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Loan Fraud: Just Don't Do It

Written by David Reed on Thursday, 12 February 2004 6:00 pm
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It just got a little easier to complete a loan application. Less documentation means less work on behalf of the consumer and less work verifying the application. There are now conventional mortgages that allow for various stages of documentation when applying for a mortgage loan, and one of them just might be for you. But it might also get you in trouble.

These levels of documentation are historically called Full Documentation, Stated Documentation, and No Income No Asset (NINA) Documentation. "Full Doc" loans are simply a normal loan application where the lender verifies, via third party documents, the information you put on your loan application. If you said you made $5,000 per month the lender will want to see not only a paycheck stub showing that amount but maybe also your W2 from last year reflecting a similar amount.

Stated Documentation can apply either to assets or income. Stated Asset loans mean the lender won't verify your cash to close. You just show up at closing with a cashier's check. Stated Income works the same way in that whatever you put on your mortgage application the lender will use to calculate debt ratios and won't ask for income verification such as a paycheck stub, tax returns or W2s.

NINA loans don't ask for anything regarding asset and income verification. What you see is what you get. So why wouldn't you just apply for a NINA and forget about all the documentation needed for a Full Doc loan? Price. Lenders will bump either your rate or the amount of points you pay as you document less and less. So who needs a NINA or a Stated Income loan? Typically it's someone who is having trouble verifying parts of their income or their assets or for those who simply don't want to provide the documentation and are willing to pay extra for the convenience.

But there can be trouble ahead if your loan officer switches you from a Full Doc loan to a Stated Income. Especially if the incomes don't match.

Let's say that you applied for a mortgage and used your income of $5,000 to qualify. But the next day you get the bad news from your loan officer that you don't qualify due to debt ratios. You're sad. But then the loan officer says "I can get you qualified on another loan program called 'Stated' where we don't verify your income. We simply use whatever we put down on the application. If you made $6,000 per month I can get you approved." You agree to put down the higher amount, knowing the lender won't verify it.

What just happened? Loan Fraud. And all too often a loan officer can suggest such a strategy thinking that he or she is doing so well within lending guidelines. But that's far from the case. In fact, if your loan officer switches you from a Full Doc loan to a Stated because you can't qualify using real income, both you and your loan officer are falsifying a loan application in order to be approved for a home loan. People go to jail for that, folks. If you can't qualify for a mortgage using your real income and you use fake data, you can create trouble. Some borrowers take the suggestion from their loan officer to "go stated" and jack up their income in order to qualify, thinking that it's all okay since the advice came directly from the loan officer. It's not okay.

Will you and your loan officer get caught? Maybe not. But some do.

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