Is it considered mortgage fraud if you manipulate income?

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Is it considered mortgage fraud if you manipulate income?

Ellie Narie
Investor · Ashland, OR · Member since 2018 · 202 posts · 38 votes

Let's say there's an unmarried couple with kids. Boyfriend has a business and is considered self employed, but he can't get a mortgage because he doesn't have two years of self employment income. So, he "hires" his girlfriend to "work" at his business, but she really doesn't so much if anything, he just gives her a paycheck. However, at first, the purpose of this paycheck wasn't to get a mortgage, hence, her paycheck is only like $1000. BUT, now they want to get a house, specifically a 2-4 unit owner occupied with FHA loan. So what the boyfriend does is he will take money out of his savings account and increase the girlfriend's income for just a month or two so she can qualify for a bigger loan, so that her paystub shows that she makes a lot. And then after she closes on the loan, he will reduce her income back to the 1000. Now, girlfriend has been going to college full time for the last two years, so it's not like mortgage brokers will care about two years of income, because she can substitute that with her full time college transcripts.

Would this scenario be considered mortgage fraud, where the boyfriend specifically increases girlfriend's income (even takes money out of his savings account to do so) for just a month or two so she could qualify for a bigger mortgage loan?

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y

what do you think.. ???

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  • Phil G.
    Real Estate Broker · MA · Member since 2013 · 361 posts · 297 votes
    8y

    My last word on the topic.  When you sign a mortgage package, you will likely sign a statement containing the following language.  Lookup the statutes and decide for yourself.

    Mortgage Fraud is investigated by the Federal Bureau of Investigation and is punishable by up to 30 years
    in federal prison or $1,000,000 fine, or both. It is illegal for a person to make any false statement regarding
    income, assets, debt, or matters of identification, or to willfully overvalue any land or property, in a loan
    and credit application for the purpose of influencing in any way the action of a financial institution.
    Some of the applicable Federal criminal statutes which may be charged in connection with Mortgage
    Fraud include:


    18 U.S.C. § 1001 - Statements or entries generally
    18 U.S.C. § 1010 - HUD and Federal Housing Administration Transactions
    18 U.S.C. § 1014 - Loan and credit applications generally
    18 U.S.C. § 1028 - Fraud and related activity in connection with identification documents
    18 U.S.C. § 1341 - Frauds and swindles by Mail
    18 U.S.C. § 1342 - Fictitious name or address
    18 U.S.C. § 1343 - Fraud by wire
    18 U.S.C. § 1344 - Bank Fraud
    42 U.S.C. § 408(a) - False Social Security Number

    1Reply
  • Jeff Ronningen
    Investor · Cincinnati, OH · Member since 2015 · 242 posts · 182 votes
    8y
    What about when they ask for 2 years W2’s? What about when they notice the company issuing her W2 and the company he owns on his tax return are one and the same? Play by the rules and you won’t get burned playing the game.
    0Reply
  • Account Closed
    Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes
    8y

    FYI -- For those mortgage and other lenders within the financial community who want to pay the $2 fee, the IRS offers an Income Verification Express Service (https://www.irs.gov/individuals/international-taxpayers/income-verification-express-service) to confirm the income of a borrower during the processing of a loan application.

    1Reply
  • Frank Gucciardo
    Highland, NY · Member since 2013 · 169 posts · 130 votes
    8y
    I hope you didn’t use your real name here? Asking for a friend.
    2Reply
  • Ellie Narie
    OP
    Investor · Ashland, OR · Member since 2018 · 202 posts · 38 votes
    8y
    Originally posted by @Jeff Ronningen:

    What about when they ask for 2 years W2’s? What about when they notice the company issuing her W2 and the company he owns on his tax return are one and the same? Play by the rules and you won’t get burned playing the game.

     She doesn't have income on her tax returns, she was in college.

    0Reply
  • Brian Pulaski
    Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
    8y

    @Ellie Narie I know it isn't "fair" but the girlfriend isn't in a position to buy a home (per the lenders position). I know in the real world her and her BF can afford it, but the lender has to base their lending off her income on paper. It happened to me, having been self employed for less than 2 years and my wife was only working part time. Needless to say on paper we "couldn't afford the house", in real life... we paid cash for it (crazy how that works!!).

    Your friend might just have to hold off on buying a home. I would verse fudging paychecks in hopes I never get caught.

    4Reply
  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    8y

    @Ellie Narie

    Personally I would not do it, I also would never recommend a client of mine even considered it. 

    You continue to ask "How can we then get a low down payment loan when we don't meet the requirements"?

