable rate mortgage payment changes

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In my podcast interview with mortgage fraud expert Rachel Dollar we discussed whether incidences of fraud had peaked in 2005 and 2006, which have been deemed the worst vintages of mortgage loans and known for their dubious underwriting quality, or whether we were set to see a spike of fraud cases as home owners became more desperate. Ms. Dollar, co-author (with Ralph Roberts) of Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership, argued that fraud levels should increase as homeowners, desperate to qualify for lower-rate mortgages do “whatever is necessary” to keep from being shut out of the market by tighter underwriting guidelines.

It makes perfect sense – when people see their subprime adjustable rate mortgage payment exploding upward and find out from a mortgage broker that the stated income loan that they qualified for last time is no longer available they have to choose between losing their house and their credit rating or do something “drastic.”

More and more people have been choosing “drastic” as shown by the Fraudblogger.com Fraud Index which has spiked more than 200 points from July to August. The Fraud Index is a combination of MortgageDaily.com and Fraudblogger.com

The Fraud Index is defined as:

The index reflects active criminal and civil mortgage fraud cases tracked by FraudBlogger.com.

Cases involving larger dollar amounts are given greater value in the index.

If there were no fraud activity tracked during a given month, the index would be zero.

A minimum of $100,000 was used for all cases tracked including when no amount was available. The national total index is an aggregate of all state data.

As a mortgage lender it is something that we are confronted with each and every day. I had a borrower volunteer to alter a verification of employment after it came back unfavorably. I refused and terminated the application. It probably could have gone as a stated income loan, and I’m sure someone else has willingly financed those people – but I didn’t want anything to do with people who are so inclined.

These stories of fraud will climax during the perfect storm of loan officers struggling for a paycheck, borrowers struggling to make mortgage payments and loan resets peaking. Keep an eye out for some amazing stories and share your stories of malfeasance here.

Fraud tips and stories? Email me.