Refinance Home Mortgage Practices To Watch Out For​

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Although many lenders have anti-fraud measures in place, deception can still be found, both among lending companies and those applying for a refinance home mortgage. Among lending companies and other insiders, fraud for profit is and does occur.​

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Understanding who may be involved in fraud and how to recognize the signs of this crime is important for anyone looking to refinance their mortgage, regardless of their experience with the process.​

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Possible Fraud Participants and Behavior​
Many individuals may be participating in fraud for profit schemes. These individuals include but are not limited to:​
- The borrower;​
- The appraiser;​
- The loan officer;​
- The underwriter;​
- The closing attorney.​

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Fraud could be identified by an inflated appraisal and other misrepresentations in the file. Most often, those involved in mortgage fraud never intend to make their full payments.​

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Common Fraud Schemes​
Churning is probably the most common mortgage fraud scheme. This practice involves the excessive selling of property or the lending of money in order to generate a high amount of commissions or fees. The lender uses multiple refinances, each at a slightly lower rate than the last to generate the desired commissions until the originally-arranged rate has been reached.​

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Foreclosure rescue fraud is also a common practice, especially with the current state of the economy. With this fraud type, a homeowner is duped into signing over their property title to avoid foreclosure, with the stipulation that they can remain in their home on a rental basis and then buy back their home gradually. Another version of this scheme is getting the homeowner to sign documents which they believe will update their mortgage, but are actually documents which, when signed, will surrender the ownership of the home.​

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On the buyer side, a 'straw buyer' may be used in order to hide the identity of the real buyer. The straw buyer applies for a mortgage and goes through all of the processes associated with buying a home, but has no intention of living on the property or making any of the payments. Instead, the straw buyer will often deed the property to the real buyer as soon after closing as possible, and then will be paid for their activity.​

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The promise of riches characterizes the practice of chunking, which attempts to lure investors into buying property. The individual submits multiple loan applications to several lenders, but doesn't tell them about their other applications. The individual also promises to lease the properties, but never does, instead taking advantage of the profit and running.​

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The Red Flags Of Fraud, And Defending Yourself​
Any time you notice that there are multiple discrepancies in mortgage documents, undisclosed information, such as additional mortgages or the possibility of significant cash being earned, you have identified some of the most common red flags. In cases such as these, following your gut instinct may be your best defense.​

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As well, doing your homework can be another reliable way to avoid fraud. Check out every individual and company with whom you are doing business to make sure they are legitimate.​

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There are also many simple things you can do to spot fraud, such as comparing documents for inconsistencies when you're reviewing them. Another way is to look to the expertise of a third party when something in a file doesn't look right. You can also identify a pattern of questionable practice when you review several documents as a whole.​