Fraud Schemes - Part 3

Written By: Jane Harford

We are now into the third week of reviewing fraud schemes and mortgage loan fraud. Today we will briefly cover the ways that income/assets can be reviewed for potential fraud schemes.

When the initial 1003 comes in from the loan officer for review, the entire form is examined carefully to see if there are any “red flags” that may show us potential issues with correctly verifying the borrower’s jobs, earnings and true existence of the employer. It is the processor’s and underwriter’s job to carefully review and consider the information provided, document it and correct the loan forms to reflect what the true information is. At that time, the AUS will be rerun to determine if the borrowers still qualify with the changes (if any) that have been made.

The assets disclosed on the initial 1003 also must be carefully considered and reviewed. The information is usually taken directly from copies of bank statements. Processing/UW look at those statements to determine if the assets disclosed are true and accurate. If the assets have been determined to be correct, the final 1003 is updated to reflect the changes (if any). Once again, the AUS findings are updated to determine that the file is still a workable loan.

Often when the changes are made, loan approval may become a problem. When the verified information is updated and compared to the initial information provided, UW and the company’s managers may determine that the information appears not to support the customer’s profile. Many questions at the time of initial application and the first review of the loan may arise. If the answers to these questions lead to issues arising that don’t make sense or follow the guidelines, it may be a case of a fraudulent loan scheme.

Here are some initial questions that can be easily assessed with regard to income/assets and intent of the loan applicants. Depending on the answers received, the file may make sense or not.

Review the overall application to determine if the borrower is purchasing a property that fits their credit/income profile-

-Is the borrower a first time buyer with minimal job history and assets?

-Is the borrower purchasing a property that is an arm’s length transaction?

-Does the employer’s company name and address exist? Can it be found via Google Search?

-Is the employer’s address a P. O Box? Is there a valid phone # and human relations dept?

-When verifying the income via written VOE, is there a true payroll department that is separate from the borrower’s direct supervisor?

-Is the form that is completed truly completed in the way that the form must be done? Are the figures on the VOE rounded?

-Do the figures on the written VOE match the year to date paystub and 2 years of w2 forms?

-Does the income level seem consistent with the borrower’s level of education & experience?

-Is the work number provided different or the same as the borrower’s phone #?

-Does the name of the person verifying the job via phone or in writing have the same last name as the borrower?

-Does the commute from the job to the new home make sense? Is it pretty close or is there a greater distance from the new home than from the current residence?

Each borrower fits into an overall credit profile that is reviewed by the underwriter.

- Does the information verified make sense and is it similar to the initial application data?

- Is the verified information provided able to be supported via third party search?
The same sets of questions are also reviewed for the assets that are disclosed.

-Do the assets provided appear to make sense when reviewed against the borrower’s income, length of time on job, debt structure and education?

-Do the statements provided look like they have been “adjusted” by someone crowding numbers into balance areas…..looking a bit more crowded once the statement is reviewed very carefully?

-Does the borrower appear to be able to save more due to minimal debts paid out? Have the accounts been opened for a while or are these newer bank accounts?

-Are the funds in the accounts seasoned for several months or are there large deposits (non payroll) that cannot be very carefully explained.

Most of the larger lenders are now doing much work on these loans in the way of third party checks and rechecks to determine that the documentation provided and the employer/banks do really exist. This due diligence completed prior to the loan closing is ensuring that the loans being closed are valid, true and saleable.

The lender does not want to have to repurchase the loan several weeks, months or years down the road and find that the buyer was a straw buyer, the credit, assets were borrowed and the income/job never existed. Documentation that “borrowers” can provide now will be scrutinized carefully for accuracy. The fact that most companies are now also executing the 4506 T and reviewing the IRS reported income for the past 2 years has also cut back the number of loans closed in a “fraudulent” capacity. However, the folks that are into the fraud scheming for whatever reason-profit, the ability to get away with or to transfer a property illegally are very good at what they do.

Most larger companies now have their internal detection programs established that are required to be completed by various levels of staff. The processor will complete the first part of the checking by completing the verifications, documenting the validity of what was found via the internet or other methods (sometimes even just a phone call the see that the company does exist)…UW also now calls the employer to re verify the income and all information verbally just before closing to ensure that the borrower still has that job by closing date. Lastly, many times the closer is also responsible for checking that the borrowers still are employed, have the title company certify the receipt of good funds for closing and that the property is accurately transferred and the documents correctly recorded in the land records.

Next time, we will review more about fraud in the area of appraisals and title. For now, close lots of loans fraud free!

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:

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.