Fraud Schemes

Posted on February 9th, 2011 by Jane Harford
Jane Harford
About The Author
Jane Harford - As an NAMP® staff writer, Jane brings 30+ years of mortgage business experience in FHA, VA, LAPP and is also an FHA DE Underwriter. If you would like to become a writer for NAMP® , please email us at: contact@mortgageprocessor.org.
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In today’s blog on fraud in the mortgage industry, we will start to address areas in which there are possible red flags. Each of these items on its own may not indicate that there is fraud involved in a file, but when 2, 3 or more items are found in a file, the likelihood of a fraudulent file is greater.

The 1003 should be reviewed carefully for all details on the borrower, property, type of transaction, credits, sellers and loan program type. Hopefully, the loan officer is well trained to take a complete initial application and how to ask questions in such a way that he/she will look for honesty in the borrower’s answers. If the LO feels that there is a potential issue, they can try to look at the topic being discussed in another way.

Here is a list of potential issues that can raise red flags on the initial 1003:

-Providing an incomplete or handwritten 1003.
-Employer’s address is listed only as a post office box.
-Borrower’s education completed differs from his/her job category and level.
-Borrower’s office phone number is the same as the home phone number.
-Assets don’t seem to be consistent with the borrower’s disclosed income.
-The borrower’s income is not consistent with his/her age and education status.
-Borrower’s home phone number has a different area code from the work phone number, even though they are in the same area.
-Borrower is purchasing an investment property, but rents for primary residence.
-Unrealistic drive time between home/work for an owner occupied purchase.
-REO schedule shows that borrower owns property, but no mortgages appear on the credit report.
-Debts listed on 1003 show no mortgage debt, but a check of MERS shows that borrower is on an existing mortgage.
-Borrower’s answers to the declaration questions differ from the documents provided and the profile that the borrower fits into.

As you can see, each one of these items reviewed individually would not give off any vibes of a potentially fraudulent mortgage application. If three or more of the situations exist when the loan officer reviews the initial application, or the processor reviews while conducting the initial workup for loan submission, then it is it time to take a few more minutes to review enclosed documents, conduct some internet research, complete the verbal or written VOE and start to make some conclusions as to whether or not the file is on the up and up or if there are issues that need to be further explored.

The initial person that may draw some conclusions on the information provided would be the loan officer. If the loan officer is accepting the information via email or over the phone, it is strongly urged that the loan officer get on the phone and review the details with the applicant to determine that the information is accurate and verifiable.

The loan processor would be completing the first steps of the validation process. Simple steps can be taken from the start of the application to ensure that the data provided is accurate/correct and verifiable. Let’s review that initial list of possible red flags to see what can be determined after reviewing the data provided for anything that doesn’t seem to make sense.

1) The incomplete handwritten or initial application-could show that the full loan package that will be provided hasn’t been completely put together yet. Legal information, final terms of a sales contract, determining the “seller” and “title” may not have been completed. If these details are added bit by bit during the loan process, sometimes the processor won’t notice the “issues” that are starting to appear.

2) P. O. Box for employer-This could mean that the business doesn’t really exist. Without an established street address, it can’t have a third party check completed.

3) Level of education not consistent with employment - Borrower has training as a medical assistant. She just got a new job as a director of sales for a chain of bridal shops. Her income appears to be inflated. The pay stubs support the income, but the type of education does not support an income that is three times as great as what the training would pay. Any red flags here?

4) Home phone number is the same as office number-this could indicate the borrower is self employed instead of employed by a company. It could also mean that the borrower is not employed at all. What would the issue be here?

5) Assets not consistent with borrower’s income. The assets that the borrower shows are much greater than what a borrower would show for income as the medical assistant. Also, if a VOD is obtained-the opening date is recent and the average balance is much less than what is the current balance. Any red flags here?

6) Location of the subject property versus the borrower’s job location or current residence. There are questions usually raised if the distance between a new home and job seems to be a long distance apart. Also, if the borrower is purchasing a second home-it should be within a reasonable distance of the borrower’s current primary residence address. The thought here is that the borrower would want to utilize the 2nd home on weekends or holidays. With explanations/evidence/third party checks-these questions can be answered, but it does require satisfactory answers to these questions.

7) REO schedule shows ownership of other property, but no debts appear on the credit report. Gain, this would need to be documented and explained by the borrower.

8) Lastly, the MERS check shows that the borrower has an open mortgage debt. The borrower does not disclose this and does not answer the declarations questions to reflect ownership of another property. This also needs to be clarified, explained and satisfactory documentation provided.

We need to remember that 1 even 2 of these factors alone would not set off the bells and whistles for fraud. However, think back to many of the loan files that you have taken and reviewed over the years. For me, as the details of questions come back from the borrowers and loan officer-my concerns about the validity of the file do increase. If the answers don’t make sense, I will condition for the third party evidence of everything that raises a concern to me.

Next week we will review employment and income fraud schemes. Until then, happy mortgage loans to you-fraud free.

SOURCE: Published by NAMP® Publishing Group, a division of the National Association of Mortgage Processors (NAMP) (http://www.mortgageprocessor.org)


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