Fraud type: For housing
In this scheme, the property buyer—either
unable or unwilling to make the down payment—
borrows funds from an undisclosed second loan. As
this second mortgage is unrecorded, the lender on
the first loan may not know anything is amiss.
Note that there is a difference between a silent
second and down payment assistance. The latter is
a legitimate practice, with the primary lender being
made aware of the secondary loan; the former is a
form of fraud.
Pay attention to the borrower’s assets and
income. Account for everything you can. Numbers
don’t lie, but applicants sometimes do.
HECM/REVERSE MORTGAGE FRAUD
Fraud type: For profit
These scams take advantage of one of our
most vulnerable populations: the elderly. Perps—
This can be a difficult scheme to spot, as red
flags are minimal. A senior who appears to be
coached by a family member or another third party
may be an indication, especially if that party holds
power of attorney. Outdated comparables in the
appraisal and distressed property conditions are
also warning signs.
Fraud type: For profit/for housing
The scammers in this instance are homeowners
who are underwater on their loan but are otherwise
unremarkable (up to date on payments, etc.) This
may also include borrowers who have solid credit
but anticipate a downturn in the near future. In
either case, the homeowner will continue to make
payments on their property while quietly applying
for a mortgage on another, cheaper, home. Once
the second property is theirs, they “bail” on the
first one, defaulting on it while enjoying their new
Borrowers may try to rent out their first home
after vacating it. If a borrower has no prior history
as a landlord, they may not be able to generate the
revenue to keep making payments.
If a borrower has little to no equity in their home
and no intent to sell and is still seeking a second
house, they may be preparing for a buy and bail.
Information on this list compiled from Fannie
Mae, the FBI, and the FFIEC. Please refer to those
resources for a more exhaustive list of mortgage
fraud schemes and how they work.
Tory Barringer is the Managing Editor of Mortgage
Compliance Magazine. He can be reached at
Do you know an amazing woman?
Want to share her story?
If you have a
story you want
to tell, please