If you’re looking to take out a mortgage on a new home, expect to go through a background check. Much like any standard employment background check, a screening by a lender for a mortgage involves examining your job and financial history. Because of excessive mortgage fraud committed before the crash in 2007, lenders may now flag an application because of divorce, inconsistent employment history or income, or lawsuits. Additionally, not being honest in your application can result in a charge of mortgage fraud.
In Oklahoma, lenders are being more aggressive with background checks as the result of a recent mortgage fraud case. According to NewsOK.com, Derrick Reuben Smith was recently sentenced to prison after conspiring to commit wire fraud in two home sales in 2006 and ’07. Working with two other men, Smith attempted to get lenders to fund mortgages higher than market value for two homes. He also misrepresented loan proceeds, which were then pocketed as commissions, and when the two properties went into foreclosure, they were sold for $100,000 less than the original loans.
Lenders, as a result, have put up restrictions at the request of investors and loan-servicing companies, and now all parties in mortgage transactions are being thoroughly examined. More specifically, lenders in Oklahoma require borrowers to give them access to tax returns, via IRS Form 4605-T, in order to search for non-reimbursed business expenses written off and similar red flags. Additionally, a home appraised significantly higher than market value is also put on a watch list for fraud.
Prior to 2007, Liar’s and NINJA loans, in which the assets of a borrower could be drastically misrepresented, were far more common and often resulted in an individual being stuck with an adjustable rate mortgage he or she could not pay off. While lending restrictions in all areas are far more strict now than they were five years ago, do you think that Oklahoma’s approach goes too far or, in order to fully prevent mortgage fraud, is it necessary?