    The answer is you can't. There are very specific requirements for the government to back a loan for an owner occupied home. You must meet certain criteria for the rest of society to back your loan and guarantee to pay it back if you default. Which is what you are asking for. The situation you are describing is basically the definition of fraud. FHA loans are not deigned so you can start an investing career. They are designed to give qualified borrowers the opportunity to purchase a home to live in. Your example is of a "non qualified borrower" so no they cannot get a low down payment, low interest loan. He makes plenty of money, then have him get a conventional loan, they have 3.5% down conventional loans. Find a lender who does that.

    4Reply
  • Ellie Narie
    OP
    Investor · Ashland, OR · Member since 2018 · 202 posts · 38 votes
    8y

    If the girlfriend plans to keep her income high, it would be fine then, right? As long as she plans to keep her job working for the boyfriend and plans to keep her income high. 

    0Reply
  • Eric C.
    Investor · Grand Junction, CO · Member since 2017 · 207 posts · 201 votes
    8y
    Originally posted by @Ellie Narie:

    If the girlfriend plans to keep her income high, it would be fine then, right? As long as she plans to keep her job working for the boyfriend and plans to keep her income high. 

     It sounds like she(you) has(have) made her(your) decision so just try it and see what happens.  Worst case scenario, She(you) gets(get) time in prison and a felony on her(your) record.  Best case scenario, she(you) has(have) to wait another year to purchase a property.  Do a simple risk/reward equation and see what it says.  

    5Reply
  • Amy Beth
    Rental Property Investor · Edison, NJ · Member since 2016 · 753 posts · 565 votes
    8y
    I definitely do not see the girlfriend being approved since her income is low and too new. The lenders are going to ask for two years of tax returns so falsely increasing her income for a few months is not going to help her situations. Even if he paid her 10 grand a month starting today it would not solve her problem because of the two year period. She is going to need to get a steady job with a good income for two years before she is going to be able to qualify.
    0Reply
  • Philip Williams
    Rental Property Investor · Rockford, IL · Member since 2014 · 385 posts · 702 votes
    8y

    Just be sure to provide a link when she (you) get caught for mortgage fraud because she (you) seem 100% intent on doing so, against the advise of.......every single person who has commented. 

    2Reply
  • Brian Pulaski
    Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
    8y

    If the BF has such a good job, shouldn't have plenty of money for a nice down payment? That is how we handled our situation, they wouldn't loan, so we paid more to get what we needed.

    0Reply
  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    8y

    "If the girlfriend plans to keep her income high, it would be fine then, right? As long as she plans to keep her job working for the boyfriend and plans to keep her income high."

    Forgetting fraud, that is just not logical. In order to get a loan, they are willing to pay income taxes on the money by changing hands with it again. So she is liable for all income taxes etc, plus he owes all insurances and SS Disability etc. So to save 1% on a loan, they are willing to pay out 25%+ in taxes and liabilities to show a short term employment history. Taking the higher interest loan that will accept his employment income is still a much better route.

    Just my 2 cents.

    3Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    8y
    Originally posted by @Ellie Narie:

    Also, what about people who plan to quit a job after they close on a mortgage? Are they committing fraud? 

     Semantics.

    Who quits their job right after getting a mortgage? Most who do also have a plan to acquire a new job which is often better or with higher pay so no, it would not be fraud in that case.

    Getting a job for two months just to quit after to qualify for thevlan, yes, that is fraud. So you can continue on with your semantics or you can listen to reason and facts, your choice.

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    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Will Barnard:
    Originally posted by @Ellie Narie:

    Also, what about people who plan to quit a job after they close on a mortgage? Are they committing fraud? 

     Semantics.

    Who quits their job right after getting a mortgage? Most who do also have a plan to acquire a new job which is often better or with higher pay so no, it would not be fraud in that case.

    Getting a job for two months just to quit after to qualify for thevlan, yes, that is fraud. So you can continue on with your semantics or you can listen to reason and facts, your choice.

    Will I think at this point we should just give the answer she is looking for.

    yes its perfectly acceptable to lie on an application.

    yes you can do this no problem the laws are there but rarely enforeced

    its kind of a wink and nod approach to lending.

    there are all kinds of mortgage brokers that will help you with this they don't care if they make a few grand on the loan and jepordize their career not to mention there freedom.

    so yes to you question for sure this can be done and you will have no problem

    Case solved. 

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    2Reply
  • Ellie Narie
    OP
    Investor · Ashland, OR · Member since 2018 · 202 posts · 38 votes
    8y
    Originally posted by @Mike Cumbie:

    "If the girlfriend plans to keep her income high, it would be fine then, right? As long as she plans to keep her job working for the boyfriend and plans to keep her income high."

