On August 16, 2012, the Financial Crimes Enforcement Network (FinCEN) issued an Advisory to highlight activity related to mortgage loan fraud, especially as it pertains to Residential Mortgage Lenders and Originators (RMLOs). The issuance serves to further clarify suspicious financial activity that may require filing Suspicious Activity Reports (SARs).*
The issuance consolidates certain information from previously issued FinCEN reports, and contains examples of common fraud schemes and potential "red flags" for activity related to mortgage loan fraud.
This Advisory, which consolidates certain information from previously issued FinCEN reports, contains examples of common fraud schemes and potential Red Flags for activity related to mortgage loan fraud. Furthermore, the data gathered supports the efforts of the Financial Fraud Enforcement Task Force (FFETF), the Treasury's broader initiative to ensure that U.S. financial institutions are not used as conduits for illicit activity, as well as the OIG's mortgage fraud initiatives of FinCEN and the Department of Housing and Urban Development (HUD).
IN THIS ARTICLE
Types of Mortgage Loan Fraud
Possible Red Flags
Suspicious Activity Reporting
Contacting FinCEN
Library
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Types of Mortgage Loan Fraud
Based on the Advisory and previous mortgage fraud reports issued by FinCEN, the following list identifies certain types of mortgage loan fraud. These are primarily based upon schemes and scams frequently reported or described in SARs or identified by law enforcement authorities.
Occupancy Fraud
Occurs when borrowers, to obtain favorable loan terms, claim that subject properties will be their primary residences instead of vacation homes or investment properties. It also occurs when subjects apply for loans for properties that others, such as family members, will actually occupy.
Income Fraud
Includes both overstating income to qualify for larger mortgages and understating income to qualify for hardship concessions and modifications.
Appraisal Fraud
Includes both overstating home value to obtain more money from a sale of property or cash-out refinancing, and understating home value in connection with a plan to purchase a property at a discount to market value.
Employment Fraud
Includes misrepresenting whether, where, and for how long borrowers have been employed; whether borrowers are unemployed or collecting unemployment benefits; and whether borrowers are independent contractors or business owners.
Liability Fraud
Occurs when borrowers fail to list significant financial liabilities, such as other mortgages, car loans, or student loans, on mortgage loan applications. Without complete liability information, lenders cannot accurately assess borrowers' ability to repay debts.
Debt Elimination Schemes
Involves the use of fake legal documents and alternative payment methods to argue that existing mortgage obligations are invalid or illegal, or to purport to extinguish mortgage balances. Individuals orchestrating debt elimination schemes typically charge borrowers a fee for these debt elimination "services."
Foreclosure Rescue Scams
Targets financially distressed homeowners with fraudulent offers of services or advice aimed at stopping or delaying the foreclosure process. Some of these scams require homeowners to transfer title - or make monthly mortgage payments - to the purported "rescuer," rather than the real holder of the mortgage. Some foreclosure rescue scams require homeowners to pay fees before receiving "services," and are known as "advance fee" schemes.
