The 2006 recession was the worst recession sense the times of the Great Depreciation. Loans were made with disregard of the rules was a big part for this disaster. This cased a large amount if bad loans. Surely we must have learned our lessons or have we? One friend shared his experience with obtaining a loan. In this case my friend had sold a home and wanted to know the best way to use the funds. He was recommended a loan company by someone where a few things seemed gray. One thing to be aware of is Mortgage Fraud by Insiders. The mortgage industry is just as competitive as any other industry, and unfortunately many companies are willing to do whatever it takes to make a profit, even if that means breaking the law. A very common form of mortgage fraud comes from mortgage brokers. Whether it’s encouraging clients to lie on documents, or forging documents without their knowledge, insider fraud is very common. Protecting Yourself First of all, if you’re being encouraged to falsify any information on your loan documents, be wary. Seek legal counseling, because even if you’re “tricked” into committing mortgage fraud, it is still a very serious crime, and you can be prosecuted. When first inquiring about the loan the mortgage broker told my friend that they would take time to discuss different loan scenarios. He had a property in different states should he sale one or both? How much house can he afford keeping one property vs without. the property. They gave him very little answers in this area. First thing they tried to convince him was to refinance the property that was intended to be rented as a primary residence refinance. Then he would at the same time finance another property as a primary residence. When he questioned it the lender said your right we will use separate lenders so that don’t know. He became concern about: 1. Occupancy Fraud Occupancy fraud occurs when a borrower wants to buy a property for investment purposes but states that he intends to use it as a residence. This allows the borrower to secure a lower interest rate than what he or she would otherwise qualify for. Furthermore, many lenders are usually willing to lend more money for residential homes then they would for investment properties. Occupancy fraud also allows the borrower to cheat on his or her taxes. As an investment property owner, they are supposed to pay capital gains tax on the profit they earn on the profit they earn on their investment property. It also allows the borrower to fraudulently claim tax credits on residential homes. The difference in his case was that he already owned the property, but his intent was to move to another property and convert this one into a rental. He asked his agent about possible problems. The agent has been in the industry for decades, He stated that it happens all the time and to ask the lender about it. Not feeling comfortable about it he asked the lenders. They assured him that it happens all the time and is the best scenario for his situation. He demanded that the loan be changed to a rental and would not proceed. They agreed to his terms. It is a more around a 1/8th of a point more.. Then as the loan proceeded he was planning on renting the home after everything was settled. The lender who was the genius of loans failed to tell me that in order to close the loan he needed a renter. The lender did state that it was common practice for people seeking a loan to obtain a rental agreement from a relative. That the person reviewing the loan will simply glance at it and that it goes nowhere from there. 2. Income Fraud Income fraud occurs when the borrower overstates his or her income when applying for a mortgage. Generally speaking, the more income that borrower has the more the mortgage lender is willing to lend. Since most lenders will ask the borrower to prove that the income he or she claims is legitimate, the borrower usually needs to forge W-2 statements, bank records and tax returns in order to pull off this type of fraud. In this case the lender was looking for a deposit slip and a signed lease and did not care where it came from. I informed him that It would only submit a valid lease from someone who attended to stay at least a year. My experience tells me that problems with loans can and seems to come from over aggressive lenders. That one needs to be alert for possible loans fraud from aggressive lenders.