What are the Hot Loan Frauds Now?
There are many different kinds of loan frauds showing up as days go by.
1. The Land Flip
The Land Flip usually starts with a purchase of a house. The buyers of the house are the perpetrators, and they will proceed into defrauding a lender after their initial purchase is completed. For example, let's say a house costs $100,000. They will then find a straw buyer and sell the house for, let's say, $400,000. A straw buyer is someone who has no intention of paying what they bought. They could also be buyers who have no idea about the deal.
The straw buyer will apply for a home loan and could possibly borrow around $300,000. The straw buyer pays the perpetrators and then defaults on the loan. The perpetrators get a lot more than the actual value of the house in the process. The lender, however, forecloses a property that is worth a lot less than the loan they originally granted. There are many people caught up in the whole scheme. The loan officer, the escrow, the buyer, the appraiser, and the mortgage brokerage can all be part of the bad loan. But the one who loses the most is the lender. Giving out $300,000 for a $100,000 house is definitely an overkill.
2. The Builder Bailout
The Builder Bailout usually happens when a home builder fails to completely sell every unit that they have planned to sell. A common situation is after a long streak of selling houses, one or two are left out. Not wanting to be bothered with the remaining units, the Builder Bailout loan fraud is committed. This will ensure the last units to finally sell.
The builder will sell a $100,000 house for $120,000 to a buyer. The catch is that the buyer will not need to pay for a down payment. The buyer will then apply for a loan and will be eligible to get $100,000 loan for it. The builder will forgive the buyer of the down payment and just gets paid off the full amount of the house, which is $100,000. Bottom line, a loan equivalent to 100% of the property's value is stuck with the lender. The lender is forced to end up with no equity to protect them, and they suffer huge losses in the process.
3. Fraud for Housing
This type is usually done by misrepresenting information placed in loan applications. Many borrowers do this to either qualify for mortgages or get bigger loans than they will ever qualify for. The mere fact that falsifying is already punishable by law, falsification in loans is of no exception. The number of varieties of this kind of loan fraud is almost the same in number with the requirements for loans themselves.
What are the Hot Loan Frauds Now?
By: John Roberts
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