Tenancy and mortgage fraud is on the rise during COVID-19

  • Occupancy fraud is the misrepresentation of a second home to obtain lower interest rates.
  • It’s on the rise as more people work remotely during the pandemic, experts say.
  • It also leaves small business owners confused about how to respond to calls from loan officers.

Paul Carini, Division President of Dash Home Loans, trusted her loan officer when she called to express her concerns a few months ago about a borrower who lived in Ohio but was applying for a loan for a house in Carolina North, where Dash is based.

The loan officer, he told Insider, had been on the phone with someone claiming to be an HR manager and verified that the borrower could work from home as he said in his letter. request.

But something kept nagging the loan officer after she hung up: The voice sounded eerily familiar, Carini told the loan officer. In fact, it sounded a lot like the borrower himself.

So the Carini employee did a quick search online. The number given to him by the borrower, supposedly a direct line to the human resources representative, did not match the one listed on the company’s website.

The loan officer called the number she found there, Carini said, and the voice that answered was different from the voice of the original call. When the person on the other end of the line denied that the borrower had moved to a remote work environment, it quickly became clear what was going on. “The borrower had falsified the confirmation letter, pay stubs and bank statements – all to show her job was in North Carolina when in fact it was not,” said Carini.

Occupancy fraud as the example Carini and his loan officer faced is a specific subset of mortgage fraud, which typically involves misrepresenting secondary or investment properties as a primary residence in order to to obtain the most favorable financial conditions. And it’s on the rise thanks to COVID-19.

Brigitte Berg, Senior Director of Fraud Solutions Strategy at CoreLogic, focuses on real estate market intelligence and data. “Occupy fraud has increased,” she said, adding that exact figures were difficult to verify. Paul W. Harris, general manager of mortgage analytics for First American Data & Analytics, who flags potential occupancy fraud issues in apps through his FraudGuard program, said the company reported potential occupancy fraud in 13% of home purchase loan applications reviewed in the second quarter of 2021, compared to 10% in the first quarter of 2021 and 9% in the fourth quarter of 2020. .

When working from home was less prevalent, it was still a factor in mortgages. Lenders have historically been required to contact employers to verify applications when working remotely or from home was part of an employee’s role. Once the employer has confirmed these details, lenders could offer favorable primary residence financing offers.

But COVID-19 has increased the plausibility of working full-time from what is effectively a vacation property in another state. Large companies are familiar with these requests and often have automatic systems to provide verification. But as the remote work experience expands, it exposes small business owners to such demands for the first time, and they are often confused by the experience.

Taken together – a cultural shift that makes remote work more common and new employers unfamiliar with a process that big companies are familiar with – it has created the perfect scenario for this crime to escalate.

Favorable financial terms of primary residences make occupancy fraud attractive to landlords

If you can now, for the first time, say you’re working full-time from your vacation home, there’s one simple reason you might want to misrepresent your situation that way: money.

Interest rates applied to loans for primary residences are lower than those for secondary residences. Down payment requirements are smaller – typically a 5% lump sum vs double for secondary properties – while fees are also cheaper. “The US government wants people to own homes — the market for those mortgages is created by the government — but it’s not in the market for buying vacation or rental homes,” Carini said. from Dash, adding that occupancy fraud has become much more common than the word spread online and via social media on how to hire it. Berg said there are now websites offering to provide fake documents and income verifications, as well as answering verification calls like this to the human resources manager.

Berg said a study she conducted in 2018 that looked at samples of loans between 2013 and 2017 found that investment properties had higher reported fraud rates than majors, at 88% higher. than the total reference population.

Occupation fraud, a federal crime, technically falls under the the auspices of the FBI, although Berg said only the largest and most egregious cases are reported to the Financial Crimes Enforcement Network by lenders. And the penalties can be severe: up to 30 years in prison and a $1 million fine.

Companies are forced to check people’s work situations, which is sometimes confusing

More businesses today are being contacted by lenders to verify the status of their employees, an experience some are unfamiliar with – and which can create more leeway for dishonest people.

Thomas Jepsen, who runs the construction and design company Passion Packages, decided to offer its employees the option of leaving entirely remotely by the end of 2020. As a result, in February 2021, two of them, a married couple, decamped from the company’s headquarters in Raleigh, North Carolina to Anchorage, Alaska to be closer to family.

“We got some really weird calls from local banks wanting us to testify that we didn’t fire the two employees and that we didn’t think our business would ‘go bankrupt’ during the pandemic,” he said. . “One person even called me at 5am ET. The first few minutes I had no idea if he was trying to sell me anything. He was asking me if I wanted to buy a house in Alaska. I was about to hang up. I was so taken aback by his strange questioning.”

When Dash’s lending team called the borrower, Carini said she immediately confessed. “She broke down crying and told us she really wanted to go to North Carolina. It was a sad story: her child’s father was getting out of jail in Ohio and she had to leave the state “Carini said. “But you don’t know what’s true or not since by then she had lied to our face about everything. There was nothing we could do, even if it were true.” The team denied him a loan.

Carini said other attempts he’s encountered since the pandemic began were even more brazen, like the New Yorker telling him he’d be driving back and forth for his job, and that his home in Carolina du Nord would be a part-time workplace. and therefore his principal residence. “I asked what he did for a living, and he said he worked in the transit system in New York. It’s hard to do that job and live in North Carolina, even part-time,” Carini said.

The widespread adoption of remote work wouldn’t have triggered such a wave of fraud, Berg said, but for the record low interest rate accompany him. At the start of the pandemic, there were additional loopholes that fraudsters could also exploit. “Remember, no one was in the office — even HR — and everyone was working from home,” she said. Staff members began listing cell phone numbers, rather than office phone numbers, as their primary means of contact. “It also created a lot of confusion at first,” she added.

“I think a lot of people think it’s OK because they’re scamming the financial system or a bank, but it’s not victimless,” Berg said. “It’s a societal crime. It goes back to everyone’s 401(k) plans, for example, and the community where a property is not owner-occupied will see losses” in home values.

But even amid the confusion generated by the pandemic, smart lenders remain vigilant. The borrower in Ohio didn’t let his unsuccessful experience with Dash stop his attempts to speak to another lender in North Carolina, Carini said. When she called a business in Charlotte and tried to get financing, he said, the lender said, “Oh, I know Paul. Can I call him to find out what happened. pass?”

“So unfortunately,” Carini added, “she didn’t get very far with this new lender either.”

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