I posted this on another forum and want to get input here as well. Let's say there's a boyfriend and a girlfriend who have kids together. Boyfriend is self-employed but doesn't have 2 years of employment history, so he can't get a mortgage. He also has his girlfriend "working" for him-- but he only pay her a small salary for doing menial tasks. However, the girlfriend wants to get a house, so the plan is, the boyfriend will increase the girlfriend's salary significantly (say, her salary is like 1k, but he will increase it to like 4k-5k) just for a month or two, so that she could qualify for an FHA mortgage. Girlfriend has been going to college full-time for the last two years, so banks won't really care about her tax returns, since her transcripts will substitute for that.

She will use the mortgage to buy a 2-4 unit building, live in one unit with her boyfriend and their kids (boyfriend's name will NOT be on the loan or the mortgage), and rent the other units to pay the mortgage. But that's beside the point.

Would this be considered mortgage fraud? After the girlfriend closes on the mortgage, she will "go back to working part-time" and only earning 1k. Asking for a friend.

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    "Asking for a friend". This is most certainly fraud. This might not even get past the application process. Banks are required to perform "Know-Your-Client" processes, part of which requires understanding a prospective client's work and sources of income. Someone doing menial tasks and earning 4-5K / month is likely to raise suspicion. – ApplePie Apr 29 '18 at 22:58
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    They are supposed to ask questions and actually understand what you're doing and check whether it makes sense given all elements of informations they have at their disposal. If you're Vice-President of the universe, get paid 4-5K / month and only file some paper a few hours a week, that's gotta throw some flags. Also, regardless of what suspicions this raises, this is clearly ethically wrong and probably legally wrong... but as per usual, IANAL. – ApplePie Apr 29 '18 at 23:15
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    @stormfeather it's not like the bank is going to call your friends boss, get his confirmation of the salary, and OK the loan. They'll probably want two years proof of income, bank statements, credit card statements, residence history etc. Her stated salary is likely to stand out as being inconsistent with all the other information. – Charles E. Grant Apr 29 '18 at 23:27
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    Who said anything about taxes? The banks will want a couple years of pay stubs and current bank statements. They will also have access to her credit history. Her sudden salary increase will stand our like a sore thumb. This might have worked in 2007, but probably not now. – Charles E. Grant Apr 30 '18 at 0:15
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    Is it considered bank fraud, when you fraudulently apply for a bank loan? Yes, yes it is. – Grade 'Eh' Bacon Apr 30 '18 at 12:50

Since you refer to FHA I assume you are asking about the US.

Yes it would be fraud:

Mortgage fraud is a crime in which the intent is to materially misrepresent or omit information on a mortgage loan application in order to obtain a loan or to obtain a larger loan than could have been obtained had the lender or borrower known the truth. (https://en.wikipedia.org/wiki/Mortgage_fraud)

You know that your salary is being increased for only one month, but you aren't telling the bank this, and in fact you are planning to conceal it from the bank, because you suspect they won't loan you the money on the strength of your real income. This is a material misrepresentation of the facts with the intent of obtaining a loan you are not qualified for. In other words: textbook fraud.

While at times banks have been utterly feckless in who they loaned to, in the current economic climate they are typically more careful. They may very well spot the inconsistency between your stated salary and your other financial records during your application.

It is possible that you may get away with it initially, but it will be hanging over your head. If the bank does eventually discover it, the best you can hope for is that they call the loan immediately due in full. The worst case would be that they bring criminal charges and you go to prison.

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    @stormfeather It's fraud because the boyfriend is planning to lower it at all during the payment of the loan. – not_a_comcast_employee Apr 29 '18 at 23:41
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    @stormfeather probably yes. If their intent is to get a mortgage that they couldn't get after they quit their job. – not_a_comcast_employee Apr 29 '18 at 23:50
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    @stormfeather you seem to be trying to play this as some sort of 'gotcha' game. That will get you into to trouble. The heart of fraud is consciously making a material misrepresentation or omission. If you know you are going to quit the day after the loan closes but you don't tell the bank, that's a material omission. If you honestly weren't planning to quit but something unforeseen happens that drives you to quit the next day that's not fraud. – Charles E. Grant Apr 29 '18 at 23:53
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    Both the boyfriend and the girlfriend may end up going to jail. It's not likely, but it's a distinct possibility. People are indeed jailed for committing fraud. – ChrisInEdmonton Apr 30 '18 at 0:03
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    @stormfeather Now you're just trying to reframe things to make it sound less offensive and hopefully get an "ok" out of us. 1) getting the OK off some internet forum is not going to protect you from the banks if they decide to press charges, and 2) that's not the real question at all, and you know it – Steve-O Apr 30 '18 at 0:05

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