The legal and financial ramifications and consequences of mortgage fraud are significant. This is true whether borrowers knowingly committed such fraud or not. Either way, borrowers are ultimately responsible for the personal data provided on their applications and legal documents.

The Mortgage Asset Research Institute (MARI) reported that incidents of mortgage fraud are at an all-time high, increasing 26 percent between 2007 and 2008. The number of new cases is expected to grow as the housing market to recovers from the distressing selloff that occurred during that time. So it should come as no surprise that federal and state governments have taken significant steps to drastically increase the legal punishments that can be handed out to fraudulent perpetrators.

Legal and financial liabilities

Consumers can get caught up in mortgage fraud in a variety of ways. They might misrepresent their income on a loan application or be asked to do so by an unscrupulous broker. They may be asked to stand in as a buyer for someone with bad credit. Persons in tight financial circumstances may fall victim to refinancing or loan modification frauds that leave them in worse shape than before.

What consumers should know is that the penalties for mortgage fraud are real, substantial, and commensurate with its costs. Depending on the specific fraud involved, mortgage fraud is a felony under federal and state laws. Stiff penalties against individuals involved in such schemes have been handed out in terms of millions of dollars in fees and lengthy jail times. Such penalties have been given to executives who securitized mortgage-backed investments, loan officers who helped originate individual loans and individuals who have either willingly, or without knowledge, engaged in mortgage fraud.

Aggressive actions

In the wake of a worsening economic crisis, the Federal Trade Commission (FTC), Congress and the states focused on taking an aggressive approach to protecting consumers in financial distress and increasing oversight and enforcement over providers of consumer financial services and assistance. Examples include mortgage fraud, foreclosure consulting, credit counseling, debt management, and debt settlement.

Testimony in Washington, D.C. has emphasized law enforcement and consumer education efforts aimed at addressing mortgage foreclosure rescue scams, debt relief and credit repair services, and unlawful debt collection. The Federal Trade Commission and other agencies have recommended new legislation and other remedies to enhance the effectiveness of mortgage fraud prevention efforts.

Accurate information a must

The bottom line is that each consumer is responsible for ensuring that the information he or she provides on any mortgage application is accurate. Lenders and brokers are also responsible for that same information. Penalties can and generally will be harsher if a fraudulent activity was undertaken willingly.