FRAUD BLOG PART 4: Processors as Editors.

Written by:
Stacey Sprain,
NAMP Volunteer Writer

Every processor should have a system for editing data and documentation within each loan file, whether it come from the use of a standard checklist or simply from an established daily routine. This is the processor's best chance of catching potential fraud issues within loan files they are assigned to work on.


I have always explained in my training of processors that each processor should view her file as "a work of art" and that as such, she should not be willing to add her "signature" until it has been processed perfectly, ready to be displayed for all to see. A processor should take pride in every file she touches and value the reputation she creates with her processing skills. She should be angered by the prospect of any potential issue that could cause her "work of art" to be negatively affected. Fraud is the greatest negative affect that can happen to a processor's "work of art."

Some important editing suggestions follow:


Fraudulent Bank Statements & VODs Carefully review each page of all financial statements to watch for documentation that has been cut and pasted from other sources and/or whited out. All columns should be lined up, each statement should contain a start and end date, a transaction history for the period listed, start and end balances, name & location of the financial institution, customer's account number, account type, page numbers, .... printout statements should contain no less than an abbreviated version of the same data and must reflect either the security code data at the bottom of each page when printed from a secured internet website or should be signed and date stamped by a bank teller to certify the validity of the printout.


VODs should be completed fully, signed and dated and should not have passed through the hands of any party who has interest in the borrower transaction. Loan officers should not be processing VOD requests but rather should be allowing that duty to be completed by the processor. You should never see that a VOD has passed through the office of a realtor, attorney, or even through the hands of the borrower. VODs should be processed directly by the processor to the financial institution and back.


If there is ever any question about the validity of a completed VOD, the processor should contact the person who is listed to have completed the VOD to verify that person is authorized to provide such information and that person indeed did provide the data on the VOD.


Fraudulent pay stubs/W2s/Tax Returns/VOEs Pay stubs should contain the name & location of the employer, borrower name and social security number, current and year-to-date earnings and any tax withholding information. They should also be computer generated; not hand typed or handwritten. In the case of handwritten stubs, a full VOE should be obtained by the processor directly from the employer's payroll or HR office. W2s should be reviewed carefully for much of the same identifying data.


Tax returns can now be verified through credit bureaus and tax verification services within days of a request. If a processor has any concern or question about the validity of a borrower's tax return data, she should pursue obtaining a 3rd party tax return verification through such a service.


Employer contact information should be verified for ALL verbal VOEs and verbal VOEs should always been provided by the processor of the loan file. She should use sources such as 411.com to search for employer phone numbers and addresses and/or conduct web searches to locate websites with contact info for the employers in question. It is the processor's responsibility to certify that she obtained the employer contact info through 3rd party verification so it is important not to simply call the number listed on the 1003 to verify a borrower's employment. Often the number listed on a 1003 is a direct line to an individual or a cell phone number to a person who may not be authorized to provide employment verification information for an employee over the phone.


Processors should also be aware of their responsibilities in regards to stated income loan files. If earnings documentation is within a file assigned to a processor and stated income has clearly been inflated for the purpose of qualifying the borrower for the loan, the processor should question the originator and ask for explanation. If the explanation isn't sensible or believable, the processor should report her concerns directly to the originator's supervisor. If the Supervisor is involved in what appears a fraudulent situation, the processor should refuse to process the loan. Stated income loans are a large portion of fraudulent loans that end up in defaulted status when borrowers cannot afford their payments.


In part 5, we will continue discussion on processor editing practices for file documentation.


About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.