True Lies: Beware Phantom Employers
Beware Phantom Employers
Two Freddie Mac clients brought to our attention multiple loans that contained suspicious income and employment information. Although IRS transcripts were not available, these clients observed that most of the borrowers in the files were employed just a short time. The clients called these employers, and became concerned when the employers demonstrated a lack of professionalism.
The clients were leery and reported their suspicions to Freddie Mac. Upon receiving the tip, our Single-Family Fraud Risk team opened an investigation. We eventually learned that a mortgage broker facilitated the origination of numerous loan packages with false employment information − and had been perpetuating this scheme for over five years.
Websites and Phone Numbers Lent Authenticity
Our investigator on this case discovered that employees of a mortgage broker (the “facilitating broker”) created fictitious companies that borrowers could represent as their employers in the loan applications.
To add authenticity, they even created websites and phone numbers. The websites provided a veil of legitimacy and the phone numbers were almost identical (except for one or two digits), yet most were forwarded to a single phone line. When our investigator visited the addresses associated with certain businesses, she found that some street addresses and/or suite numbers often didn’t exist.
Our investigator also discovered that the facilitating broker maintained a binder of printed documents that brought together into a single resource all the details of the fictitious companies. Those details included fabricated employee hire dates, positions and the names of the people who signed the employees’ verifications of employment. When lenders or others called to reverify employment, the facilitating broker could quickly refer to this resource.
Who Originated These Loans?
Most of the loans were prepared and processed in their entirety by the facilitating broker, which sent the loan packages to other brokers before closing (the “originating brokers”).
The loan packages prepared by the facilitating broker indicated that the loans were originated by one of the originating brokers. The originating brokers often adopted the facilitating broker’s representations but didn’t independently verify the employment and income information in the loan packages. Many of the files also contained falsified college diplomas. (You can read about another fraud case involving falsified college diplomas here.)
Not everyone at the originating brokers was aware of − or even involved in − this arrangement. In fact, one owner of one originating brokerage suspected something was wrong and began his own investigation.
This attentive owner requested over 100 borrowers to provide their current employer information, but he received just two responses.
Look Out for Red Flags
Merely locating a company’s website does not confirm that a company is real. Potential red flags to look for when researching a company online is a website that’s missing basic details (i.e., hours of operation or contact information) or search results show that no other business have referenced the company.
If information doesn’t seem complete, keep digging for more. If something doesn’t seem right, you might be looking into a company that simply doesn’t exist.
Whether through direct action or inadequate controls, the use of false information in loan packages poses substantial ongoing risk to Freddie Mac, industry, lenders and borrowers. If you spot or suspect fraud, let us know by contacting the Freddie Mac Fraud Hotline at 800-4FRAUD8.