Single Family Housing Program
The Federal Housing Administration (FHA) Single-Family programs provide mortgage insurance to mortgage lenders that, in turn, provide financing to enable individuals and families to purchase, rehabilitate, and construct a home.
FHA insurance for single family homes allows a buyer to purchase a property with only 3% to 5% down payment. Unlike conventional loans, which require up to 20% to 25%, the FHA insured loan normally caters to the first time homebuyer with the steady income from a job. This doesn't necessarily mean they have large savings or a long history of credit. For FHA insured loans, no credit is the same as good credit. Eligible properties are one-to-four unit structures.
Loan Origination Fraud
Actions designed to misrepresent borrower qualifications to include:
- Falsification of or misrepresentations in VODs, VOEs, W-2s, Social Security numbers, and tax returns
- Misrepresentations in gift letters
- Misrepresentations concerning an intent to occupy (92900)
- Misrepresentations as to source and use of funds/dual closings (HUD-1)
- Misrepresentations in certifications for 203k rehabilitation escrow draws
EARNEST MONEY/CLOSING COSTS: A realtor/seller will in many cases pay a buyer's earnest money deposit or their closing costs, knowing that their commission or sales proceeds could in some cases be 20 times their original expense. This money is given in several ways. It could be provided in the form of cash, where the buyer is told to open up a bank account and subsequently deposit the money. In order to hide the fact that the money was provided by the seller or the realtor, a fraudulent gift letter is provided indicating that a family member provided the funds. In some cases, the money is required to be paid back later to the seller or realtor. This, of course, is another debt, that goes undisclosed to the mortgage company.
Other ways to fabricate gifts is for a fraudulent non-profit indicate that they are providing the money when in actuality, it is the seller. Another example is where the seller buys cashier's checks in a donor's name by saying that the donor provided the cash when in actuality, it was his own money.
EMPLOYMENT: A realtor/seller/buyer/loan officer will in many cases fabricate employment in order to insure that the mortgage company qualifies for the buyer. This may be fraudulent W-2 forms, tax returns, 1099's, Schedule C income, pay stubs, copies of payroll checks, or adding a second employer later on in the process. Common schemes include ghost employers, P.O. boxes, residences used as employers, etc.
OCCUPANCY: In FHA insured properties, the buyer must occupy the property. This is certified on the 1003 Residential Loan Application, which is signed on two different occasions as well as an Occupancy Certification, which is in the file in some cases but not all cases. A buyer, who purchases a property, but does not occupy is normally called a "Strawbuyer" or a "Nominee" buyer.
There are many reasons for using a "Strawbuyer." If a seller of a property has a great deal of equity in their home and wants to cashout, while still maintaining control of the home, a strawbuyer will allow you to cash out on the equity, but then allow you to rent the property out to a tenant.
A spin-off of this scheme is "Equity Skimming". Following the resale to the "Strawbuyer", the original seller will move a tenant into the unit and collect rent from this individual. Instead of applying the rent to the unit, he will keep the money. The original strawbuyer will ultimately suffer the consequences of poor credit as a result of the default and foreclosure.
Another strawbuyer scheme involves a seller or a realtor determining that a buyer is not qualified. The seller or realtor will ask the unqualified buyer if he or she has a friend or a family member with good credit who will buy the house for you. When this takes place, the unqualified buyer will move in and eventually default as a result of their poor credit and income.
The strawbuyer will in many cases be compensated for their participation, usually $1,000-$2,000. The strawbuyer, in some cases may be concerned about the fact that their credit could suffer if the mortgage goes into default. One way to pacify them is to inform them that they can sign a "Quit Claim" deed following the closing. What they do not know is although a quit claim deed transfers the property out of their name, it does not remove them of liability if the mortgage goes into foreclosure.
IDENTITY FRAUD: This fraud refers to all types of crimes in which someone wrongfully obtains and uses another person's personal data in some way that involves fraud or deception, typically for economic gain. In loan origination fraud, a stolen identity is used to obtain a mortgage loan using the Identity Fraud victim's personal data.
SOCIAL SECURITY NUMBERS: A buyer will in many cases provide a fraudulent social security number in order to hide his previous bankruptcies, judgments, poor credit, etc. This can be done buy transposing numbers, using a TAX ID number, using a deceased family member's number, or a child's SSN. This is quickly becoming a very popular way to purchase properties and allows the buyer in the event of bankruptcy and foreclosure to walk away, knowing the damaged credit history is not theirs.