A file closes on a $290,000 house at an address that turns out to be a vacant lot, with a fabricated borrower and appraiser. What type of mortgage-fraud scheme fabricates the borrower and property underlying the loan?
Correct Answer
D) An air loan: the borrower and represented house are fabricated
D. The manufactured borrower and nonexistent represented house indicate an air loan. The defining pattern is a loan file built around a fabricated borrower and property, not a legitimate house assigned a mistaken value. The FBI’s archived scheme description includes invented borrowers and properties. It supports the terminology, not a current lending or reporting deadline. Scope and exceptions: The description does not establish whether any separate legal interest in the vacant land exists. Classify the scheme from the stated fabrications. Source: Typical fraud schemes: Air Loans — https://archives.fbi.gov/archives/news/stories/2005/december/operation-quick-flip-1
Why This Is the Correct Answer
D. The manufactured borrower and nonexistent represented house indicate an air loan. The defining pattern is a loan file built around a fabricated borrower and property, not a legitimate house assigned a mistaken value. The FBI’s archived scheme description includes invented borrowers and properties. It supports the terminology, not a current lending or reporting deadline. Scope and exceptions: The description does not establish whether any separate legal interest in the vacant land exists. Classify the scheme from the stated fabrications.
Why the Other Options Are Wrong
Option A: An appraisal error, as the 1 appraiser misidentified the address
A simple appraisal mistake does not explain the fabricated borrower and appraiser.
Option B: Occupancy fraud, because nobody ever moved into the property
The problem goes beyond a false claim about who will live in a real home.
Option C: A straw buyer transaction, since the borrower name was invented
A nominee arrangement uses another identity; it does not best describe this wholly fabricated borrower-and-house file.
Exam Tip
An air loan invents the underlying transaction, not just one qualifying number.
More Ethics & Fraud Questions
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