What Is an Air Loan?

An air loan is a type of mortgage fraud that seeks to profit from unsuspecting lenders. A mortgage broker invents both a property and a borrower in order to earn false profits on completed loan transactions. When the loan inevitably goes into default—which is going to happen, as no one is actually paying the mortgage—the lending bank loses everything because the home it would normally hold as collateral on which to foreclose does not exist. Air loans are classified as fictitious transactions.

How an Air Loan Works

An air loan involves the creation of a straw borrower (or straw buyer) by a clever and ambitious fraudster. As the borrower is not real, the broker must set up a system of phony phone numbers and mailboxes that are used to “verify” a false identity through employment records, home address, credit history, Social Security number, and so on. The broker must also convince as to the property’s title history and appraisal value, fabricating land title records, fake ownership documents, and other records to indicate that the false property exists.

Air loan perpetrators may also establish false accounts for payments and maintain custodial accounts for escrows. They may further establish an office with a bank of telephones, each one used as the fake employer, appraiser, credit agency, and so on, to fraudulently deceive creditors who attempt to verify information on loan applications.

An air loan is a fraud scheme in which a mortgage broker invents both a property and a borrower in order to earn false profits.

Air Loans vs. Other Fraud Schemes

Because lenders today are required by regulators and legal bodies to conduct due diligence on their potential borrowers, air loans are less common than in the past. They are, however, just one type of mortgage fraud. Others include property flipping using inflated appraisals, silent second mortgages, straw buyers, foreclosure schemes, and equity skimming.