Mortgage brokers make money based on the number of transactions they close every month. Bigger mortgages and more sales typically translate to better income for the professionals assisting with financing.
Unfortunately, the performance-based system used by many mortgage companies and banks creates an incentive for brokers to manipulate the process. They may try to push buyers into more expensive homes and may also encourage them to misrepresent certain details to improve their chances of a successful closing. What seems like a harmless practice that benefits buyers may come back to haunt a mortgage broker if a buyer eventually defaults on a loan.
Banks scrutinize failed transactions
When a buyer defaults on their mortgage, the lender is at risk of losing quite a bit of money. Foreclosing is an expensive process, and financial institutions are not always able to recoup the amount financed during the initial transaction.
When foreclosure is imminent, it is common practice for lenders to go back over the initial transaction carefully. This is especially true in scenarios where the property may now be underwater, with the mortgage representing a higher amount than the current fair market value of the property.
If a financial institution can connect a foreclosure to inaccurate information on loan paperwork, the broker could be at risk of prosecution. Brokers who ignore obvious signs of buyer misrepresentation and those who alter details to help borrowers obtain approval could very well find themselves facing mortgage fraud charges.
Even minuscule details can lead to mortgage fraud accusations and criminal prosecution. Banks and mortgage companies dealing with losses after buyers default often want to hold someone accountable and avoid similar losses in the future.
Mortgage brokers sometimes become the scapegoats in such scenarios. They could face prosecution and termination from their position at a company. In some cases, they could be at risk of becoming unable to work in the finance sector after a criminal conviction.
Fighting white-collar criminal charges related to mortgage fraud may be the only way for mortgage brokers to preserve their careers and avoid significant criminal and financial penalties. Professionals who understand the risks associated with their job practices can eliminate habits that might make them particularly vulnerable to prosecution in the future.
