QUESTION
We are reviewing our branch and home office procedures for identifying mortgage fraud. As the Compliance Officer, I receive all allegations of mortgage fraud for review. However, I can't be at all the branches all the time, and I want to be able to categorize some basic areas related to mortgage fraud.
Each branch has a Branch Manager who works with a senior underwriter to identify potential mortgage fraud. The senior underwriter conducts a second review, and the Branch Manager provides oversight. Even with the training we do, there is no standardization for a categorical approach. What I am looking for is a list of the most likely areas of mortgage fraud. We would like to distribute the list so that it can be used throughout the company. It will help us to set basic standards.
What are some of the basic categories of mortgage fraud?
COMPLIANCE SOLUTION
RESPONSE
Mortgage fraud prevention is an area in which we have extensive expertise. Indeed, we invented the Forensic Mortgage Audit®, which uses loan-level reviews to detect mortgage fraud. I've provided expert witness representation and given testimony in cases related to mortgage fraud. Our clients regularly discuss potential cases of it with us. We've written policies and procedures to prevent it. I've spoken about it at conferences and written extensively on the topic, for instance, here.
Here's my published article, with linked sections, entitled Mortgage Fraud Challenges: How to Catch a Crook.
And I can tell you, based on my experience, crooks continue to find new ways to commit mortgage fraud all the time. To identify the means and methods of these crooks requires staying one step ahead of them – and, even then, they devise new plans to scam, deceive, rip off, con, double-deal, cheat, and skunk their way toward new contrivances of chicanery.
For instance, request information about our Identity Theft Prevention Program – a program which, by the way, is a statutory requirement. Our policy provides an extensive list of the various nefarious methods by which thieves commit mortgage fraud.
If you are a subscriber to our newsletters, we will be happy to provide our checklist of Common Red Flags for Mortgage Fraud. Just request it here!
BASIC CATEGORIES
The basic features of mortgage fraud revolve around intentional deception or misrepresentation to obtain a mortgage loan or to profit from the lending process.
If you're looking for a basic set of mortgage fraud categories, it is possible to group them into a few areas, with the proviso that this construct is a very high-level outline. The outline should not be taken as comprehensive. But if you want to offer it to the affected personnel, it might help to streamline the review process.
I think you should still be notified that a mortgage fraud review is taking place, even if the second review clears it. Be aware of potential false positives!
In my opinion, mortgage fraud can be categorized into fraud for housing, fraud against homeowners, and fraud for profit. Unfortunately, industry professionals are often involved in mortgage fraud activities in pursuit of profits.
So, let's outline these categories.
Fraud for Housing
This illicit activity happens when a borrower provides false information to acquire or maintain ownership of a home. A borrower commits this type of fraud to obtain or maintain ownership of a home in an illegal manner. They may misrepresent their financial standing to qualify for a loan they would not otherwise be able to get.
Categories of Fraud For Housing
Income and Employment Fraud
Falsifying or inflating income, fabricating employment history, or creating forged documents like W-2s, tax returns, and bank statements to qualify for a larger loan or a better interest rate.
