Written By: Joan Ewing, Op-Ed Writer
Hello to everybody and sorry for the mix-up of last week’s blog, I missed the deadline because my mind was still on a holiday mode. Well this will be the final blog for this series on Mortgage Fraud and Red Flags.
This week, I feel it is important to review some issues and emphasize those items that should always be looked into and immediately suspect to fraud.
In recent years, the number of borrowers who have stated they are purchasing a primary residence when in fact, they were purchasing a rental property has been on the rise. And – this is one area that lender’s have cracked down on because of the fraud in this area; I will outline some Red Flags.
On page 1 of the 1003 (Mortgage Application), it is important to check the borrower’s current address and employment location - if the borrower is stating he will be using the property as a Primary Residence. If the borrower will be traveling a significant or unrealistic number of miles to work, and this varies in different parts of the country, question the borrower as to why and how he will making his trek to work everyday. If you are not sure about mileage and are not familiar with the area of the property vs. work location – Google it!!
If a borrower has purchased his current primary residence within the past year or two and is currently purchasing another primary residence, ask for a letter of explanation as to why he is purchasing another primary residence. If the borrower has rental properties in the area, chances are he is purchasing another rental property. If the underwriter is not satisfied with the explanation, the reason of the purchase could be changed to investment property.
Is the borrower purchasing a smaller or less expensive home than their current home? A little of explanation is needed.
Another red flag which is needed to be considered is the appraisal. It is important to check the seller’s name on the appraisal against the contract of sale. If they are different, it must be questioned. Verify the person signing the contract of sale has the authority to sell the property; verify the information against your State’s Assessment and Taxation Records. If there is any discrepancy – it must be worked out prior to loan approval.
Are the seller and borrower’s name the same? Is a relative selling this property, is this an arm’s length transaction? Some lender’s now reduce loan-to-value on non-arms length transactions. This is another item which needs to be addressed.
In addition to checking the seller and borrower’s name on the appraisal, it is important to look at the comparable properties and the number of miles to the subject property. If you are in doubt about the number of miles to comparables used by the appraiser – Google IT!!!!
Is the property being sold “Fee Simple” or with“Leasehold” – check the Contract of Sale against the Appraisal. If there is a discrepancy – it needs to be resolved prior to closing. The Title Company who is closing the property should be able to resolve this issue.
In closing this series, I would like to say – there are many Red Flags from Application to Closing a Mortgage. Look at any discrepancy as a Red Flag – Question – why is there a discrepancy? Is there an explanation – does it make sense? If you are not convinced – question it again. If you answer can be obtained from a third party – question the third party. Fraud is on the rise – protect your lender and broker, they will Thank You!!!
I hope you have enjoyed this series and I look forward to sharing more information with you. If anyone has a topic they would like to see in this space – please e-mail me – I am always looking for topics that will help you with processing. More Later.
About The Author
Joan Ewing - As an op-ed writer and active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base.