What is ‘Occupancy Fraud’
A type of mortgage fraud, whereby the borrower lies about whether or not the home will be owner occupied. Occupancy fraud happens when the borrower says that a home will be owner occupied, when in reality it will not be. Mortgage lenders typically offer lower rates to mortgages on owner-occupied homes, rather than investment properties. When occupancy fraud occurs, banks take on too much risk because they are receiving a lower interest rate than they should be for the delinquency risk that exists.
Explaining ‘Occupancy Fraud’
Lenders typically charge higher rates on mortgages for non-owner occupied homes, because of higher delinquency rates. Delinquency rates are often lower for the owner-occupied home because people do not want to lose their private residence and become homeless. There is a lot less attached to losing an investment property.
Further Reading
- Owner occupancy fraud and mortgage performance – papers.ssrn.com [PDF]
- Ten Years of Evidence: Was Fraud a Force in the Financial Crisis? – papers.ssrn.com [PDF]
- The social ecology of speculation: Community organization and non-occupancy investment in the US housing bubble – journals.sagepub.com [PDF]
- Mortgage origination fraud and the global economic crisis: A criminological analysis – onlinelibrary.wiley.com [PDF]
- Tunneling, Fraudulent Financial Statements and Regulation Effects: Chinese Evidence – www.tandfonline.com [PDF]
- A Relationship Among Neighborhood Traits, Home Sales and Mortgage Fraud: The Atlanta Market Leading Into the Mortgage Crash of 2008 – scholarworks.boisestate.edu [PDF]
- An Insight into the World of Mortgage Fraud in the US and UK – search.proquest.com [PDF]
- Fraudulent income overstatement on mortgage applications during the credit expansion of 2002 to 2005 – academic.oup.com [PDF]
