There are actually a couple of ways to commit mortgage fraud. Overall, the criminal act is lying on a mortgage application about a material fact — some important piece of information about you or the property — that influences the lender’s decision. As with most crimes, the key for prosecutors is your intent, whether you meant to mislead the lender or whether you made a mistake.
The FBI explains that the two types of mortgage fraud are fraud for profit and fraud for housing. Generally, fraud for profit occurs within the housing industry. For example, a real estate broker will falsify information about the condition of the property in order to increase its value and, of course, his fees.
Before the housing bubble burst, banks, mortgage servicing companies and other companies involved in the sale and purchase of a home often colluded, intentionally misrepresented information in order to increase their take. During the foreclosure crisis, industry professionals and outsiders alike took advantage of homeowners with foreclosure and refinancing scams.
If a borrower lies on a loan application, he is committing fraud for housing. Again, intent is important: If the borrower wants to obtain financing for a home that he cannot afford, he may add a few thousand dollars a year to his income or overstate the value of his assets. That is fraud.
Homebuyers may not realize they are committing fraud when they tweak a couple of numbers to make themselves look like a better risk. Say you anticipate a sizeable bonus, but there is no guarantee. You include that bonus as income on the application, because you know it will clinch the deal with the lender. In these kinds of transactions, though, there is no such thing as a little white lie.
Homebuyers and homeowners may also find themselves unwittingly reeled into illegal schemes. There may be promises of quick and guaranteed profit for a homeowner who just signs a few documents — and the money is even tax-free! When something seems too good to be true, it usually is.