True Lies

In a recent review of dozens of loans originated by multiple originators, Freddie Mac’s Quality Control (QC) team suspected false employment information and referred the suspicious loans to Freddie Mac’s Single-Family Fraud Risk Department (SFFR) team for a closer look.

Our SFFR investigator opened two separate cases. He began by reviewing the QC reports and documentation in the loan files. He then conducted fieldwork that included visits to purported employers’ places of business and interviews with employers and borrowers. The cases ultimately revealed various facets of misrepresentation of employment information.

Falsified Income and Employment Information

As he examined the loan files, our investigator discovered in one instance that two different borrowers allegedly worked at the same company, around the same time, and started employment within one month of closing on their home loan. The income from their new jobs represented a majority of qualifying income − yet  their paystubs had different formats. The investigator discovered that the office location listed on the paystubs didn’t even exist.

In another example, our investigator consulted with a lender that self-reported several loans with suspicious activity or confirmed misrepresentations. As he interviewed employers and borrowers and compared their statements to the documentation in each file, significant red flags emerged.

A Variety of Discrepancies

The cases investigated contained multiple instances of parties telling stories that didn’t agree. For example, our investigator conducted a face-to-face interview with an employer and showed him the borrower’s income documentation from the file. After reviewing the documentation, the employer stated the borrower was a current employee. The investigator then interviewed the borrower, who said that he had terminated his employment over a year prior.

It became apparent that either the borrower, his purported employer, or both had forgotten the details of their fabricated employment relationship and weren’t prepared to be fact-checked months after closing.

In another example, a verbal Verification of Employment (VOE) confirmed the borrower as a current employee − yet when our investigator interviewed the employer, the investigator was told that the borrower had worked there for just a month and was terminated several weeks before VOE date. This was a clear contradiction of the verbal VOE.

Meanwhile, our investigator confirmed the borrower’s continued employment − with no breaks in service − at the company that was labeled as the borrower’s former employer; additionally, the salary was significantly less. In this instance, it appears the borrower shared a friendship or familial relationship with the alleged employer, who falsely claimed the borrower as an employee.

More Patterns Emerged

Following are some anomalies with documentation, examples of conflicting stories and other patterns that emerged from these recent cases:

Employment patterns:

  • Borrowers were on new jobs at small businesses − such as a convenience market, auto repair shop or restaurant − for only a few weeks or months when their application was completed.
  • Due to the short period of time on the new jobs, W-2s or tax returns weren’t included in their file to verify income − only their paystubs and/or a VOE.
  • The new jobs purportedly paid significantly more than their previous positions, or were new second jobs that bolstered their qualifying income.

Documentation anomalies:

  • Employers’ business names were misspelled on paystubs and on Letters of Explanation. 
  • Paystubs for different employers had identical fonts and formats, while the formats on paystubs for borrowers who allegedly worked for the same company didn’t match.
  • Employment dates in loan files were inconsistent with what employers and borrowers told our investigator and employers’ statements contradicted what was in either a written or verbal VOE.
  • Borrowers who were formerly independent contractors (paid via 1099) allegedly became full-time employees (W-2) at an increased salary and enhanced job position just prior to applying for the loan. Both the borrower and the employer colluded on the misrepresentation.

Conflicting stories:

  • Employers and borrowers routinely gave conflicting employment timeframes when interviewed by our investigator or when compared to documentation in the file.
  • One business owner said a borrower never worked for him, but when our investigator mentioned that the borrower listed his business on the loan application, the owner immediately changed his story.
  • Our investigator verified with a business owner that a borrower was a current employee, but the borrower stated he didn’t work there anymore.

Persistence Pays Off

While some employers and borrowers in these cases ignored business cards, didn’t return phone calls or suddenly had to leave the country, our investigator was persistent. He made additional calls or visits to places of business or borrowers’ homes.

The cases our investigator delved in to demonstrate how employers and borrowers − who may be friends, relatives or members of an affinity group − can work together to falsify employment history to help secure qualification for loans for which a borrower may not otherwise be eligible.

Keep an Eye Out

Careful underwriting should include keeping an eye out for anomalies and unusual patterns. Even a single issue in a single loan can lead to a full fraud investigation that may reveal a slew of falsified documentation, convoluted and conflicting stories and lies around borrowers’ employment and income histories. As the old adage goes, where there’s smoke, there’s often fire.

If you suspect fraud, contact the Freddie Mac Fraud Hotline at 800-4 FRAUD 8, send us an email to [email protected], or submit a question or report suspected fraud through our short feedback form.