True Lies

Suspiciously Similar Paystubs

When a Freddie Mac Seller/Servicer observed false income information in a loan originated by a mortgage brokerage firm, they reported it to Freddie Mac. Our Single-Family Fraud Risk (SFFR) team opened an investigation and identified 28 additional suspicious loans originated by the same company.

Suspicious Similarities

Freddie Mac’s Quality Control (QC) team had already issued a repurchase for one of these loans that involved false bank statements. SFFR noticed that this loan’s borrower profile was similar to the one initially reported by our Seller/Servicer.

In both loans, the borrowers worked at two different nail salons as contract employees until a few months prior to loan origination. At that point, they became full-time employees, earning significantly more than before.

Considering that these two loans exhibited such similarities, our investigator worked with Freddie Mac’s QC team to review 13 loans originated by the mortgage broker – selecting both purchase and refinance transactions. As part of the review process, our investigator interviewed six borrowers and four employers, including the owners of a restaurant and three nail salons.

During an interview, one of the nail salon owners confirmed the paystubs in the loan file were not issued by her business. Additionally, the font and format of this borrower’s paystubs were an exact match for paystubs from two other borrowers who worked at different salons in different cities. Our investigator also noted that the handwriting on these three borrowers’ Verification of Employment forms (VOE) was identical.

Another loan file contained a letter explaining why the borrower, working at the restaurant as a chef, had recently received a considerable pay raise. During the interview, the restaurant owner confirmed that the borrower was not a chef, but a cleaner who worked the morning shift.

In reviewing the borrower’s paystub in the loan file, the owner noticed immediately that it was branded with a payroll vendor’s logo. He explained that he does his own payroll and doesn’t use a vendor, which revealed definitively that the paystub was fabricated.

Borrowers Unaware

During interviews with borrowers, our investigator learned that some borrowers didn’t know the name of their loan officer and/or were surprised to learn that their loan files contained falsified financial information.

Through an interview with the loan officer named on the transactions (who was also the owner of the mortgage brokerage), our investigator discovered one of his contract processors was his liaison with the borrowers with problematic loan files.

Those loans files involved fabricated or altered paystubs, employment documentation, letters of explanation and bank statements. Additionally, the processor was not licensed as a mortgage loan originator, which precluded her from originating the loans herself.

The Need for Controls

SFFR cautioned the owner of the mortgage brokerage that he needed to put proper controls in place to ensure supervision of employees’ and contractors’ activities.

If income information, such as paystubs, appears suspiciously similar, or altered in any way, that’s a red flag. Whether through direct action or inadequate controls, the use of untrue 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.