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Mutual Mortgage Insurance Fraud

Last month, the U.S. Department of Housing and Urban Development (HUD) released its 2018 Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund (MMIF). This year, the MMIF reached a capital ratio of 2.76 percent, exceeding its minimum statutory requirement of two percent. Additionally, the net worth of the fund increased $8.12 billion from last year to total $34.86 billion.

As also detailed in the report, the Federal Housing Administration (FHA) insured more than eight million mortgages comprising of 12.1 percent of all single-family residential mortgage originations. That figure was down from 13.45 percent over last year, and down significantly from a 17.9 percent post-crisis peak, FHA said.

The MMIF report is comprised each year in order to detail FHA’s progress in mitigating real estate mortgage fraud operations throughout the nation. This year’s MMIF shows that FHA’s forward book of business continues to perform well, with significant improvements in severe delinquencies, early payment defaults, claim payments and loss rates alike. Nevertheless, FHA officials noted along with the release of the 2018 report that “While the MMI fund is sound at this point in time… we’re still far away from being in a position to consider any reduction in our mortgage premiums.”

Mutual Mortgage Insurance Fraud: How it’s Committed

Mortgage insurance fraud is committed when the property broker or agent provides fraudulent, inaccurate, or untruthful information to the property loan lender for the purposes of obtaining an inaccurate mortgage loan. Once the fraudulent loan is approved, the lender then will usually purchase a personal mortgage insurance policy to protect their investment.

The insurance company will most likely issue a policy based on the belief that the loan was made in good faith, and that all information and documentation related to the loan was accurate and truthful. If it is not, that constitutes mortgage insurance fraud.

While there are some home and commercial property that willingly and knowingly provide false or inaccurate information to loan lenders for the purposes of obtaining a home mortgage loan, often, it’s the mortgage broker or overzealous loan officer that commits the insurance fraud. Many times, the home or property owner knows nothing of the negligence.

Avoiding Mortgage Insurance Fraud

When applying for a property mortgage, you may choose to work with a trusted property advisor. Most property advisors are ethical and professional in the way they conduct their businesses; however, there are those that are not. You’ll want to ensure that you do your research when it comes to pairing with a property advisor or mortgage broker.  

The Truth About MMIF

Insurance fraud is unfortunately a rather common occurrence. Some unscrupulous mortgage brokers will often encourage potential property buyers to “fudge” or exaggerate income earnings, debt to income ratios, and on-hand savings or cash amounts. Others may even go so far as to encourage the creation of false documents to support exaggerated claims.

In certain situations, certain brokers have been known to supply forged or false documents to potential buyers – for a fee. Common types of forged documentation include:

  • Forged bank statements
  • Falsified tax returns
  • Forged court documents

Moving Forward and Avoiding Mortgage Insurance Fraud

When applying for a property loan, never attempt to provide false information to a lender. While you may be approved for the loan, the consequences will usually catch up with you – sooner or later.

Always be sure to work with a reputable property advisor and/or mortgage broker when engaging in real estate – residential or commercial.

These days, knowing the true value of something is more important than ever, and can be more difficult to discern — especially in today’s highly scrutinized regulatory environment.