New Fraud Scheme Disrupting Non-QM Home Loan Industry

According to industry experts, a newly discovered lending fraud scheme is quietly but quickly eroding trust within the lending industry. With the integrity of the lending process up in the air, some traditional and non-QM lenders are opting to exclude and deny any loans that involve certain borrowers and appraisers.

This recent fraud scam has ballooned so big that even Fannie Mae has been sounding the alarm and warning the public (and other lenders) about the ongoing situation.

According to the government-backed mortgage issuer Fannie Mae, a specific mortgage broker is allegedly working in conspiracy with numerous LLCs and a unique New Jersey-based settlement company to exploit gaps in the current refinancing process. In short, the groups are extracting inflated loan amounts from lenders by following a formula they created.

First, the original homeowner transfers their deed to one of the collaborating LLCs. About 60 to 180 days later, the LLCs file a limited cash-out refinance application without listing the individuals who are actually applying for the loan. To ensure the loan amounts will be as high as possible, the LLCs illegally execute false appraisals that provide documentation showing the values of the properties are much higher than they really are in reality.

The settlement company implicated in the scheme has been accused of using hard money loans to facilitate these deals. Hard money loans typically provide fast funding based on the value of the asset, so the inflated false value plays a huge role in ensuring the scam is successful.

Fannie Mae further reports that while these loans do appear on title commitments, they’re never officially recorded in public property records.

Together, this conspiracy poses a significant threat to the current lending process because it results in loans that are much riskier than they should be under the current regulations. The market simply cannot sustain itself if too many high-value loans face payment default.

That said, Fannie Mae has warned lenders to be on the lookout for specific factors like deed transfers being recorded 60-180 days before the loan origination, LLCs that are acting as both the seller and the buyer, suspicious jumps in property values, inconsistent documentation, title commitments that aren’t reflected in public records, or questionable leases.

Many non-QM lenders have already decided to exclude loans with certain borrowers and heighten the scrutiny of loans throughout Maryland, New Jersey, and New York.

Are You Looking for a Non-QM Loan?

One reason why so many borrowers turn to non-QM loans is that they aren’t able to qualify for traditional loans due to non-traditional situations they’re facing in life. If you’re currently in need of a non-QM home loan, then we encourage you to explore our customized mortgage options.

We can help provide funding for you if you’re self-employed, have low or no documentation, are currently a foreign national, or live on a stated income.

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