The temptation to report inaccurate information to qualify for a loan haunts many would-be buyers. During the height of subprime lending, some lenders even specialized in these types of loans, now termed “liar” loans. While some buyers knowingly defrauded lenders, many buyers were tricked into declaring false information via a loan broker or other lending personnel.
Defining Loan Fraud
Loan fraud can be many things, but the most common is false reporting of information to obtain a loan. The fraud can be lender driven or it can be consumer driven. As loan regulations tighten, both consumers and brokers have incentive to falsely report stated income, loan purpose, or even a social security number to obtain loans.
While the consumer motivation may be obvious, many borrowers are unaware of the pay structure for brokers. The more loans brokers can obtain for consumers, the more money they are paid. It is in their best interest if their customers qualify and take out loans. This cuts across industries as well, although the practice is most prevalent in the housing industry.
Loan fraud falls squarely on the consumer. While the most heinous mortgage offenders do get caught, consumers have the most to lose. In the United States, loan fraud is a felony resulting in large fines and even possible jail time.
Aside from the legal ramifications, loan regulations are in place for a reason. Consumers who are not able to legitimately qualify for loans probably should not receive them. Most consumers who are turned down for loans already have significant debt or have had previous issues managing debt. Furthermore, the easiest loans to fraudulently qualify for have high interest rates and stiff penalties for missing payments. Many of the consumers who falsely report information default on their loans because they just could not afford them.
Avoiding Loan Traps
The best way to avoid unknowingly reporting false information is to read over every document that needs to be signed. If the documents seem confusing or incorrect, do not sign them until they are corrected. Never take a verbal explanation or sign anything on someone’s word.
Avoid deals that seem too good to be true. If a consumer gets turned down by four banks, yet the fifth bank says it can work something out, that consumer should be suspicious. Additionally, if a situation feels uncomfortable, take the paper work to another broker. Getting a second opinion may take time, but it could save buyers tremendous headaches in the future.
The current subprime mortgage issues are partially a result of mortgage fraud. Many consumers who fell into the fraud trap are now losing their home and all of the equity they put in to it. Being honest is the smartest thing a buyer can do when it comes to loans.