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QUIZ RESULTS: MORTGAGE FRAUD

You answered 0 out of 10 questions correctly.

You missed quite a few. Be sure to review the answers below and then try again. Mortgage fraud is a complex crime, but it's important to learn about it to protect yourself and your clients. Read: 5 Real Estate Scams You Need to Know About. You can also access the latest news and information on mortgage fraud through the FBI and Stopfraud.gov.

1.Which of the following is a common type of mortgage fraud?

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Correct Answer: All of the Above

Mortgage fraud consists of misrepresentation, misstatements, and omissions during the loan process. One common scam of equity skimming involves a fictitious company that threatens bankruptcy or foreclosure to trick home owners and investors. Illegal property flipping is when properties are purchased, values then inflated through false appraisals, and the property is repurchased numerous times at a higher price. With inflated appraisals, an appraiser, working with a borrower, provides a higher property value than what the home is really worth.


2.Mortgage fraud can involve a person with good credit who agrees to provide his or her name to help someone with bad credit to obtain a loan. What is that person usually referred to?

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Correct Answer: Straw buyer

The straw buyer (or nominee) pretends to be a legitimate buyer by allowing his or her name or credit history to be used when applying for a loan for someone who is unable to obtain one or who wants to keep his identity concealed. The straw buyer is usually given cash in exchange for the use of their name on the mortgage application.


3.Which government agency investigates mortgage fraud?

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Correct Answer: All of the Above

No centralized reporting agency exists for mortgage fraud complaints or investigations. As such, several national, state, and local agencies collaborate to investigate mortgage fraud, including the FBI, IRS, and the U.S. Secret Service. To report any mortgage fraud or suspicious scams, visit www.stopfraud.gov or contact your state and local consumer protection agency.


4.In a foreclosure rescue scam, home owners are often told that their homes can be saved from foreclosure if they do what?

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Correct Answer: Pay upfront fees and transfer the deed

The number of foreclosure rescue schemes continues to increase. Home owners in foreclosure or who are at risk of defaulting on a loan are misled by perpetrators into believing that their homes can be salvaged by transferring the property deed and paying upfront fees to an unlicensed company. The perpetrator often will just run off with the upfront fees collected or, in extreme cases, get a second loan on the property or even sell the home without the home owner's knowledge.


5.What is the mortgage fraud scam called when a buyer borrows the down payment from the seller without the lender's knowledge?

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Correct Answer: Silent Second

A borrower commits mortgage fraud when he or she takes part in a silent second mortgage. This is when a buyer borrows the down payment from the seller in order to purchase the house but fails to disclose the source of the down payment to the lender. Since this is a loan that will need to be repaid, it counts as debt, and the lender needs to figure it into the borrower's debt to income ratio.


6.Which of the following constitutes mortgage fraud?

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Correct Answer: Buyer immediately rents the property without notifying the lender

If the buyer does not intend to live in the property, he or she must disclose that to the lender. Lenders charge higher premiums to buyers who will not be taking occupancy or who are purchasing it as an investment property, since lenders perceive them as a higher risk.


7.Which of the following items below could serve as a warning sign to possible mortgage fraud?

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Correct Answer: All of the Above

These all can serve as warning signs of mortgage fraud. Overstating income to qualify for a larger mortgage is fraud. Also, blank lines should never be left on loan documents because information can be added by someone else after the borrower has signed it. If there are any blanks, "N/A" (or not applicable) should be added or the blanks should be crossed through.


8.What are the two distinct areas of mortgage fraud that the FBI investigates?

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Correct Answer: Fraud for profit and fraud for housing

With fraud for housing, which usually only involves a single loan, a borrower misrepresents or provides false information (such as by overstating income on loan documents) in order to purchase a home or get a lower interest rate. The borrower usually intends to make mortgage payments. However, with fraud for profit crimes, the borrowers generally have no intention of paying the mortgage and the objective is usually to default on the loan so that the home lands in foreclosure. Fraud for profit crimes are usually more severe since these schemes are often more complex and involve more parties, multiple loans, and higher dollar losses.


9.Who are usually the perpetrators found to be involved in the majority of mortgage fraud losses?

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Correct Answer: Housing industry and mortgage professionals

Industry insiders who work in the mortgage and real estate business are the most familiar with the mortgage loan process and, therefore, often are the perpetrators of mortgage fraud for profit crimes. In fact, it's estimated that about 80 percent of the mortgage fraud losses come from those who work in the housing industry, such as appraisers, accountants, attorneys, real estate brokers, mortgage underwriters/processors, settlement/title company employees, mortgage brokers, and loan originators, according to the FBI.


10.What do many experts believe is the key to combating the majority of the largest losses from mortgage fraud?

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Correct Answer: Accurate appraisals

Appraisal fraud tends to be linked with the most significant losses in mortgage fraud. "Inflated appraisals are at the root of most real estate scams, including illegal flipping, cash back at closing schemes, and refinancing rip-offs," authors Ralph R. Roberts and Rachel Dollar write in Protect Yourself From Real Estate and Mortgage Fraud (Kaplan Publishing, 2007). The authors note that an unbiased and accurate appraisal protects everyone in a transaction -- buyers are assured they're paying fair market value and lenders know the property is worth enough to justify the loan.