Overview

Freddie Mac’s Fraud Investigation Unit (FIU) is dedicated to the detection, investigation, prevention, and resolution of mortgage fraud. FIU investigators recently identified a pattern of fraud involving fictitious employers in southern California.

The loans in question were originated between 2014 and the present. Most of the loans are performing, and most were purchases or cash-out refinances for large cash-out amounts. Through our investigation, we identified patterns, including that most of the loans were Desktop Underwriter mortgages, and all were broker/TPO originations.

Freddie Mac’s FIU investigators often go on location to visit companies listed on suspicious loan files, and we visited these purported employers in person. We discovered different companies than the listed employers located at the addresses on the files − or that the employer listed was never located there to begin with.

During our review, we spotted similarities across loans. For example, similar handwriting was used in multiple Verifications of Employment (VOE) from different false employers. Additionally, there were similar names throughout multiple files for the borrowers, co-borrowers, gift donors, employers, persons signing the VOEs, and so on.

Through close inspection of income history and supporting documentation, we identified many inconsistencies. For example, some VOEs stated that borrowers were paid semi-monthly when they were actually paid bi-weekly.

We also found that false phone databases were set up in conjunction with the fake companies for phone verification of borrowers’ income. Income was also verified through fabricated VOEs and falsified paystubs.

In many cases, there were no W2s from a borrower’s stated current job, even if the borrower was employed at a company the prior year; in others, borrowers claimed they did not have a W2 because they had recently attended college. Paystub templates were often similar in multiple files, sometimes lacking typical withholdings, such as health, medical, and 401(k) earnings.

Look for Red Flags

We identified red flags in several of the files that should have prompted the lender to perform additional research or request additional documentation.

For example: A borrower was previously self-employed, earning income on which they would not have qualified; the files now list a new, salaried job with significantly higher income. If current employment and position does not sensibly coincide with the borrower’s profile (e.g., age or experience), that’s a red flag.

If you compare W2s, tax returns or tax transcripts to the current employment and the income level doesn’t make sense based on the prior employment history and prior levels of income, that’s a red flag too.

Train your staff to examine all the documents in the loan file to make sure everything makes sense. Question and resolve any inconsistencies.

And, make sure you know your customer, whether a broker, correspondent, title company or borrower. Look at public records and screen for negative news. Consider doing a financial assessment.

Although the loans discussed here were in California, don’t just scrutinize California loans; false employment fraud is not new. Invest the time to research, re-verify, and share information as appropriate with others who may be seeing files with similar attributes.

We covered this case in our 4th Quarter QC Quarterly Call; you can listen to it on our Quality Control web page here.

If You See Something, Say Something

Our best defense against the use of false employment information − or any type of fraud − is to stop bad loans before they are made. If you see something, let us know. You can report suspicious activity to Single-Family Fraud Risk (SFFR) at 800-4FRAUD8 or email.

Look for more from Freddie Mac on other fraud cases our Fraud Investigation Unit has been investigating, to help you recognize fraudulent activity before it becomes a problem.

Additional Resources

International Fraud Awareness Week

International Fraud Awareness Week is November 11-17. Freddie Mac supports efforts to minimize the impact of fraud, and is committed to identifying and resolving suspicious activity. Learn more.