Financial Incentives
The main motivation for borrowers to claim a primary residence for mortgage applications is to lower the interest rates of the home.
Mortgages in major residential areas typically have low interest rates and low insurance costs for homeowners, said Keith Gambinger, vice president of mortgage website HSH.
According to the bank rate, mortgage interest rates are generally 0.5% to 1% higher for investment properties than for major homes. According to the Insurance Information Agency, homeowners typically have an approximately 25% increase in insurance as landlords compared to standard homeowners’ insurance.
The owner’s occupation is, “You’re going to live there most of the time,” Gambinger said. However, Fannie May said there are limited exceptions, including military service, parents providing housing for children with disabilities and children providing housing for parents, and parents providing housing.
If a homeowner changes a primary residence, they will need to notify the mortgage lender that the original property is no longer the owner, Gumbinger said.
Tax benefits
Key residences also offer federal and state tax benefits, according to Albert Campo, a certified accountant and president of Campo Financial Group in Manalapan, New Jersey.
For example, if an owner sells a home and makes a profit, he or she can receive a capital gain exemption of up to $250,000 for single filers and $500,000 jointly filed by married couples, as long as he or she meets certain IRS rules, including owner occupancy for the past five years.
For tax purposes, homeowners can have one major residence at a time.
If taxpayers own multiple homes, Campo said the main residence is “always based on facts and circumstances.” For example, a major residence is usually where the owner spends most of his time, votes, file his tax returns and receives mail, he said.
“Difficult to detect”
A 2023 report from the Federal Reserve Bank of Philadelphia found out of the 584,499 loans between 2005 and 2017, more than 22,000 “fraudulent borrowers” misrepresented the owner’s occupancy status. This data is based on a subsample from more than 15 million loans that occurred during this period.
Fraudulent borrowers usually took bigger loans and had higher mortgage default rates, the authors found.
However, this type of fraud is “hard to detect much longer after the mortgage is issued,” the author wrote.
In court, this is a small ball and is extremely difficult to prove.
Jonathan Canter
Washington University, a professor of law in St. Louis and former attorney general.
“There’s a difference between courts and public opinion courts,” Jonathan Canter, a law professor at Washington University in St. Louis and a former attorney general, said last week when CNBC’s “Squawk Box” asked about Cook. “In court, this is a small ball and it’s very difficult to prove.”
“You had a specific intention to trick and deceive the bank, not just by mistake, that she had the form.” he said.
In 2024, 38 mortgage fraud offenders were sentenced in the federal system, according to an interactive data analyzer from the US Judgment Committee. That number has risen slightly from 34 offenders in 2023, but has fallen from 426 offenders in 2015. This is the earliest date in the dataset for that tool. Data from the US Judgment Committee does not cause any type of mortgage fraud.
