A Little Lie on a Home Loan Application Can Cost You Money

Lenders are using new ways to detect buyers who say they are considering living in a property to get a better rate (iStock)

It’s one of the most common lies homebuyers tell mortgage lenders, and it may be on the rise: In order to get a lower interest rate and down payment, applicants say they plan to occupy the house as their primary residence when in fact they have no such intention.

The incidence of false occupancy claims increased by 20% between 2011 and 2013, according to the latest sample of loans from investor giant Fannie Mae involving known fraud.

Lenders and loan officers confirm that they regularly encounter lies about the occupation. Paul Skeens, president of the Colonial Mortgage Group in Waldorf, MD, says, “I probably have someone trying to tell me that [the house] will be occupied by its owner twice a month, and [I] I know very well that is not the case. Skeens says he then tries to “guide them through the nuances” – the false declaration of occupation is illegal and not worth the risk.

Freddie Mac, the second-largest mortgage investor, says he hasn’t seen a recent spike in occupancy fraud, “but it’s always been a constant misrepresentation on loan records and we are concerned about it.” according to Jenny Brawley, fraud investigator. in the business.

Lying on occupancy plans has long been a temptation for small investors who buy and renovate single family homes for rent and for second home buyers who plan to rent their properties part of the year. Depending on the lender, buyers can save half to a percentage point on the loan interest rate by qualifying their purchase as a primary residence. Plus, they could save thousands of dollars on the down payment, which in the case of a Federal Housing Administration-guaranteed mortgage could go down to 3.5% instead of 10-20% or more. in the conventional non-governmental sector. Marlet.

With the rapid increase in rental investment groups and the conversions of foreclosed homes into rental properties in the wake of the housing collapse, it is no surprise that there have been more misrepresentations about occupancy. in recent years compared to previous periods. Industry estimates suggest that 3.2 million single-family rental units were added between 2006 and 2012.

Metro areas that have seen a high number of foreclosures and short sales, such as the cities of Florida and California, tend to rank among the markets with the highest rates of occupancy fraud. According to Interthinx, a financial services analysis firm, in the last quarter of 2014, Miami had the highest rate of false occupancy claims on mortgages, followed by Los Angeles. Two other California markets – San Diego and Fresno – made it to the top 10 markets in the country.

But what loan seekers may not know is that lenders are increasingly using more sophisticated methods to detect lies – and they are preying on perpetrators. Previously, lenders may have employed “door knocker” teams to visit homes to see if the borrowers on the mortgage actually lived in the homes they were financing. Or they may have done spot checks on loans using tax, postal, and motor vehicle registration databases.

Now the lenders have moved on to high tech. Companies like LexisNexis Risk Solutions recently started providing them with digital programs that instantly tap into multiple proprietary and public data resources, then use algorithms to identify borrowers who likely lied about their claims.

Tim Coyle, senior director of financial services at LexisNexis Risk Solutions, said the company’s popular tenure fraud detection tool for banks and mortgage companies accesses 16 data resources to uncover fake borrower statements. Since the program is proprietary and has a patent pending, Coyle does not disclose the databases it uses. But he confirmed that they included credit bureau files, utility bills, federal and local tax data, and various other information.

What happens to borrowers who lie about the use of the property and then get caught? Usually it is not pretty. Lenders can call the loan – requiring immediate and full payment of the outstanding mortgage balance. If borrowers cannot afford or refuse to pay, the lender usually proceeds with foreclosure, destroying any long-term investment or vacation property plans that borrowers may have had. In cases involving multiple misrepresentation, lenders can also refer the case to the FBI: Lies on mortgage loan applications are bank fraud and can trigger hefty financial penalties, lawsuits, and jail time in the event of a loss. conviction.

Conclusion: don’t do it.

Ken harneyThe email address for is [email protected]

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