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November 1, 2014

Is New Loan Rule Nudging Borrowers to Lie?

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Is New Loan Rule Nudging Borrowers to Lie?

While mortgage application fraud has dropped 5.6 percent year-over-year, the industry is seeing a rise in income-based fraud, according to CoreLogic findings. 

CoreLogic officials say the increase may be due to new legislation that requires lenders to verify a mortgage applicant’s ability to repay a loan. For many loans, borrowers must show they can repay the loan before lenders can issue them a loan. 

CoreLogic says the new rule may be causing more applicants to lie about their income when applying for a mortgage. 

On Jan. 10, a new debt-to-income ratio limit also will take effect. The change will require that borrowers’ debt loan not exceed 43 percent of their annual income. 

Lenders verify income and debt information through third-party sources so applicants who do lie on their applications about their income don’t tend to get very far in the process, lenders say. 

CoreLogic found the following areas have the highest mortgage fraud risk:

  • Atlanta
  • Miami
  • Tampa, Fla.
  • Riverside, Calif.
  • Washington, D.C. 

Source: “Lying About Income to Get a Mortgage Now an Even Bigger Mistake,” Credit.com (Oct. 29, 2013)

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