    Forgetting fraud, that is just not logical. In order to get a loan, they are willing to pay income taxes on the money by changing hands with it again. So she is liable for all income taxes etc, plus he owes all insurances and SS Disability etc. So to save 1% on a loan, they are willing to pay out 25%+ in taxes and liabilities to show a short term employment history. Taking the higher interest loan that will accept his employment income is still a much better route.

    Just my 2 cents.

     It's not the interest rate that they care about, it's the downpayment. And it's not like they'd get taxed twice, they still have to pay income taxes on that money anyway whether he earns it or whether the girlfriend earns. 

    0Reply
  • Ellie Narie
    OP
    Investor · Ashland, OR · Member since 2018 · 202 posts · 38 votes
    8y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Will Barnard:
    Originally posted by @Ellie Narie:

    Also, what about people who plan to quit a job after they close on a mortgage? Are they committing fraud? 

     Semantics.

    Who quits their job right after getting a mortgage? Most who do also have a plan to acquire a new job which is often better or with higher pay so no, it would not be fraud in that case.

    Getting a job for two months just to quit after to qualify for thevlan, yes, that is fraud. So you can continue on with your semantics or you can listen to reason and facts, your choice.

    Will I think at this point we should just give the answer she is looking for.

    yes its perfectly acceptable to lie on an application.

    yes you can do this no problem the laws are there but rarely enforeced

    its kind of a wink and nod approach to lending.

    there are all kinds of mortgage brokers that will help you with this they don't care if they make a few grand on the loan and jepordize their career not to mention there freedom.

    so yes to you question for sure this can be done and you will have no problem

    Case solved. 

    I'm not sure where the problem would be if the girlfriend keeps earning a high income indefinitely.  

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Ellie Narie:
    Originally posted by @Jay Hinrichs:
    Originally posted by @Will Barnard:
    Originally posted by @Ellie Narie:

    Also, what about people who plan to quit a job after they close on a mortgage? Are they committing fraud? 

     Semantics.

    Who quits their job right after getting a mortgage? Most who do also have a plan to acquire a new job which is often better or with higher pay so no, it would not be fraud in that case.

    Getting a job for two months just to quit after to qualify for thevlan, yes, that is fraud. So you can continue on with your semantics or you can listen to reason and facts, your choice.

    Will I think at this point we should just give the answer she is looking for.

    yes its perfectly acceptable to lie on an application.

    yes you can do this no problem the laws are there but rarely enforeced

    its kind of a wink and nod approach to lending.

    there are all kinds of mortgage brokers that will help you with this they don't care if they make a few grand on the loan and jepordize their career not to mention there freedom.

    so yes to you question for sure this can be done and you will have no problem

    Case solved. 

    I'm not sure where the problem would be if the girlfriend keeps earning a high income indefinitely.  

    there ya go probably no problem... just have the right intentions and of course it does not matter what any of us think I already told you three pages ago get with a good RMLO lay out your scenario and see how you do it.. batting this around on BP is a waste of your time we don't make loans here at BP.. we just like to talk

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    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    8y

    @Ellie Narie if what you are doing is legal, then just tell the mortgage company exactly what you plan to do. If everything is above board, they won't care. 

    You may not like the rules, but they are there to protect the mortgage system. The majority of businesses fail within a couple years, so they want to see two years worth of self employment to prove the income is sustainable. 

    You and your boyfriend seem to think the rules don't apply to you. You have no business taking out a mortgage without qualifying. Tell your boyfriend to be patient and prove he can stay in business two years, then get a loan. As far as you, finish school and get a real job.

    Also be careful if Ellie Narie is your real name, because these forum posts could be used as proof of mortgage fraud.

    3Reply
  • Account Closed
    Lender · Los Angeles, CA · Member since 2015 · 399 posts · 174 votes
    8y

    I agree with @Joe Splitrock.  Run it by the underwriter and see what (s)he says, who knows, they may not care where the income comes from.  If GF actually gets paid I don't see and 'manufacturing'.  I think you are going to have a problem qualifying even if they allow it, it's too short term.  Not matter how you slice it you need to show a history and stability of income.

    0Reply
  • Ellie Narie
    OP
    Investor · Ashland, OR · Member since 2018 · 202 posts · 38 votes
    8y
    Originally posted by @Account Closed:

    I agree with @Joe Splitrock.  Run it by the underwriter and see what (s)he says, who knows, they may not care where the income comes from.  If GF actually gets paid I don't see and 'manufacturing'.  I think you are going to have a problem qualifying even if they allow it, it's too short term.  Not matter how you slice it you need to show a history and stability of income.

