November 21, 2025
We seem to see a steady drumbeat of litigation in regard to mortgage fraud.
Representative Swalwell, Senator Schiff, President Trump, NY Attorney General Letitia James have all been accused. In Mr. Trump’s case, found guilty.
This can be a confusing subject, so let’s see if we can give you the basic facts you need to help you judge the news as it comes out.
First, what is mortgage fraud? I went to my AI bot to get the facts. A comment that I think it’s useful to ask AI for the facts in a situation. But I don’t think it’s fair play or useful to use its opinion on the subject. Facts are facts and in that, AI can act as a research assistant. Also reminded that using AI to pass the bar exam is not optimal (this makes sense if you’ve read all the pieces past couple of weeks).
AI:
Mortgage fraud is when someone intentionally misrepresents, omits, or lies about information during the mortgage lending process to either:
- Obtain a loan they wouldn’t otherwise qualify for, or
- Receive more favorable loan terms than they deserve
Common Types
Fraud for property (fraud for housing):
- Borrowers lie about income, assets, employment, or debts to get approved
- Often involves falsified pay stubs, bank statements, or tax returns
- The borrower intends to repay but shouldn’t have qualified
Fraud for profit:
- More serious schemes involving multiple parties
- Often includes property flipping with inflated appraisals
- Straw buyers (someone purchases on behalf of the actual buyer)
- Identity theft to take out loans in someone else’s name
- Sometimes involves corrupt insiders like loan officers or appraisers
Examples of Fraudulent Actions
- Overstating income or assets
- Failing to disclose debts or liabilities
- Inflating property appraisals (I PUT THAT IN BOLD)
- Claiming a property as a primary residence when it’s actually an investment (DITTO)
- Providing fake employment verification
- Not disclosing you’re receiving money for the down payment (undisclosed gift or loan)
Consequences
Mortgage fraud is a federal crime that can result in:
- Up to 30 years in federal prison
- Fines up to $1 million
- Loss of the property
- Damaged credit
- Civil lawsuits
Now Mr. Trump was found guilty of civil violations (as opposed to the more serious criminal violations). Namely, in his 2024 Civil Fraud Case:
- Found liable for fraudulently inflating the value of his properties and assets
- Judge ruled he overstated his net worth to get better loan terms and insurance rates
- Ordered to pay over $450 million in penalties
- Examples included overvaluing Mar-a-Lago and his Trump Tower penthouse
This was a civil case, not criminal, so it resulted in financial penalties rather than criminal conviction. And an appeals court threw out the penalty as excessive and a Constitutional violation but let the conviction stand. It is currently on appeal so not done yet.
In the case of Mr. Swalwell, the referral alleges several million dollars’ worth of loans and refinancing based on Swalwell declaring his primary residence as Washington, D.C., and calls for investigation into possible mortgage fraud, state and local tax fraud, insurance fraud, and any related crimes NBC News. The allegation appears to be that Swalwell may have received more favorable loan terms by claiming his D.C. property as his primary residence when it may not have been.
In the case of Mr. Schiff, the core allegation is that Schiff claimed two different properties as his “primary residence”simultaneously. He allegedly listed his Maryland home near Washington D.C. as his primary residence on mortgage applications to get more favorable loan terms (lower interest rates) Fox News. He also claimed his Burbank, California property as his primary residence to qualify for a $7,000 reduction off the 1% property tax Fox News
A memo from Fannie Mae’s financial crimes unit (rapidly becoming the administration’s gotcha of choice) alleged that Schiff engaged in “a sustained pattern of possible occupancy misrepresentation” across five separate Fannie Mae loans.
In the case of Letitia James, FHFA Director William Pulte sent a letter to Attorney General Pam Bondi alleging that Letitia James “has, in multiple instances, falsified bank documents and property records to acquire government backed assistance and loans and more favorable loan terms” CBS News.The initial referral included allegations about:
A Norfolk, Virginia property purchased in 2023, where James allegedly granted someone power of attorney to make it her “principal residence” despite actually living and serving as attorney general in New York CBS News. A Brooklyn property where she allegedly misstated the number of units. A 1983 mortgage where James and her father allegedly signed documents stating they were husband and wife CBS News.
OK, you can see how these allegations dovetail with the various definitions of mortgage fraud. And to be clear, these are allegations (except in Mr. Trump’s case) and so, innocent until proven guilty.
The thing about mortgage fraud is that everything you claim is in writing. It’s not a he-said-she-said. If you claim the property as primary residence, well, whoop! there it is. So, it is my guess the devil here is in the details. Yes, the defendant checked the box on the form, but here’s an example of why it might not be a slam dunk settled case:
Schiff’s attorney Preet Bharara wrote that Schiff had been “completely transparent” about listing both homes as primary residences in mortgage documents, and attached a letter from Schiff to the mortgage lender proving this transparency MSNBC. Representatives for Schiff called the allegations “transparently false” and said his lenders had “full knowledge of the senator’s year-round bicoastal work obligations” and “his use of two homes for that reason” ProPublica.
Suddenly, complicated! And so, best advice when rabid media (on the left or right) blaze with accusations and guilty-as-charged innuendo, we all avoid making judgments that may come out of our own bias. Wait and see what actually happens in the way of guilt or innocence.
Of course, everyone then claims political witch hunt as their outrage defense and so forth. Yes, I believe the allegations are in part politically motivated. But that doesn’t absolve someone of guilt if they are guilty. Good to remember when people use politics as their defense.
OK, so why is mortgage fraud important? It’s important because lenders price their product (the terms and the interest rate) on the nature of the property. Primary residences are safer to lend against. People can walk away from their vacation condo (the secondary residence), but they don’t walk away from their primary residence. Second homes can often lie vacant for longer periods of time, property damage (like a broken water pipe) can be unchecked until damages are epic…damaged collateral. Second homes are rented out; there is liability to the homeowner there.
As a result, the interest rate charged on a primary is generally between 0.50% and 0.75% per year. On a $300,000 mortgage, which amounts to $1,500 to $2,250 per year. Over 10 years, $15,000 to $22,500, plus interest on the interest.
It is your editor’s position that risking one’s reputation and financial security over relatively small amounts qualifies for our Pencil Brain designation. The money aside, it’s embarrassing.
Square the circle: If enough people practice this fraud, then eventually the losses on lending on “primary” residences will go up and lenders will simply raise the interest rate everyone pays. In addition, this fraud can put the bank at risk if the collateral is widely damaged. In summary, don’t do it and if it’s found, it should be prosecuted.
In Mr. Trump’s case, it’s a similar in that if you inflate the value of a property, then your loan, as a percentage of the property value, is lower and so, to the lender “safer” and you can get an interest rate reduction.
Most of what you need to know about mortgage fraud. To be clear, Mr. Schiff, Mr. Swalwell and Ms. James have been accused, they are innocent until proven guilty.
But the truth will lie in the documents they signed and how they used the properties, not in the motivations of their accusers.
Thoughts, questions, or reflections? I’d love to hear them. You can reach me anytime at anthony@workingprofit.com
