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Fraud will end up costing much more in the long run

Posted: June 21, 2012 1:55 a.m.
Updated: June 21, 2012 1:55 a.m.

So-called “liar’s loans” were ubiquitous through the final years of the most recent real estate boom, meaning facts and numbers on a loan application were malleable, easily adjusted with an eraser and revised with a large dose of imagination.
Today, even “little white lies” can land prospective borrows in a heap of trouble.

With lending standards extra stringent, it would be unwise for borrowers applying for a mortgage to bend the truth even slightly so that they can qualify for a mortgage. Lenders have words of caution to would-be borrowers — they’re watching.
Little white lies, as a recent Chicago Tribune article noted, can get mortgage applicants into big trouble, even if they just inflate income by a tad, saying they’re going to make a home the primary residence when they really plan to rent it out, or slightly exaggerate their job description and income.

“There are more fraud checks than ever, and it’s on every loan, not just a sample,” said David Kittle, a recent chair of the Mortgage Bankers Association.

A swell of mortgage fraud during the housing crisis and ongoing problems today prompted lenders to become hyper-vigilant. The FBI estimates mortgage fraud costs about $3 billion a year.

As such, lenders now expend considerable effort to uncover fraud before issuing a loan. In 40 percent of the suspicious activity reports in 2011 submitted to the Financial Crimes Enforcement Network, lenders said they rejected the applicant for a new mortgage, refinancing, or short sale because they suspected fraud.

Lenders are doing more background checks to verify the information that applicants provide. Besides making phone calls to verify information, they’re using databases with a wealth of information to verify everything.

For example, some sites can be used to confirm salary data for the type of work the applicant does, reveal judgments or liens against other properties the person may own, or even uncover hidden relationships between the buyer and seller.
 The IRS also is providing electronic copies of borrowers’ tax returns to lenders to help verify income.

There are innumerable databases available to validate the information borrowers provide, any one of which makes it difficult to lie about income. There are so many ways lenders can find the truth.

Too bad lenders were not as diligent before the boom went bust.

Erika Kauzlarich-Bird is President of the Santa Clarita Valley Division of the Southland Regional Association of Realtors.

David Walker, of Walker Associates, co-authors articles for SRAR. The column represents SRAR’s views and not necessarily those of The Signal. The column contains general information about the real estate market and is not intended to replace advice from your Realtor or other realty related professionals.


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