mortgggage fraud prevention & detection

(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 1

FHA Loans –Mortgage Fraud g g

Prevention & Detection

Chip Cummings, CMC

Welcome! We will begin shortly…

Mortgage Fraud - Detection & Prevention


Before we get started…

Welcome!

• About your instructor

• About you

• About today’s program

• About the materials– FinCen, FBI, DOJ, Fannie Mae, Freddie , , , ,

Mac, HUD OIG, ACFE

Services include:

• Quality Control & Fraud Reviews

Program Sponsor

• FHA & Mortgage Fraud Training

• BSA/AML/SAR Compliance Training, Site Audits & CFPB Compliance

• Broker, Originator, Third-Party Background Checks & Site Auditsg

• Fraud Investigation & Consulting

NorthwindInternational.com(866) 977-7900



• Identify & recognize typical fraud schemes and trends

Today’s Objectives

schemes and trends

• Why are FHA Loans more susceptible?

• Analyze Borrower information & documentation for possible fraud

• Utilize online and offline resources to h l t t ti l f dhelp spot potential fraud

• What to do when you find possible fraudulent information

MORTGAGE FRAUDTRENDSTRENDS

5



Welcome!

Fraud Trend – SAR’s

Welcome!

Fraud Trends



Welcome!

Fraud Trends

Welcome!

Fraud Trends



REO FraudREO Fraud Short Sale Fraud

Short Sale Fraud

Multiple Levels of Fraud

CounterfeitCounterfeit

Straw BuyersStraw Buyers

Flipping & Flopping

Flipping & Flopping

Counterfeit Checks

Counterfeit Checks

Loan Modification

Loan Modification

Foreclosure Rescue Scams

Foreclosure Rescue Scams

Origination Schemes

Origination Schemes

Identity Fraud Schemes

Identity Fraud Schemes



What is your perception of the level of industry fraud?

Level of Industry Fraud

level of industry fraud?

• High

• Medium

• Low

Have you personally experienced

Personal Experience

fraud?

• Yes

• No



Have Consumer Financial Protection Bureau (CFPB)/RESPA changes to HUD

Has New Regulation Helped?

Bureau (CFPB)/RESPA changes to HUD and GFE helped mitigate fraud?

• Yes

• No

• Unsure• Unsure

• Have no knowledge of these regulations

• Collateral Fraud• Flipping

Ch i

Types of Mortgage Fraud

• Churning• Straw Buyer• Incentive Fraud• Real Estate Investment Fraud• SS Fraud• Check Kiting• Account Takeover• True Name Fraud/Identity Fraud• Occupancy Fraud



• Motive is to revolve equity, falsely inflate property values or issue loans

Fraud For Profit

inflate property values, or issue loans on fictitious properties.

• 80% of reported cases involve collusion by industry insiders.

• Committed by originators, processors, brokers, real estate agents, appraisers, settlement agents, attorneys.



• Goal is to acquire and maintain ownership of property under false

Fraud For Property

ownership of property under false pretenses.

• Illegal actions solely by the borrower.

• Commons schemes include asset fraud, occupancy fraud, employment fraud, income fraud, debt elimination fraud, identity theft and straw buyers.

• Access or control of the property

Profile of a “Property” Fraudster

• Personal or family use

• Ratio Manipulation

• Credit Manipulation

• Fraudulent income and/or liquid asset documentationdocumentation



EMERGING & TYPICAL FRAUDTYPICAL FRAUD SCHEMES

20

• Origination Fraud Schemes

– FHA Origination Fraud

Internal Fraud

FHA Origination Fraud

• Down-payments; Gift Funds; Occupancy

• Credit misrepresentation and manipulation

• Debt ratio manipulation

• Misrepresentation of borrower’s equity contribution

• Servicing Frauds



• Credit standards are changing!

Internal Fraud

– Dodd-Frank defines a Qualified Residential Mortgages (QRMs) to be exempt from risk retention requirements.

– QRM defined as low risk loans but characteristics are evolving.

• Credit manipulationp– FICO Scores

– Liabilities

Borrower or Third-Party Fraud

External Fraud

• Real Estate Agents

• Credit Manipulation– Piggybacking

– Credit For Sale

• Identity Fraud

• Employment & Income Misrepresentation

• Debt Misrepresentation; Occupancy Fraud



• Purchase as a Refinance TransactionHigher LTV’s Less Scrutiny

Purchase Schemes

– Higher LTV’s, Less Scrutiny

• Concurrent Closings– “Flash Funding”

• Short Sale Flops

• Flipping

• FHA & Occupancy Fraud

• MLS Manipulation

Disguise a Purchase as a Refinance

Purchase Schemes



MBA - June 24, 2013



• Occupancy Fraud

F i dl Sh t

Refinance Schemes

• Friendly Short Sale Flops

• Phantom Borrowers

• Valuation & C diti F dCondition Fraud

• Eligibility Misrepresentation

Short Sale Fraud

Misrepresentation

• Short Sale & Stay Schemes

• Short Sale Flopping

• Watch for Short Sale INTO FHA L !INTO FHA Loans!



Short Sale Fraud Ads

Short Sale Fraud



PREVENTION, DETECTION & INVESTIGATION

32

Borrower Identification & Analysis

Do You

Really

KNOW

Your Borrower?



