More Borrowers Caught Lying About Income

October 8, 2018

Aspiring home buyers may be getting so desperate to qualify for a mortgage that they may be tempted to lie about how much they earn on their mortgage application.

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The problem is getting worse, reports show. Mortgage fraud has climbed more than 12 percent in the past year, according to CoreLogic. A recent report from the real estate data firm showed that one of every 109 mortgage applications was believed to contain fraud. The largest jump in mortgage fraud is due to misstatements of income, up 22 percent annually, according to CoreLogic.

Lenders have strict limits on the amount of debt borrowers can have relative to their incomes. But aspiring borrowers are finding ways to get past the income checks and balances by lenders. A growing number of paid online services are popping up that will generate fake pay stubs and also answer phone calls to confirm income verbally to a lender.

"Sites will have a disclaimer, claiming it's for novelty purposes or similar qualifying statements," Bridget Berg, principal of fraud solutions strategy for CoreLogic, told CNBC. "Some are out of the country and not traceable. There are sites where you can buy credit lines to increase your credit."

Technology is definitely part of the problem, adds Nima Ghamsari, CEO of Blend, a software company for mortgage originators. She says lenders need to do more to verify information on the applications. "We should use data and we should use the ability to find trusted sources of information, like direct deposit streams, like payroll provided directly from employers' databases, so that the consumer isn't providing that information that can be altered or doctored,” Ghamsari says.

Fraudulent applications particularly hurt lenders’ business, since they are responsible for originating the loans. "If somebody lies on an application, the investor that we sell the loan to will or can investigate the attributes of the loan," Matt Lieberman, senior mortgage banker at Apex Home Loans in Rockville, Md., told CNBC. "If, for some reason, they see something that we missed, that we should have caught, they could then force us to buy back the loan, meaning they won't actually purchase it, and they'll make us buy it back and keep it. We need make sure all our i's are dotted and t's are crossed."

The areas with the highest rate of mortgage fraud are New York, New Jersey, Florida, Washington, D.C., and New Mexico, according to CoreLogic.