Loan Modification

FHA Home Loans: Don?t Fall for Mortgage Fraud Schemes

By Karen Lawson

FHA officials are concerned about alleged non-profit organizations offering to assist mortgage companies with keeping their FHA loans out of delinquency during the first two years of their repayment terms, when loans are most at risk of default and foreclosure. The Washington Post focuses on a specific firm that operates under the guise of a financial counseling firm, but actually helps mortgage lenders disguise defaults during the critical two year period when FHA is most closely monitors mortgage loan defaults.

FHA Borrowers Not Directly Impacted

This scam does nothing to benefit borrowers of FHA home loans, and is described by the US Department of Justice as a “mortgage lender funded slush fund.”  The scam works like this. The entity representing itself as a financial counseling service accepts payments from mortgage lenders, ostensibly to buy a counseling service for borrowers of potentially risky (i. e. fraudulent) mortgage loans. When such loans go delinquent, the “financial counseling agency” advances funds to keep the mortgage loans current.  Under such a scenario, FHA would not know that loans it insures are delinquent. This creates a potential drain on FHA insurance reserves as mortgage loans originated with fraudulent applications are more likely to default at some point.

Buying or Refinancing? Do Business with FHA Approved Lenders

FHA is increasing monitoring of its approved mortgage lenders, and this heps to protect borrowers against fraudulent lending and other practices that can jeopardize your credit and home ownership. Here are a few tips for avoiding problems with your FHA home loan or refinance mortgage:

Choose a HUD approved mortgage lender: You can find FHA approved mortgage lenders in your area, and request mortgage quotes from multiple lenders.

Pay attention to your instincts: Although FHA mortage loans have less stringent loan requirements, if your loan application process seems too easy, or if you’re asked to sign blank documents or application information, find another lender.

Consult a HUD approved housing counselor: Make an appointment with a local HUD approved housing counseling service. These agencies can help you learn about the mortgage loan process and show you how to avoid problems including fraudulent lending practices.

Fraudulent Mortgage Loans: You Can be Prosecuted

No matter what the nature of mortgage fraud, claiming ignorance cannot protect you. Mortgage fraud is a crime, and if you participate in it, you could be investigated or even arrested. Save yourself from such problems by working with FHA approved mortgage lenders. Ask questions, and don’t do business with anyone who refuses to answer or ignores your concerns. Shopping for the right mortgage lender is as important as finding the best fha mortgage rates; don’t allow your pursuit of low mortgage rates to lead you into potential problems with mortgage fraud scams.

Full post as published by FHA Mortgage Guide on April 19, 2010 (boomark / email).