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Virty [35]
3 years ago
12

Maria is not a very financially literate person. in the past, she has been a victim of various forms of fraud. recently, she sig

ned a loan agreement for a house, but the agreement was confusing. she signed it anyways, and soon she was unable to make payments.
define the type of fraud that maria was a victim of in her home loan. what typically happens during this type of fraud and what is the final consequence?
Business
1 answer:
BabaBlast [244]3 years ago
8 0

Answer:

a. Mortgage fraud

b. Since Maria will not be able to make her payments, she will most likely default on her loan payments. When she defaults on her loan payments, the cost of credit rises. One can however, sue the lender for mortgage fraud. If found guilty in a court of law, they will be punished for fraud.

Explanation:

a.

Fraud in basic terms means a deliberate omission or misrepresentation of facts for the purpose of deceives others. Mortgage fraud there for means a deliberate misrepresentation or omission of facts by a lender to a borrower with malicious financial intent to the borrowers. Any form of mortgage fraud is a criminal offense that is punishable in a court of law, since it usually involves huge amounts of money. An example is the mortgage scam that occurred in Sacramento, Calif where seven people were convicted in a $10 million mortgage scam in early 2019. Most people who fall victim to mortgage scams are not financially literate and there for they easily agree to the loan agreement without necessarily reading and understanding the loan agreement.

Financial literacy can be defined as a proficiency in financial principles like; financial planning, debt management and financial investments with the aim of being financially stable. Financial illiteracy can be defined as lacking financial principles and skills to make sound financial decisions.

In our case, Maria being financially illiterate fell victim to mortgage fraud since she signed a loan agreement that she did not quite understand. The lenders also committed a fraud since they knew that Maria did not understand the agreement but they did not educate her properly to ensure that she knew exactly what she was signing up for. This was a clear act of misrepresentation with the aim of fraud.

b.

Since Maria will not be able to make her payments, she will most likely default on her loan payments. When she defaults on her loan payments, the cost of credit rises. One can however, sue the lender for mortgage fraud. If found guilty in a court of law, they will be punished for fraud.

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Suppose a firm has been losing money and thus is not paying taxes, and this situation is expected to persist into the foreseeable future. In this case, the firm’s before-tax and after-tax costs of debt for purposes of calculating the WACC will both be equal to the interest rate on the firm’s currently outstanding debt, provided that debt was issued during the past 5 years.

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