Mortgage fraud prevention company Interthinx today launched a new module aimed at detecting undisclosed properties during the mortgage application process in an effort to reduce occupancy fraud.
The company’s so-called FraudGuard system can detect properties owned by a borrower that may not be disclosed and also determine if the subject property is being falsely identified as the borrower’s primary residence.
Senior VP Stacey Louie noted that borrower occupancy status misrepresentation is one of the most common types of mortgage fraud, accounting for more than 10 percent of applications considered “high risk” by Fraudguard.
She added that the system can help mortgage lenders discover hidden borrower liabilities, including seller carryback financing, foreclosures, and other properties owned by borrowers that are not disclosed on the loan application.
It’s not uncommon for borrowers to claim a property is owner-occupied when in fact it’s an investment property, as non-owner occupied properties have a historically higher delinquency rate and higher mortgage rates as a result.
Underwriting guidelines are also more stringent on non-owner occupied properties, forcing some borrowers to lie about a property’s status on the loan application to gain approval or get the desired loan-to-value ratio.
Borrowers may also avoid disclosing their total number of properties owned to facilitate the loan approval process and perhaps keep their debt-to-income ratio artificially lower.
Ideally this new tool will allow mortgage lenders to detect such situations to mitigate risk and price, and/or decline loans accordingly.