What is Mortgage Fraud?

Mortgage fraud, and allegations of fraud recently against several high ranking officials bring to the forefront an issue that we used to be warned about in our industry regularly many years ago, and then hit the backburner for awhile. Seems like it was more common in the 1990s thru 2007, then cooled off once the Great Recession hit from 2008-2011 and spawned the CFPB and other crackdowns on fraud and sketchy financial dealings.

There are several kinds of fraud related to obtaining mortgages, and can be for purchasing a property, residential or commercial, or refinancing an existing loan. The most prevalent types of mortgage fraud are, according to Fannie Mae:

• income fraud, where income is inflated to qualify for a higher loan. This is usually documented by the lender, but fake statements or tax returns can be produced as evidence.
• occupancy fraud, where the applicant claims they will live in the home as a primary residence in order to get a lower interest rate and better terms. That is harder for the lender to guard against, as it is more of a promise. What if you plan to split time between 2 homes? Be honest with the lender and see how to properly complete the form. Generally you can only claim one home as a primary residence, while the other can be a 2nd home, vacation home or rental home.
• liabilities fraud, reducing or hiding debts owed in order to qualify for a loan or obtain better terms. The lender runs a credit report and tries to uncover all long term debts.
• asset fraud, inflating or making up extra assets in order to qualify for a higher loan or better terms. The lender will ask for statements and documents to prove the values, such as brokerage and bank accounts, or other real estate.

An analysis by Cotality found that less than 1% of mortgage applications carry the risk of potential fraud. I would have guessed higher than that! In 2024, the FBI received 3800 reports of mortgage fraud, but only 38 people were found guilty and sentenced, according to the U.S. Sentencing Commission's data. The average length of jail time was 18 months, so it can be serious business.

Let this be your reminder that fudging or faking details on a mortgage application can gave serious consequences. Even if you make every payment on time, it is the fraudulent information given on the application that the lender relies on to give certain rates and terms, and not only can it potentially be a criminal offense, you could be smeared across the headlines one day if you end up in an important position!

As we head into late summer, the current housing inventory dropped 2% from August in the 6 submarkets I track. Here is an update on local, existing home sales activity as of September 17th:

• Manchester had 14 homes available and 25 under contract
• Ballwin had 47 homes available and 52 under contract
• Kirkwood had 65 homes available and 71 under contract
• St Peters had 81 homes available and 110 under contract
• Arnold had 19 homes available and 31 under contract
• Florissant had 100 homes available and 96 under contract

The ratios range from 1.0 to 1.8 pending sales for every 1 available, averaging 1.2 pending to every 1 available. My last comparison of these areas in August was 1.1 to 1 (and 2.8 to 1 in June 2022) with the available home supply UP 9% from July. That shows a slight turnaround in the market, the first month that inventory dropped and the pending ratio went up, indicating buyer demand increasing and/or sellers listing their homes dropping. St Louis is still close to a balanced market, with Florissant, Kirkwood and Ballwin the weakest seller's markets, and St Peters, Arnold and Manchester the strongest. Some of the increased supply is the amount of older, smaller apartment-style condos that are having large increases in HOA fees due to insurance and maintenance costs. In Ballwin and Kirkwood especially, if you are looking at single family homes in the 300k-400k range, they are still selling very quickly.

Mortage rates have continued their slide downward, now in the lower 6's. If they go below 6 into the 5's, watch out for spiking buyer demand, which would drive inventory down quicky, and show up very soon in my pending to active ratios, causing buyer competition and home prices to ratchet up faster than we have seen since 2022.