Mortgage Fraud

Fraud is lying. Fraud is cheating. When it happens, there are consequences, and far too often, the consequence of fraudulent misrepresentation is a loan default that eventually leads to foreclosure. Servicers usually bear the brunt of dealing with the fraud mess in their modifications, short sales and foreclosures.
For more information on Mortgage Fraud, see the LexisNexis Risk Solutions website.


Servicers are forced to deal with many fraud issues on loans. Based on fraud reports received by lenders and servicers, the most common types of fraud are income and employment misrepresentations, and misrepresentations related to the borrower’s claim of occupancy on the property.

In 2008, CoreLogic studied the impact of fraud on loans that foreclosed with lenders. In one specific lender fraud investigation, it was determined that 25% of loans in foreclosure had evidence of fraud in the application. The types of fraud most commonly perpetrated were borrowers misrepresenting their income or employment, or borrowers lying about their intent to occupy the property (in other words, investors that were masquerading as owner-occupants to get a better rate or terms on the loan). When the lender examined the bottom line (what it had actually lost after the property was sold), the lender determined that it lost 50% more on a property where fraud was involved. The impact of fraud on bottom-line losses was shocking.

Estimates by CoreLogic indicate that one out of every 200 loans contains some fraud that will cause it to default. This means that a high level of fraud is making its way into the modification process. The problem of fraud on loan modifications involves borrowers providing information that is contradictory to what they reported on their initial application. The most common types of loan modification fraud include borrowers underreporting their income; borrowers lying about their occupancy status to qualify for a modification; and borrowers lying about their hardship and not being able to supply documentation.

The Home Affordable Modification Program (HAMP) is a good example of how fraud impacts are felt by servicers. Many servicers are reporting that the primary qualification issues arise because borrowers are unable to or fail to supply documentation of their income, are unable to support their occupancy claim or are unable to provide any documentation to support their hardship.

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