     Yep, girlfriend would actually get paid and get official W2s. How should this couple phrase their situation to the mortgage lenders?Should the girlfriend just say that she will be working for someone who hasn't been in business for very long?

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    8y
    Originally posted by @Ellie Narie:
    Originally posted by @Account Closed:

    I agree with @Joe Splitrock.  Run it by the underwriter and see what (s)he says, who knows, they may not care where the income comes from.  If GF actually gets paid I don't see and 'manufacturing'.  I think you are going to have a problem qualifying even if they allow it, it's too short term.  Not matter how you slice it you need to show a history and stability of income.

     Yep, girlfriend would actually get paid and get official W2s. How should this couple phrase their situation to the mortgage lenders?Should the girlfriend just say that she will be working for someone who hasn't been in business for very long?

    The problem is you already said the girlfriend has no intention of staying employed and that the only purpose of the job is to get qualified for the mortgage. You even said the boyfriend is paying her salary out of savings, so it seems to exceed the business income. 

    1Reply
  • Account Closed
    Lender · Los Angeles, CA · Member since 2015 · 399 posts · 174 votes
    8y

    @Ellie Narie

    I don't want to get too much in the weeds here, only want to suggest that truth sometimes works.  If it were me I'd talk preferably to the underwriter else the broker and see if there is anything that can be done.  If not, move on.

    You're talking 2-4 units with you living in one, that leaves 1-3 units generation income, don't forget about that income.

    Underwrites are people, you ask 10 different underwrites and you will get ten different answers.  You need to see things through their eyes.

    My take on this whole thing is that your initial scenario is moot.  If he doesn't qualify because of lack of two years income how is she going to qualify with even less income history.

    What you are trying to do is change the character of money from cash to income thereby getting around the fact that lenders only look at income and mostly ignore savings.

    One thing I can tell you is that the higher the ltv the more scrutiny you are going to get.  Maybe take the savings and make a bigger down payment then they won't care as much about the lack of income history.

    I was reading that liar loans are making a comeback. Maybe you should forget about FHA and go with a liar loan company.

    FHA has underwriting criteria, lenders have overlays, meaning, even if one FHA lender won't do the loan doesn't mean another FHA lender won't, as long as it still meets FHA requirements.

    0Reply
  • Christi HawkinsPro Member
    Columbus, OH · Member since 2017 · 239 posts · 142 votes
    8y

    @Ellie Narie  @Account Closed  I don't think you want to count on any income being used from the rental units. I haven't been in lending for a few years so maybe the rules have changed but if you can't document landlord experience for at least 2 years, they aren't going to give you credit for any income the rental units produce. This part is only my opinion but any good lender will see what you are trying to do pretty quickly, whether you tell them upfront or not. In this environment there isn't a good lender anywhere that will help you commit mortgage fraud. There are too many consequences for them as well and it's not worth losing a license to try and put a scheme like this together. Unfortunately, you and your boyfriend are going to have to wait until you're both in a position to buy a house, based on what I've read so far you aren't ready. If you've been in school and graduated most lenders will consider that if you've secured a position in your field and still may require a co-signer. What you two need to be doing instead of spending all your time and energy trying to cheat the system you need to be preparing yourselves for home ownership. If your boyfriend is self employed, I bet he takes advantage of every deduction he can, which makes the income on which he pays taxes very low and not actually what he's making. There are certain deductions a lender will count back into his income but they will take an average of the two years and if he's claiming everything and his actual income on paper is very low, that's going to be an issue as well for qualification purposes. They will also weigh heavily on his company and it's stability because all the money to repay the loan will be coming from that business. You both need to do 2 things, go talk to a lender, tell them you want to put yourselves in the best possible position to buy a house within the next few years and they will give you the road map you need, he needs to go see his accountant and yes, he's probably going to have to pay more taxes over the next few years but you can't have it both ways, like you're trying to do. You most likely won't accept this but yes, you and your boyfriend are committing Mortgage Fraud and as I've told you previously in another thread about you doing the same thing, it isn't worth it and you won't get away with it. Slow down and do it the right way

    0Reply
  • Account Closed
    Lender · Los Angeles, CA · Member since 2015 · 399 posts · 174 votes
    8y

    @Christi Hawkins

    I agree with you totally.  I saw this on the news the other day.  Sub-Prime is back, only now they are calling it Non-Prime.  No tax returns, low credit scores:

    Non-Prime Lender

    0Reply
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