Lenders Try to Catch Borrowers' ‘White Lies’

Daily Real Estate News | Friday, June 01, 2012 

With lending standards extra stringent, some borrowers applying for a mortgage may be tempted to bend the truth slightly so that they can qualify for a mortgage. But lenders have a word of caution to those would-be borrowers: They’re watching you even more carefully nowadays.

“Little white lies,” as a Chicago Tribune article notes, can get mortgage applicants into big trouble, even if just inflating income by a tad, saying you’re going to make a home your primary residence when you plan to rent it out, or slightly exaggerating your job description.

There are "more fraud checks than ever, and it's on every loan, not just a sample," David Kittle, who chaired the Mortgage Bankers Association in 2009, told the Chicago Tribune.

A swell of mortgage fraud during the housing crisis has prompted lenders to become extra vigilant. The FBI estimates mortgage fraud costs about $3 billion a year.

As such, lenders are making more effort to uncover fraud before issuing a loan, instead of finding out after the fact. In 40 percent of the suspicious activity reports in 2011 submitted to the Financial Crimes Enforcement Network, lenders said they rejected the applicant for a new mortgage, refinancing, or short sale because they suspected fraud.

Lenders are doing more background checks to verify the information that applicants’ provide. Besides making phone calls to verify information, they’re using databases with a wealth of information to doublecheck information. For example, some sites they’re using can be used to verify salary data for the type of work the applicant does, reveal any judgments or liens against other properties the person may own, or even reveal hidden relationships between the buyer and seller. The IRS also is providing electronic copies of borrowers’ tax returns to lenders to help verify income.

"There are tons of databases available to validate the information you give us. ... You can't lie about income anymore," Becky Walzak, a quality assurance consultant in Deerfield Beach, Fla., told the Chicago Tribune. "There are too many ways we can find out whether or not you are telling the truth."

Source: “Lenders Sniffing out Dishonest Applicants,” Chicago Tribune (May 17, 2012)