Question: What constitutes mortgage fraud that would cause somebody like Lisa Cook to lose their job?
Answer: After President Trump fired Federal Reserve Board of Governors member, Lisa Cook, over mortgage fraud, it’s fair to do a double-take of your own mortgage decisions and make sure you have not slipped up and put yourself at risk. Mortgage fraud is a federal crime and can lead to jail, fines, loss of security clearance, and more.
For those worrying, I’ll review some of the basic principles on what constitutes mortgage fraud and why most people have nothing to worry about.
Why Would Somebody Commit Mortgage Fraud?
The main reason somebody would be enticed to commit mortgage fraud is to get themselves better loan terms, including a lower interest rate, lower down payment requirement, or easier lending standards. It almost always comes in the form of telling the bank a property you’re buying will be used as your primary residence, when you actually intend to use it for another purpose (rental, vacation home, etc).
Loans on primary residences are less risky than loans on investment properties or vacation homes and thus get preferred lending treatment.
Banks Require Occupancy Deadline and Occupancy Period
Banks expect two things from borrowers if a loan is being classified as a primary residence:
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The Borrower must intend to move into the property within 60 days of settlement
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The Borrower must intend to live in the property as their primary residence for at least 12 months
The 60-day rule is why you won’t (shouldn’t) see seller rent-backs exceed 59/60 days when the buyer is purchasing with a primary residence mortgage because a 60+ day rent-back prevents the buyer from taking occupancy within the required 60 days.
It’s All About Intent
Notice that I bolded and italicized “intent” above because that is the most important factor in determining whether somebody has committed mortgage fraud. Banks require borrowers to sign and acknowledge at closing their intention to move into the property within 60 days and live there for at least 12 months, but not that they will do those two things. In other words, the bank does not require you to meet those requirements, they require that you intend to do so at the time of settlement.
Life changes often, quickly, and significantly and life changes do not mean somebody is committing mortgage fraud. Anything that occurs after settlement that changes your intended use of the property and results in you not meeting one or both of those requirements (60-day occupancy deadline and 12 months of occupancy) is legal, acceptable, and does not constitute mortgage fraud.
Job offer or job loss? You’re fine. Have a baby and need a different home? You’re fine. If you can justify your intent of meeting the requirements at the time of closing, you have nothing to worry about.
If your intended use of the property changes at any time prior to signing the closing paperwork, discuss it with your lender.
Do Investment Properties Need to Be Investment Loans?
If you decide to keep your primary residence as an investment property after you move out, you do not need to convert the loan to an investment loan, it can remain a primary residence loan with the same terms; that is not mortgage fraud.
Even if you decide to move out in less than 12 months from settlement, for legitimate reasons, you won’t find yourself guilty of mortgage fraud, unless you are displaying a pattern of that behavior that suggests your intent at closing was to convert into an investment property in less than 12 months.
What About Renovations that Take More than 60 Days?
One of the trickier scenarios that come up is a buyer purchasing a primary residence, with a mortgage, who plans to do major renovations that will take more than 60 days to complete and thus they know they won’t be able to occupy the property within 60 days, but fully intend it to be used as a primary residence.
The vast majority of buyers choose to proceed with a mortgage classified as a primary residence in this scenario and it would be extraordinarily rare for somebody to be charged with mortgage fraud who fully intends to occupy the property as their primary home once the work is complete, but if you are a borrower who wants to take zero risk with the law, you may need to consider purchasing using an investment loan and then refinance into a primary residence loan once the work is completed. This is something you should discuss with your loan officer.
What Did Lisa Cook Do?
So, where does Lisa Cook, the Federal Reserve Board of Governors member who was recently fired by President Trump for mortgage fraud, fit into all of this? She is accused of obtaining two loans classified as primary home mortgages within two weeks of each other – one for a purchase in Michigan and the other for a purchase in Georgia. If a borrower purchases two homes in short sequence and knowingly claims them both as a primary home mortgage, that is considered mortgage fraud because one cannot intend to occupy both properties as a primary residence at the same time. I will leave the determination on whether Lisa Cook knowingly committed fraud to the courts…
If you are ever unsure about what constitutes mortgage fraud, the solution is simple: be honest and transparent with your loan officer and you should never find yourself in violation of the law.
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
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Below are some of our team’s pre/off-market listings, details and additional listings available by request:
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Rosslyn 2BR/2BA/1,100 sqft – condo (2008) – 1800 Wilson Blvd Arlington VA 22201
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Rosslyn 2BR+den/2.5BA/2,000 sqft – condo (2021) – 1781 N Pierce St Arlington VA 22209
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Ballston – 4BR/3.5BA+office/4,000 sqft – Four Townhouses (2026/2027) – 11th St N Arlington VA 22201
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Falls Church City – 4BR/4.5BA/3,000+ sqft – End-unit townhouse (1995) – Rees Pl Falls Church VA 22046
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Rosslyn – 2BR+den/2.5BA/2,000+ sqft – Condo (2021) – 1781 N Pierce St Arlington VA 22209
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Highland Park/Overlee Knolls – 6BR/5.5BA/5,000+ sqft – Detached Single Family (2025) – 22nd Rd N Arlington VA 22205