Acceptable Identification

Source: US C.I.S. - Security Directive 1542-04-08C

EVERYTHING

Loan Application Analysis

EVERYTHINGRevolves Around the 1003!



• The application is unsigned or undated

Si t dit d t

Typical 1003 “Red Flags”

• Signatures on credit documents are illegible and no supporting identification exists

• Borrower has high income with little or no personal property

B ’ i t i t t ith• Borrower’s age is not consistent with the number of years of employment

• Borrower has an unreasonable accumulation of assets compared to

Typical “Red Flags”

accumulation of assets compared to income or has a large amount of unsubstantiated assets

• Borrower claims to have no debt

• Borrower owns an excessive amount of real estatereal estate

• A post office box is the only indicated address for the borrower



• The same telephone number is used for the borrower’s home and business


the borrower s home and business

• Patterns or similarities are apparent from applications received from other borrowers

• Borrower does not guarantee the loan or will not sign in an individual capacitywill not sign in an individual capacity

• Business income is not consistent with business type

• Years of education is not consistent with borrower’s profession


with borrower s profession

• Borrower is buying investment properties with no primary residence

• Large increase in monthly housing payment

Add t il ifi bl• Addresses are not easily verifiable or do not match other documents



Position Misrepresentation

Original 1003

Submitted 1003

Employment Period



Paystub Analysis



Signature Analysis

Signature Analysis



Signature Analysis

Signature Analysis

AA

BB



Mr. Google is your new best friend!

• Use Bing, Yahoo, Facebook, LinkedIn

Online Resources

g, , ,

• Other Social Media

• Google Maps

• Dept. of Corporations

• Licensing Agencies

• Assessor & Tax Records



• Drivers License Records

Online Resources

• Court Records

• Phone Look-ups

• Death Records

• Building Permits

• School Records, Awards, etc.

• Call employment competitors

Offline Resources

• Call other real estate agents

• Call city inspectors



THE LEGAL SIDE OF MORTGAGE FRAUDMORTGAGE FRAUD

52

• Internal SAR Filing Process

SAR’ R t Fi C

Reporting Fraud

• SAR’s Reports - FinCen

• Supervisor, Compliance, HR

• Regulatory Agencies

• Law Enforcement (FBI)

• FHA – HUD OIG Office

(800) 347-3735



• Variety of State and Federal Laws

C Fi i l P t ti B

Regulatory Compliance

• Consumer Financial Protection Bureau

• Financial Privacy Act

• Personally liable for any fraud or misrepresentation

Your Liability

misrepresentation

• Personally liable for future claims based upon file or document misrepresentations, fraudulent signature – or back-dating

• E&O Insurance & Corporate protection• E&O Insurance & Corporate protection is VOID!



Program Fraud Civil Remedies Act:• Double damages not to exceed $150 000;

Administrative Actions

• Double damages not to exceed $150,000;

• Up to $7,500 penalty for each false statement;

• Handled by HUD attorneys

False Claims Act:• Treble damages;

• Up to $11 000 Penalty for each falseUp to $11,000 Penalty for each false statement;

• Handled by DOJ Civil (parallel proceedings)

• Debarments and suspensions - usually after judicial action taken against Subject/Entity. These are government wide, i.e., no business allowed with any


g , , yfederal agency; Posted on Excluded Parties List Government Wide;

• Limited Denial of Participation (LDP); CAIVR; SAM List – Agency specific, HUD only;

• Civil Money Penalties- FHA Commissioner is authorized to initiate CMP’s against various mortgagers with varying fee limits;mortgagers with varying fee limits;

• Mortgagee Review Board- headed by the FHA Commissioner, can take following actions: letter of reprimand, probation, suspension and removal from the mortgage insurance programs, etc.



• State Regulator – sanctions, penalties, and may be referred for prosecution


• NMLS – Personal record noted with any sanctions or actions

• CFPB – Section 1017: Civil Penalties

• Find another career…

• 18 USC 1010, False statements to HUD (Felony) (2 years)

Federal Mortgage Statutes

• 18 USC 1012, False statements to HUD (Misdemeanor) (less than one year)

• 18 USC 1341 (Mail Fraud) 20 -30 years depending if the act impacts a financial institution; can be intra-state

• 18 USC 1343 (Wire Fraud) same as above 8 USC 3 3 ( e aud) sa e as abo e(must be interstate or international)

• 18 USC 1344 (Bank Fraud) 30 years



• 18 USC 1028 (Fraud and related activity

Non-Traditional Fraud Statutes

• 18 USC 1028 (Fraud and related activity in connection with I. D. documents)

• 42 USC 408 (Misuse of SSN)



Special Free Gift….

• State-by-State ID Guide– 53-page Guide

– Pictures of valid ID’s and data verification

• MUST complete survey at end of presentation!

• Emailed to you – 24-48 h


hours

Program Sponsor

Services include:

• Quality Control & Fraud Solutions

• FHA & Mortgage Fraud Training

• BSA/AML/SAR Compliance Training, Site Audits & CFPB Compliance

• Broker, Originator, Third-Party Background Checks & Site Audits


g

• Fraud Investigation & Consulting



Questions…

FHA Loans –Mortgage Fraud

Prevention &

Chip Cummings, CMC

Prevention & Detection

Thank You!

mortgggage fraud prevention & detection

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