What it is:
Mortgage fraud refers to an applicant's untruthful representation of information on a mortgage application.
How it works (Example):
Mortgage applications ask for a variety of details concerning an applicant's financial position. These include cash account balances, debts, occupations, and all sources of income. Mortgages are approved or declined based on this information because it suggests the level of risk to the lender.
Mortgage fraud is the deliberate misrepresentation of an applicant's financial data, frequently accompanied by fabricated documents. Applicants engage in mortgage fraud to obtain higher mortgage amounts than truthful information alone would otherwise permit. For example, untruthful applicants might indicate that they make $100,000 per year and alter their paycheck stubs or tax forms (for example, a W-2) in an effort to make this appear true.
Why it Matters:
Mortgage fraud is a common occurrence that can result in tremendous losses for banks if undetected. Mortgage fraud played a significant role in the 2008-2009 U.S. credit crises. Offenders face criminal prosecution if caught.