True Lies

Since the True Lies article series debuted in 2019, we’ve published stories on specific types of fraud schemes. Today we’re looking at the synergy between the Single-Family Fraud Risk (SFFR) and Quality Control (QC) teams at Freddie Mac.

The two teams are allies in the fight against fraud, identifying suspicions and reducing the risk fraud and other misconduct pose – not only to Freddie Mac, but to our lender clients as well. This synergy can exist in any company. It’s about working together.

The QC Hand-Off

Through its diligent loan review process, Freddie Mac’s QC team keeps an eye out for anything suspicious to help ensure that a loan is eligible for sale to us. QC reviews thousands of loans every month. If, during the loan review process, our QC underwriters note activity or other potential misconduct relating to a loan, they will escalate it to the SFFR team.

Once SFFR has been alerted to QC’s concerns, SFFR will dig in further. If SFFR determines that fraud or other misconduct relating to the origination of a loan potentially exists – perhaps a questionable pattern of activity or possible misrepresentations – an investigator will be assigned to open a case.

The QC-SFFR Coalition

Here’s an example of how the two teams work together: One of our QC underwriters was reviewing a loan and suspected that a borrower may not have been truthful about his employment and income.

Less than two months prior to the loan application, the borrower – who had historically filed a Schedule C as self-employed – allegedly became a salaried wage earner and more than doubled his income.

Our underwriter also detected a disparity between both the start date and the position on the borrower’s verbal verification of employment (VOE) versus his written VOE, and suspected the borrower was still self-employed.

The underwriter also doubted the veracity of the borrower’s paystubs and was unable to locate an Internet presence for this purported new employer.

When SFFR determined that misconduct by the borrower was likely, an SFFR investigator opened a case and began looking deeper, including interviewing the borrower about the discrepancies in his loan application and investigating the alleged new full-time employer.

Adding Up Clues

Our investigator made repeated attempts to reach the borrower’s purported employer, all unsuccessful. That was a red flag.

He continued looking into the situation, confirming that the borrower’s own business was still operating – a contradiction to the loan application statement, which said that the borrower was now a full-time wage earner.

In addition to the conflicts in written and verbal VOEs, as well as the suspicious paystubs, our investigator discovered conflicting information in the borrower’s bank statements. Clues were adding up.

QC findings and the SFFR interview with the borrower indicated that the borrower’s main source of income was derived from his self-employment and not an employer.

Pattern of Misconduct

The SFFR team looked further into the loan officer who originated the loan, and discovered a pattern of suspicious representations in documentation. That research revealed additional suspicious loans that had been sold to Freddie Mac.

Like our initial borrower, several other borrowers involved in loans originated by the same loan officer claimed they recently started a salaried or hourly job and used that income to qualify, although they also were self-employed.

Other discoveries in these additional loans handled by this loan officer included: homes that were purchased from investment companies; purchases that did not have sales agents representing the buyers or sellers; and multiple transactions that used the same appraiser. One additional loan that had been reviewed by QC revealed suspicious tax returns.

The Normal Course of Business

When QC and SFFR work together, the outcome can be powerful.

In this case, our QC underwriter conducted the usual baseline review when he found something unusual in a single loan. Although there were no overt indications of fraud, he escalated his suspicions to the SFFR team as part of the normal course of business.

The SFFR investigation revealed more faulty loans with a common pattern of income misrepresentation. The appearance of being in a salaried position made borrowers seem to be eligible to qualify for a home loan, when their actual income was insufficient.

Stopping Fraud in its Tracks

While the solid relationship between SFFR and QC is pivotal to identifying and combating fraud, you play an integral role in ensuring that Freddie Mac buys quality loans and that the integrity of the mortgage loan origination process remains solid.

We rely on our lender clients to report suspicious activity found in a loan file, to help stop fraudsters before they go too far.

If you see something seems off, ask questions. If you can’t get answers, report it to us. Suspicions generating from just one loan could reveal more significant misconduct. Help us reduce the risk of fraud:

To report mortgage fraud or suspicious activity: