What is mortgage fraud?

One of the crimes investigated by the Federal Bureau of Investigation is mortgage fraud. As one of the crimes that comes under the umbrella of financial institution fraud, mortgage fraud is characterized by misrepresentations, omissions or material misstatements related to the generation of a mortgage loan.

This could be some lie that influences the lending institution's decision to approve or deny the mortgage loan initially. But it could also come about later in the process, such as if the homeowner fabricates a story or a document in order to get their lender to accept an amount that is less than the full payoff or agree to otherwise restructure the terms of the mortgage.

Since the collapse of the housing market in the last decade, the FBI has expanded its definition of mortgage fraud to include scams that target distressed homeowners.

Mortgage fraud can be divided into two categories — housing fraud and fraud-for-profit.

Housing fraud usually involves a borrower acting illegally to purchase or remain living in a home. For instance, potential homeowners can misrepresent their actual income or assets when filling out the application for the mortgage. Another example is to bribe or encourage an appraiser to alter the appraised value of the property.

Fraud-for-profit is typically committed by insiders in the mortgage business with specific authority or knowledge to facilitate such a fraudulent act. Collusion between industry insiders allows them to manipulate the lending process and illegally obtain equity or cash from both homeowners and lenders. These type of cases will have a higher priority for prosecution by the FBI.

That's not to say that being accused of housing fraud is not something to take very seriously, as it certainly is. Federal prisons are full of inmates who broke federal lending laws and wound up getting caught. Retaining legal counsel with experience dealing with white collar crimes as soon as you suspect you are being targeted by the feds is a wise idea.


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