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Fraud Prevention

​Mortgage fraud is characterized by a material misstatement, misrepresentation, or omission in relation to a mortgage loan, which is then relied upon by a lender.  Mortgage fraud is a criminal offense investigated and prosecuted by law enforcement.  Civil and criminal penalties for mortgage fraud at the state and federal level can be severe and may include convictions​​ and prison time, restitution payments, state fines, and/or probation.

The Federal Housing Finance Agency is committed to the detection and prevention of mortgage fraud in the secondary mortgage market.  To further this commitment, FHFA has promulgated a fraud ​rule that requires Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (regulated entities) to establish and maintain programs to detect and report fraud.  The regulated entities are required to report suspicious activity, including fraud, to regulatory and law-enforcement authorities, including FHFA.  FHFA also oversees the regulated entities’ managem​ent of risks associated with emerging cyber-enabled fraud schemes affecting the mortgage market and its participants.

FHFA participates in working groups with fellow regulatory and law enforcement agencies to foster open communication and collaboration in prevention and prosecution of fraudulent activity involving mortgages and other financial instruments.

Potential homebuyers, homeowners, distressed homeowners, and individuals employed in the mortgage industry, in particular, should be aware of mortgage fraud schemes perpetrated in connection with home loan origination and throughout the life of a mortgage.  Education is key to identify, detect, and prevent mortgage fraud.  The information below can assist mortgage market participants in recognizing common mortgage fraud schemes. In addition, FHFA has issued tips and resources related to COVID-19 fraud.

Mortgage Fraud Detection and Avoidance

Mortgage fraud takes two primary forms:  Fraud for Profit and Fraud for Housing.Housing Fraud image

Fraud for Profit  usually involves industry insiders such as appraisers, brokers, and loan originators.  Such schemes aim to gain cash or home equity through abuse of the mortgage lending process.

Fraud for Housing  primarily consists of illegal actions by borrowers motivated to acquire or maintain ownership of a home.

Mortgage fraud can occur through the actions of borrowers and through the actions of mortgage industry professionals in connection with obtaining a mortgage loan.

Common instances of fraud committed by borrowers and mortgage industry professionals include:

  • Providing false information regarding employment status, income level, or employer;
  • Misrepresenting the source of funds for a borrower’s down payment;
  • Falsifying a borrower’s credit score and/or outstanding debts and liabilities;
  • Misrepresenting a borrower’s intent to occupy the property
  • Providing false information concerning a borrower’s identity;
  • Using inaccurate appraisal figures to misrepresent the true value of a property;
  • Obtaining multiple loans on a single property based on false information;
  • Providing false property information to secure or modify a loan; and​
  • Misrepresenting income, hardship, or related information to halt foreclosure or influence a short-sale decision.​
Common Mortgage Relief Fraud Schemes
Recurring Cyber-Enabled Fraud Schemes

Types of Housing Finance Fraud Schemes

Understanding the different types of fraud schemes is important to detect mortgage fraud. The below defines types of housing finance fraud schemes.

Prospective Borrower Fraud (fraud committed by borrowers in obtaining mortgage financing for home purchases)

Application Fraud – A borrower may intentionally supply false information about income or identity in support of a mortgage application. These instances of fraud may be related to fraud for housing by a borrower or fraud for profit schemes.

Credit/Liabilities – Mortgage rates and the decision to extend a loan to a borrower are heavily dependent on the applicant’s credit and current debt liabilities. Fraud may include borrower misrepresentation of credit score and/or amount of debt to qualify for a loan or for favorable loan terms.

Employment Fraud – This fraud occurs when a borrower or straw buyer misrepresents his or her employment to the lender. The fraud may be committed to make the borrow appear more financially qualified for the loan or to conceal the illegal source of future loan payments.

Fraudulent Identity/Identity Theft/Synthetic Identity – This fraud occurs when misappropriated identification credentials are used by an individual otherwise ineligible for a mortgage loan or as part of a fraud for profit scheme. Fraudsters may also create synthetic identities using bits and pieces of valid information from disparate sources.

Income/Down Payment – This fraud involves providing false income information to qualify for a loan. Borrower income and assets may be inflated or completely manufactured. Down payment fraud involves disguising a loan of down payment funds as a gift.

Fraud Against Homeowners
Fraud Against Distressed Homeowners
Investor Mortgage Fraud (fraud committed by individuals purporting to secure mortgages on investment properties)
Multifamily Property Fraud (fraud committed by multifamily borrowers against a lender)
Mortgage Industry Fraud (fraud committed by mortgage professionals)

Air Loans – An air loan is a loan made based on fictitious collateral. To make air loans, broker may invent fake borrowers and properties, establish accounts for payments, and maintain custodial accounts for escrows. They may establish fraudulent contacts for fictitious employers, appraisers, credit agencies, and others to deceive creditors who attempt to verify information on loan applications.

Appraisal – Appraisal fraud is committed when a property is fraudulently valued either above or below its true market value. Appraisal fraud may occur as a result of efforts to ensure that a property’s value appears consistent with an agreed purchase price, permitting the transaction to move forward, but fraudsters also commit appraisal fraud in order to profit from the difference in the fraudulent and true property values in a subsequent transaction.

Shotgunning – Shotgunning fraud aims to secure multiple loans on a single property from different financial institutions without each other’s knowledge. Possible at both the purchase or refinancing stages, the fraudster aims to receive the loan disbursements simultaneously, then abscond with the proceeds, leaving the lenders to allocate losses and determine who holds the collateral.

Real Estate Owned (REO) Fraud – REO fraud occurs after a property has entered the foreclosure process, and the financial institution which took the property as collateral must maintain, market, and sell the home to recoup losses from the unpaid mortgage. Fraudsters may take advantage of this stage through a variety of schemes such as fraudulent billing for fictitious maintenance charges, kickbacks arranged through non-arm’s length transactions, and laying the groundwork for flipping or flopping schemes.

Money Laundering (use of fraud proceeds)
Cyber-Enabled Fraud and Theft Schemes

Report Possible Fraud

If you are aware of possible mortgage fraud or cyber-enabled schemes targeting you or your mortgage company, report the activity to FHFA’s Office of Inspector General online or at 800-793-7724.

Additional Resources for Borrowers

Consumer Financial Protection Bureau – Fraud and Scams
Federal Bureau of Investigation – Financial Institution/Mortgage Fraud
Federal Trade Commission – Home Loans​
Fannie Mae – Beware of Scams or 1-800-2FANNIE
Freddie Mac –​ Avoiding Fraud  or 1-800-FREDDIE (select option 2)
Department of Housing and Urban Development – Prevent Loan Scams

If you have additional questions regarding your existing mortgage, contact your mortgage servicer (listed on a recent mortgage statement) for assistance.

Page last updated:  April 13, 2023​​​​​​​​

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