MCP Help Blog

Yes, it’s true. Loan fraud is still going on, even after the subprime crisis and other problems supposedly opened everyone’s eyes. According to CNNMoney, the first part of 2008 was plagued by even more loan fraud than early 2007! And while the FBI’s Web site indicates that the vast majority of fraud was perpetrated by borrowers against lenders, it turns out it’s not that simple.

A study by the Mortgage Asset Research Institute (MARI) determined that most fraud involved home buyers whose loan officers or brokers ”tweaked” their applications to get the borrowers approved in the face of increasingly tight underwriting standards. And while studies by Bank of America and other lenders have concluded that loans originated by their own employees held up, those brought in by outside brokers were far more likely to go sideways.

But who ultimately gets the blame? The loan officer might be the one who engaged in “tweaking,” but whose signature is on that application with the fraudulent information? And who signs off on the final documents? That’s right, the buyer. Front and center. Open and shut.

So don’t be a fall guy. Or girl. When you complete a loan application, keep a copy of what you originally give to the broker or loan officer. When he or she presents a final application for you to sign, chances are the information will be different. There might be debts that are on your credit report that don’t need to be counted because they are included in your business. Your rental income might be recalculated based on underwriting guidelines that say you get credit for 75% of the income. Your salary might have schedule 2106 expenses deducted from it. These differences are fine, as long as your loan officer can explain them. But don’t sign anything you don’t agree with or feel comfortable signing.

Red flags to watch for are:

* income much higher than what you indicate on your initial application

* a large expense disappears from the loan application, especially if it’s one that doesn’t show on your credit report

* significantly overstated assets like bank and brokerage accounts

So don’t just flick through your paperwork and sign where highlighted. Make sure every part of your paperwork reflects what you told your loan officer and shows your true financial position. And be sure that the program, rate and terms are what you agreed on with no surprises. Because signing incorrect documents, especially at closing, makes you responsible. You don’t want to find that not only have you inadvertantly committed loan fraud but that you have agreed to make loan payments you can’t possibly afford. And you don’t want your next home to have bars on the windows.