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Question: What are recent trends in mortgage fraud schemes and do you have any mortgage fraud prevention tips?

Answer:

Fannie Mae’s July 2023 Quality Insider issue, “Reviewing Your Fraud Controls in QC,” warned lenders to remain diligent and continually look out for ways to improve fraud detection and prevention controls given the unique financial pressures of the current market. Fannie Mae advised lenders they may strengthen their fraud detection and actively combat mortgage fraud by leveraging their quality control (QC) program to reinforce fraud controls and prevent fraud before it starts.

Fannie Mae also listed the following current fraud schemes:

• Creation of false child support orders alongside false divorce decrees designed to show borrower income;
• Falsified lease agreements to show rental income;
• Modified bank statements with an ending balance that does not align with the beginning balance and the transactions; and
• Misrepresentation of outstanding financial obligations.

Fannie Mae advised that lenders have a responsibility to respond to the increase in fraud and misrepresentation and provided the following mortgage fraud detection strategies:

• Use a critical eye and heightened sense of awareness during this time period;
• Create a rules engine that pulls loans with certain characteristics/red flags;
• Establish a tip-line within the organization;
• Confirm QC, operations, and sales team members receive regular fraud training;
• Obtain a fully executed IRS Form 4506-C on all borrowers whose applications require 1040s and order transcripts to verify Schedule C and Schedule E-business activities;
• Perform re-verifications in prefunding QC;
• Confirm appraisal management companies’ controls;
• Run all borrowers employed by family through LexisNexis;
• Utilize webinars from the Association of Certified Fraud Examiners to see the latest types of fraud; and
• Collaborate with servicing teams to determine if any similar patterns of fraud exist (for example, if origination is finding numerous instances of fraud in a certain county, is servicing seeing anything similar?).

Fannie Mae maintains a dedicated Mortgage Fraud Prevention webpage, which provides valuable resources including publicly available data on fraud trends and recent fraud alerts.

As a reminder, lenders must implement Fannie Mae’s enhanced pre-funding and post-closing quality control requirements by September 1, 2023. See Fannie Mae’s March 1, 2023 Selling Guide Announcement, SEL-2023-02 for details on the updated pre-funding quality control review requirements and for changes to the post-closing QC cycle timeline. Also, review our prior FAQ on the topic here.