FBI investigates commercial mortgage fraud

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The FBI in the United States is working on a mortgage fraud investigation focusing on the falsification of income from commercial properties.

It has been described as:

“one of the largest mortgage-fraud investigations since the financial crisis”

Exaggerating the rental income could mean that investors are given a larger value commercial mortgage based on a false inflated value of the property. It is alleged that some borrowers were taking cash out of mortgage funds lent to them.

In the UK a commercial mortgage offer is dependent on a valuation. A commercial property valuer will visit the property to assess both its capital value and the expected rental income. The property’s cost is compared to similar ones in the same area. The valuer needs local knowledge of the rent levels of similar buildings near the location of the property being valued. If a borrower has inflated the expected rental income, then the valuer will downgrade this in his valuation report.

Most commercial mortgages are not regulated by the Financial Conduct Authority (FCA), but brokers who arrange mortgages usually are, meaning they must comply with ethical standards and must be fair and transparent with borrowers. They have to provide clear and unbiased mortgage advice.

Brokers usually check the documents that support the mortgage application, and systems in the UK minimise the possibility of fraudulent property income claims designed to increase the value of the property. It is doubtful whether similar cases to that being investigated by the FBI has occurred or will occur in Britain.

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