Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Feb 9, 2021

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Last Wednesday, federal prosecutors in New York filed suit against Bank of America, seeking out $1 billion in damages for mortgage fraud. The suit covers the problematic loans sold to both Fannie Mae and Freddie Mac. This program, referred to as “the hustle,” was created by Countrywide Financial, which was bought by Bank of America. “The hustle” was created to get home loans approved by dropping several quality protections in order to expedite the approval process. It caused multitudes of homeowners to be approved for home loans that were beyond their abilities to repay.

Some home loan defaults are caused by more obvious reasons, such as unforeseen money issues and lost jobs, but in the lawsuit’s case, the mortgages were above what the homeowners were ever able to pay. According to the lawsuit, Countrywide Financial did not state that it had eliminated many of the quality checks for borrowers, when it sold the loans to Fannie Mae and Freddie Mac. This, in turn, overwhelmed Fannie Mae and Freddie Mac with large losses and foreclosed properties—And anything which occurs to the two mortgage giants affects American taxpayers.

But the example in this lawsuit is not the only type of mortgage fraud that exists. According to Forbes, there are five types of mortgage fraud in the home loan market.

  • Mortgage Foreclosure Rescues: Illegal companies set up a fake shop and lure in defaulting homeowners. The company promises that they can stop the foreclosure process, but only for a fee. After the fee is paid, the company disappears.
  • Appraisal Scams: Scammers hire crooked appraisers to under-appraise a home, get a mortgage under this false price, then re-sell it at a higher price.
  • Securitization Swindles: Junk mortgages are bundled together, labeled with a high credit rating, and then sold to investors. These loans are still on the records for Fannie Mae and Freddie Mac.
  • Robo-Signing: Banks that are eager to sell home loans to Wall Street expedite the loan process by creating illegitimate and automated pipelines.
  • Predatory Lending: Bankers and brokers target low-income areas and sell mortgages and home-equity loans with high rates to people who cannot afford them.

Although there are several types of identified mortgage fraud, the figures for the previous damage is still unknown. The Bank of America suit has a figure of $1 billion, but that is only for one bank. The overall cost when all banks are considered could be larger than anyone thought was possible.

Home loan fraud is a serious offense, but due to the loan’s nature, it is difficult to prove when illegal actions have occurred. The FBI has been tracking these fraud claims for several years, but there are some ways for the consumer to prevent it themselves:

  • Get referrals for real estate and mortgage professionals. Research their licenses and check them with state, country or city regulatory agencies.
  • Research the competition in surrounding neighborhoods to get an adequate idea of what a home is worth.
  • Ignore “no money down” loans. These types of loans are simply a lure to trap homeowners into a home they cannot afford.
  • Do not let anyone force a borrower to make a false statement on their loan application.
  • Never signs a blank document or a document containing blank lines.
  • Do not respond to e-mail or web ads from companies who offer to eliminate debt for a fee. These ads are scams.

Home loan fraud can impact multiple facets of a borrower’s credit. While the definition of each fraud case might be difficult to pinpoint, each consumer should be aware of the risk behind an illegal mortgage. Whether or not the cases are large enough for the U.S. Attorney’s office to take notice, all mortgage fraud claims should be assessed in the hopes that one day they will be stopped.