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July 09, 2015

The First Rule of Mortgage Applications Is: You Do Not Lie on Mortgage Applications

Homeownership
Mortgage Application Fraud

Are investors falsely identifying themselves as owner-occupants on mortgage applications in order to qualify for a loan or a lower interest rate? Don't they know what kind of trouble they can get into by lying on a mortgage application? Don't they know the industry is using increasingly sophisticated technological tools to flag such misrepresentations?

They do if they read a July 1 column on the risks of fibbing about occupancy plans on a mortgage application that was penned by Ken Harney, a nationally syndicated Washington Post columnist.

Occupancy fraud is just one type of mortgage application fraud under constant scrutiny by Freddie Mac's fraud unit and quality control department. Other mortgage application frauds include inflated property valuations, overstatements of borrower income, and similar material misrepresentations.

The discovery of false information on a mortgage application can trigger a cascade of consequences that could lead the originating lender to repurchase the mortgage from the investor and demand immediate repayment from the borrower. Not to mention the potential for legal liabilities and long term damage to the borrower's credit reputation.

It also doesn't matter whether the borrower provided bad information to the lender or left an empty field for someone else to fill in. Either way, the consequences can be costly.

That's why borrowers should 1) fill in every application field with accurate information the lender can verify and 2) never leave spaces in the application blank for someone else to complete. Or, to quote the column's parting advice to anyone thinking about fudging the facts: "Don't do it."

If you have questions about mortgage fraud, or suspect mortgage fraud on a Freddie Mac loan, call 1-800-4FRAUD8 or write to mortgage_fraud_reporting@freddiemac.com.

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