Bad news for unwitting agents and MLOs who get pulled into these schemes if taken in by fraudsters.
Remember this: When the FBI comes calling they’ll bring bracelets, but they won’t be from Nordys!
The first line (and best) of defense for agents to avoid getting used by fraudsters? It’s a close relationship with an MLO, with all the client’s financials that is 1st to notice irregularities.
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Because prices are up, interest rates are rising, and it’s growing harder for buyers to qualify to buy a home, the lending industry is seeing a wave of frauds not seen since the great recession.
Fannie Mae has seen the scams mainly in California and Florida, but CoreLogic says it’s across the country.
And it’s being done by everyday buyers, vs 2004-2008 when the fraud was perpetuated by sophisticated rings consisting of fraudster appraisers, MLOs, straw buyers, and other real estate professionals.
But fraudsters have just downsized their operations, becoming more sophisticated and trying to keep just one step ahead of the investigators, FBI, and Treasury Dept.
How’s this happening?
The Internet Makes it Easy.
Researchers say applicants can go online to find sites to create customized pay and employment records, sometimes confirmed by a phone call by the loan officer to an “employer” that doesn’t exist.
Here’s a quick overview:
This is the fastest-growing form of application fraud, but other misrepresentations are also rising.
Fannie recently warned lenders via several alerts about a loan fraud technique in which applicants claim to work for specific companies that provide income & employment information that appears valid but is a fraud.
Applicants often claim to have been students immediately before their current employment. This makes it difficult or impossible for lenders to pull tax transcripts from the IRS for the year spent as a “student.”
Applicants also claim salaries that appear to be high for their age or experience.
“The typical scenario is a new job with a significant pay increase or a high-paying first job out of college,” CoreLogic said in its fraud report. “Fake employer setups are well-organized & provide pay stubs, phone verifications” & fake diplomas. “These services are openly advertised on the internet” and feature multiple levels of services and fees.
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In an interview, Bridget Berg, CoreLogic’s senior director of fraud solutions, said, “the increase in fraud by home purchase applicants is partially a function of what’s going on in the market” — large numbers of would-be buyers squeezed out by rising prices, frustrated by not being able to afford what they want & motivated to “embellish” or make stuff up.
Most applicants don’t consider what they are doing fraudulent; they self-delude themselves because the income they report to the IRS is lower than their actual earnings before tax deductions for expenses.
But other lenders say too many borrowers don’t see ethical truth on mortgage applications as all that important. But it’s bank fraud and comes with severe potential penalties, including fines and imprisonment.
Other Most Common Mortgage Fraud Schemes
1) Undisclosed Liabilities such as alimony, child support, tax payment programs, or any other debt that doesn’t appear on a credit report.
2) Misrepresentation of Credit. “my credit is pretty good” is always a precursor to finding out their FICO scores are low, usually very low!
3) I.D. theft and Social Security number discrepancy is rare due to the credit reforms enacted in 2016
4) Misrepresentation of assets. Borrowers frequently add their names to parents’ or other persons’ accounts and then try to claim the money as “joint” ownership- BUT ITS NOT!
5) Occupancy Fraud: Applicants tell lenders they plan to live in the house they are buying but instead, they rent it out, sharply raising the risk of default and loss for the unsuspecting lender.
6) Equity Skimming / Straw Buyer: An investor may use a straw buyer, false income documents, and false credit reports to obtain a mortgage loan in the straw buyer’s name. After closing, the straw buyer signs the property over to the investor in a quit claim deed.
7) Silent Seconds: The buyer of a property borrows the down payment from either the seller or another 3rd party and declares the loan as “gift money.”
The lender believes the borrower has invested their own money in the down payment, when it is borrowed and a non-disclosed 2nd mortgage.
The 2nd mortgage may /or may not be recorded to further conceal its status from the primary lender.
How to Report Mortgage Fraud
HUD: If the case involves a mortgage that is insured by the “HUD,” agents can make a report directly to HUD’s Office of the Inspector General (OIG). The OIG has a law enforcement arm that conducts criminal investigations.
To contact: Phone: (800) 347-3735..Fax: (202) 708-4829.. Email: hotline@hudoig.gov
Address: HUD OIG Hotline (GFI), 451 7th Street, SW, Washington, DC 20410
Fannie/Freddie: If the case involves a mortgage owned by Fannie or Freddie, you can report the fraud directly to them.
While they don’t conduct criminal investigations, they’ll open an internal investigation and if they prove fraud, they’ll report to the criminal authorities.
Fannie Mae’s Mortgage Fraud Prevention page is: https://www.fanniemae.com/singlefamily/mortgage-fraud-prevention.
Report possible fraud directly to Fannie at Mortgage Fraud Tips at 1-800-2FANNIE (1-800-232-6643).
Freddie Mac’s Mortgage Reporting information is:
Phone: (800) 4FRAUD8 (437-2838) 8am-5pm (EST)
Fax: 571-382-4883
E-mail: mortgage_fraud_reporting@freddiemac.com
Mail: Attn: Financial Fraud Investigation Unit
8200 Jones Branch Drive..McLean, VA 22102-3110
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