In January of 2015, Fannie Mae came out with some advise on how to avoid mortgage fraud as you prepare to process, underwrite and close your borrower's mortgage application.
Some of those pointers include
** Liabilities. The applicant may have a second,
undisclosed mortgage or may have inaccurately reported debt. The most
obvious detective step is to compare the application to the credit
report; however, all documents in the loan file should be considered. A
description for a payroll deduction noted on a paystub could signal a
loan from the applicant’s employer, or a dependent on tax returns could
be a clue that the applicant has a child support obligation. The lender
should get clarification on any discrepancies, and should require
evidence of explanations that claim that obligations have been paid in
full or are not the responsibility of the applicant.
Clearly, undisclosed debts is a concern. However, in most cases consumers who are looking to rip off a mortgage bank, banker or broker are not going to have undisclosed debts. They want to have the least amount of scrutiny and questions and are savvy enough regarding the process to insure they disclose debts that seem accurate.
In most cases, you'll find borrowers with say a co-signed student loan that they did not list. Or, maybe they co-own a family cottage that they did not list because it's just a cottage.
Be careful and don't come down too hard unless it is blatant and clear that the non-disclosure was egregious and calculated
Credit. Beware of “credit cleaning.” An applicant could
receive his credit report before the loan process begins and falsify
credit history by frivolously disputing derogatory credit. Disputed
items can be temporarily removed from the credit report during that
process, and could leave the mortgage company unaware of derogatory
credit. In another scenario, a disreputable player could falsify the
credit report. If the underwriter has any concerns, he or she should
consider requesting another report and comparing the two reports. Watch
for red flags such as an accurate accounting for debts and balances on
the initial application, which might signal that the applicant studied
the credit report prior to completing the application. In addition,
review the entire loan file for other signs that the borrower has had
credit trouble – for instance, are there delinquent taxes reported on
title, yet the borrower appears to have made timely revolving debt
Most borrowers are told to pull their credit and review it for inaccurate information. However, make it a practice that if a borrower has disputed a credit item it remains counted against them until the creditor responds. That was our policy and is prudent. It may seem unfair to the consumer, but the official record is the official record until amended. If the borrower can provide you proof, for example, that they paid off say a collection account - by all means provide that information to the credit reporting agency and wait for them to research it and update the credit. Till then, don't close that loan until all credit stands or is removed with validity.
Credit agencies will set up alerts for a borrower in process - and those alerts include application for new credit during the process or other alerts to let you know something has changed. Make sure your lender is using this service and you're monitoring the credit as it progresses.
Always pull a refresh 48 hours before closing. And, always, get an update on mortgage payments for existing mortgage before closing.
Assets. Unethical parties could be motivated to cause
the loan file to reflect that the applicant has more money than he
actually has – especially if the applicant has insufficient assets to
cover the minimum required investment.
Do the bank statements (if applicable) look real? Even if they
appear to be real, they could be doctored. Scanning and photo shop
technologies have greatly assisted would-be fraud perpetrators; however,
many fail to ensure the mathematical accuracy of falsified statements’
debits and credits, or fail to match aspects of the bank’s statement
The savvy lender should review the complete bank statement and not
just the ending balance. The bank statements frequently reflect much
information about the applicant.
If something doesn’t “add up," the lender can check the bank’s
website to see what its statements look like; validate the balance with
the depository; and/or ask for an additional statement. Just because the
minimum documentation requirements have been met, there is nothing
preventing prudent lenders from gathering additional documentation if
deemed necessary to eliminate concerns.
You can not argue here with this. While it is not required for Underwriters or processors to pull out a calculator and balance a borrowers' submitted bank statement - typically two or three months worth of consecutive bank statements per account - and this is time consuming when you have so much to do on so many files....
.....it can not be stressed enough that mortgage fraudster use fake bank statements that are life like and real. And, they are human and make mathematical mistakes.
So do yourself a favor. Add and subtract all deposits and withdrawals. Seriously!
Employment and income. Employment and income are
sometimes misrepresented to obtain a higher mortgage than an applicant
is qualified to receive; or, in the case of a straw buyer, employment
and income could be completely manufactured.
When reviewing paystubs, W-2s or tax returns, the professional
should look beyond the bottom-line income number. Conduct a more
thorough review to ensure that the documentation makes sense and doesn’t
contain unanswered questions: payroll deductions are accurate,
calculations net, and the picture painted by these documents aligns with
the application and other documents in the file. For instance, does an
application dated April 2 claim $100,000 in savings and salaried
employment; yet the tax return has no interest or dividend income, and
includes Schedule C income?
This is a big one guys. Do NOT use the supporting docs submitted by the borrower on face value. Run a Lexus-Nexus report on the borrower, his or her employer. Do a written VOE and a verbal VOE. Pull your 4506 Transcripts. If they did NOT file, get a letter from the tax preparer.
And be aware. Even with those steps, they can still commit fraud.