Fraud 2: Fraud for Shelter vs. Fraud for Profit: What Every Lender Should Know

Some of the most revealing lessons I’ve learned as an underwriter didn’t come from textbooks or courses—they came from files that didn’t sit right. Files that looked solid at first glance, but slowly unraveled the deeper I dug. In most of those cases, what I was seeing was one of two things: a borrower trying too hard to qualify for a home they couldn’t afford, or a calculated scheme designed to siphon money from the system entirely.

That’s the difference between fraud for shelter and fraud for profit and understanding that distinction is critical for any lender, especially in the non-bank space.

Fraud for Shelter: Misleading to Qualify

This kind of fraud is usually borrower-driven. It’s not about malice it’s about desperation. People stretch the truth on applications to get into a home. Maybe they “adjust” their income, fudge their employment history, or claim a gift that’s actually a loan. Some genuinely plan to pay the mortgage. But the moment they falsify information, it crosses the line into fraud.

Common examples include:

• Overstated income: Fabricated job letters or inflated salaries are rampant. Some even Photoshop real documents.

• Down payment misrepresentation: Borrowers hiding borrowed funds or short-term loans and claiming them as personal savings.

• False occupancy claims: Saying it’s a primary residence to access better rates or terms when it’s actually a rental or someone else will live there.

Fraud for shelter might come from a good place emotionally, but the consequences are just as serious. If a borrower defaults and the lender discovers misrepresentation, that mortgage was obtained under false pretenses. And in today’s environment, ignorance is no defense.

Fraud for Profit: The Organized Game

Fraud for profit is different. It’s not about getting a roof over someone’s head—it’s about extracting money. These are often sophisticated operations, involving multiple actors: fake buyers, complicit brokers, shady appraisers, even real estate lawyers. And the damage they leave behind is significant.

Some red-flag schemes include:

• Straw buyers: Someone with good credit “lends” their identity to help another party qualify, often unaware they’re legally on the hook.

• Title fraud and identity theft: Properties mortgaged or sold using forged documents or stolen identities.

• Inflated appraisals: Used to increase loan amounts far beyond the property’s real value, often followed by default and disappearance.

• Fake documents everywhere: Not just income but bank statements, Notices of Assessment, and even citizenship papers.

What makes these schemes especially dangerous is how legitimate they look on paper. The perpetrators are counting on underwriters being too rushed or too trusting.

Why This Matters in Non-Bank Lending

As private and alternative lenders, we’re often stepping in when banks say no. That means we see more unconventional deals and unfortunately, that also means we’re more likely to be targeted. Flexibility is our strength, but it can’t come at the expense of vigilance.

Knowing the motivation behind the fraud can help shape how we respond. Fraud for shelter might mean a coaching moment for a broker. Fraud for profit? That’s a call to compliance and potentially law enforcement.

Stay Sharp. Ask Questions. Verify Everything.

Not every borrower is a fraudster. But every file deserves scrutiny. When in doubt, go deeper. Verify the employer. Question the down payment source. Double-check the appraisal comps. Because catching fraud early isn’t just about avoiding losses, it’s about upholding the trust that underwrites this entire industry.