Fraud case study mortgage fraud

Mortgage Fraud Case Study: A Fraudster in Vegas

Although the market indicates occurrences of mortgage fraud are at a steady low rate, mortgage professionals should remain vigilant in efforts to detect and prevent individuals and organizations seeking to profit by obtaining properties.

Here’s one such example of mortgage fraud that was recently investigated.

An Opportune Moment

Everything in the file looked to be accurate during the lender’s underwriting process, including the employment information. However, a deeper examination produced concerning revelations:

The borrower’s listed employer was an Internet poker site based in Las Vegas. The borrower’s income was substantial with no red flags for year-to-year changes, time with employer, or other fraud indicators.

All the documents appeared to be genuine and unaltered, and that’s because they were. They were authentic in the fact the documents originated from the employer.

If you ever have suspicions about a loan file, remember to always re-verify with an employer to ensure all the provided documents are accurate.

That’s where things got dicey.

The investigation revealed that the borrower was the office manager for the Las Vegas based business. The owners of the business, a husband and wife, spent lots of time traveling. The borrower was left in charge of the office and business in their absence.

Digging Deeper

After reviewing the file documents, investigators contacted the business owners/employers. The employers were very grateful and cooperative.

After some research on the part of the owners, investigators learned that while the employers were on an extended trip, the borrower allegedly changed her salary from $37,000 to $200,000 per year and began direct depositing the increased amount to her account.

Falsely stated income is one of the most common types of mortgage fraud. Ensure the URLA is fully verified and that the applicant’s income is commensurate with their age and experience.

The borrower then allegedly destroyed documents reflecting her previous wages and replaced those documents with new W-2s and other benefit related documents to reflect the higher wage. The borrower then applied for the mortgage related to this investigation. The subject property was in Hawaii.

Initial Mortgage Fraud Success

You may ask how did the scheme succeed during the loan process?

When the loan went out for lender verifications, all documents came back confirmed due to the borrower allegedly forging signatures of the company’s president and returning all reverifications as accurate. This was easily facilitated by the borrower being in charge of the office.

All members of your lending organization should be well-versed in the business’ fraud reporting policy. This ensures more people know how to recognize and report fraud before origination.

The file investigation coincided with the owners of the business returning from their trip, and the whole scheme began to unravel.

Ultimate Investigative Success

Investigators worked closely with the employer, receiving timely and thorough material information and documents. The employer provided emails containing copies of the fictitious documents, along with the original income documents reflecting the actual wages of $37,000/yr.

The borrower is currently in plea negotiations related to a 19-count indictment in Las Vegas. The charges include wire fraud, forgery, and embezzlement. She is presumed innocent unless found otherwise by the court.

How to Avoid Fraud in Your Own Organization

Mortgage fraud is best caught before origination to mitigate losses for your organization. Here are a few things to keep in mind to help prevent fraud:

  • Know your business’ fraud reporting policy.
  • Stay up-to-date on typical fraud schemes and red flags through training courses like our Shut the Door on Fraud courses.
  • Have a thorough red flag checklist of things to not take at face value such as this one from Freddie Mac.

Lastly, always stay vigilant when you’re taking in or underwriting a loan. If you see something that seems a bit off, it’s worth your time to corroborate the information.

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1 reply
  1. D Alt
    D Alt says:

    Is this something that was discovered during a QC review, or was the UW suspicious? What clues would be in the file to alert the UW that fraud was taking place? Even the 10 day reverification of employment would have been falsified. Please help me learn what red flags were in the file to alert the UW to a fraud taking place.

    Reply

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