Ghost Borrowers

One practice that I saw too much of was something I’ll call the “ghost borrower.” There was an originator in my past office that made some real good revenue off this practice. This is how it works: You have a number of, (at the time, subprime) borrowers who could not get a mortgage approval based on their own income/credit profile. The “ghost” then steps in and lends his/her credit worthiness to the transaction so that the loan closes with A-paper terms and conditions. In return, the broker kicks back an agreed upon amount of cash to the “ghost” for his/her efforts. In order to have enough money to pay all players, the originator charges exorbitant up-front fees and also maximizes his lender-paid compensation through manipulation of interest rate.

As if this wasn’t fraudulent enough, the broker would bundle a number of these loans using the same “ghost” and close them all within days of each other using all different lenders. Therefore, lender A doesn’t know that the “ghost” is also closing with lender B, C, D, etc. Furthermore, all the loans close with terms that apply to mortgages on primary residences, when in essence, they are all investment properties. The paperwork never catches up and the fraud is perpetuated with another “ghost.”