The FBI recently reported that various incidents of mortgage fraud have tripled since 2006. The estimated value of the 21,994 crimes is $1.01 billion.
The incidents include a variety of crimes. Among them are complex rings of identity thieves, straw buyers, appraisal fraud, and applicants falsifying information on mortgage applications.
Howell E. Jackson, a professor at Harvard Law School, is the author of a study of mortgage brokers which places the blame for this problem on the current anonymity of the mortgage business. In the past, loan applicants visited their local bank and worked face-to-face with a loan officer. Today the mortgage business has evolved into a system where the applicant may never even speak to the lender. In place of doing the shopping around for the best deal themselves they rely on a broker to do that for them. Professor Jackson estimates that loan brokers will earn upwards of $33 billion in commissions this year.
Jackson advises buyers to ask brokers what their commission is. This should include both yield spread premiums and direct fees. If the amount exceeds $2000, the buyer should ask why. Broker commissions are negotiable.
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