Qualifying Networks

Red flags to look for in Buy and Bail:

*2nd home is substantially less than first home *Minimal or no equity on first home *First-time landlord *Limited documentation on proposed lease or rent situation *Unreasonable projected cash flow from rental income *Borrower defaults on original mortgage shortly after purchase of second property

Red Flags found in Modification/Refi Fraud

*Address and phone information given for primary residence does not match the property under consideration *Unsubstantiated hardships alleged by borrower *No employment or income verification *Credit report does not match up with stated financial claims of hardship

Red Flags found in Equity Skimming

*Cash back in a purchase transaction (In general, cash back should always be a red flag) *The title to the property has been recently transferred, which is a possible indicator there's been an attempt to over-value the property *Cash out refinance shortly after the purchase *No paper trail or solid documentation to justify a cash-out transaction

Servicing Fraud red flags

*Failure of lender to perform an on-site review of the servicer *Annual review reveals detrimental information or deteriorating financial condition of the servicer *County records indicating lien-holders are unknown to the lender *Excessive delay in servicer's remittance of payments, escrow payments, or prepayments *Cancellation or reductions in coverage on servicer's insurance policies, including errors and omissions policies *Failure of the servicer to maintain copies of payment documents *Errors related to payment calculations on ARMs or escrows

Red Flag Property Flip

*If the property is listed for a long time and sells for higher than the list price *Value has increased with few or no improvements *Property has been sold or transferred recently *Borrower has limited ability to repay *Property seller is not the owner of record *Power of attorney used with no explanation *Borrower owns a lot of properties or is buyer/seller in multiple recent transactions *Indication of a borrowers push for a quick closing *Appreciation is claimed in an area of stagnant or decreased prices

Red Flags found in Double Sale:

*Incomplete or unsigned application *Appraisal is incomplete or you just can't read it *There are changes in the writing and closing instructions *Missing purchase commitment from investor *Changes to wiring instructions *Missing mortgage insurance *Missing purchase commitment *Discrepancies on the hazard insurance policy

Red flags for fictitious loans:

*Inconsistent signatures throughout the file (e.g., Mike/Michael/ Michael T.) *No real estate agent employed for transaction *New SSN or death claim files under that SSN *Passport or driver's license info is inconsistent *Employment/address do not match borrower's application *No credit history or inconsistent with the borrower's age *Returned monthly statements or payment coupons

Red Flags found in Chunking:

*Multiple mortgage applications by one borrower *Seller is a corporation or a limited liability company on a straight sale of a residential property *The seller owns the property for a very short period of time *Previous transfer price is much lower than the current contract price *Payoffs from seller's funds to non-lien holders or vendors on the title commitment

Short sale Fraud Red flags

*Sudden default with no advance warning, discussion; or immediate request for short sale *Discrepancies with job loss information, credit history, or credit patterns *Offer is from related third party *Fraudulent appraisal well below market price *Intentional attempt to lower property value by causing cosmetic damage. *The Closing Disclosure shows some sort of cash-back going to the delinquent borrower (e.g. "repairs" or high fees paid to the real estate agent)

Red flags for Phantom Sale

*Title research reveals ownership transfer via quitclaim deed *Quitclaim is occurring in an area where it's not a common practice *Quitclaim deed owner is not from property area or related to former owner *A quick sale to third party by the new owner following a recent quitclaim

To provide context about which red flags you may uncover, you should be familiar with some common fraud schemes. We will describe these common schemes and their red flags:

1. Buy and Bail 2. Chunking 3. Double Sale 4. Equity Skimming 5. Modification 6. Fictitious Loan 7. Servicing 8. Phantom Sale 9. Property Flip 10. Short Sale Fraud 11. Debt Elimination Scheme 12. Foreclosure Rescue Scheme

Short Sale Fraud

1. Occurs when a borrower withholds payments, forcing the loan into default 2. A third party then submits a straw sale at less than the balance NOTE: A borrower may actually be experiencing financial hardship but has been approached by a third party intent on committing this fraudulent short sale.

Equity Skimming

1. Occurs when a fraudulent appraisal is used that potentially over-values the property 2. Creates "phantom equity" (equity that doesn't exist), which is stripped out through various other schemes.

Chunking (AKA Ponzi Scheme)

1. Occurs when a third party convinces an uninformed or naïve borrower to invest in a property that is typically owned by the third party with no money down and the third party's going to act as the borrower's agent 2. Without borrower knowledge, third party submits loan applications on various properties to multiple financial institutions 3. Third party keeps loan proceeds, loans cannot be repaid, and banks must foreclose

Property Flip

1. Occurs when individuals, businesses, or 'straw' borrowers buy and sell properties among themselves to artificially inflate the value of the property.

Buy and Bail

1. Occurs when the borrower is current, but the home's value has fallen below the amount owed (AKA an underwater property) 2. Borrower continues to make payments while applying for a loan on a house that costs less 3. After obtaining new property, borrower "bails" on the first loan

Modification/Refi Fraud

1. Occurs when the borrower submits false information and/or credit reports to persuade lender to modify or refinance the loan to more favorable terms.

Foreclosure Rescue Scheme

1. Occurs when the fraudster charges upfront fees and convinces the borrower to deed property to them under the guise that the homeowner can rent from them or buy back property once they get back on their feet or their credit has improved. 2. The fraudster collects both fee and payments not delivered to the lender resulting in default. These two schemes have the same red flags. Click the navigation button below to reveal the red flags.

Phantom Sale

1. Occurs with a false transfer of title, then turning around and obtaining a loan on that property for the new fraudulent owner, and then selling the property to another third party 2. Occurs a great deal in areas where there are rapidly declining property values

Servicing Fraud

1. Occurs with the diversion or misuse of loan payments, proceeds from loan prepayments, and/or escrow funds for the benefit of the service provider. 2. This scheme is typically perpetrated by the smaller service providers who may be in financial trouble

Fictitious Loan

1. Occurs with the fabrication of loan documents or identity to apply for a loan that the real applicant typically has no intention of paying 2. Can be perpetrated by either the internal lender or by external parties (e.g. loan originators, real estate agents, title companies or appraisers)

Double Sale

1. This fraud occurs within your institution 2. Lender accepts a legitimate application and documentation from buyer, 3. Somebody copies the loan file and then sends that loan package to separate warehouse lenders

Multiple Choice Question: Which common scheme is represented by this red flag? Shawn continues to make payments on his $300,000 home, and applies for a purchase money loan on a $100,000 home. A. Buy and Bail B. Chunking C. Double Sale

A is correct because this red flag might indicate that the borrower plans to bail out of their first, more expensive loan, after acquiring the cheaper home. The borrower will most likely have misstated information in order to obtain a loan on the second home.

Multiple Choice Question: Which common scheme is represented by this red flag? A borrower's credit report reflects numerous mortgage inquiries around a very tight timeframe. A. Buy and Bail B. Chunking C. Double Sale

B is correct because multiple mortgage applications by one borrower is a red flag for chunking because chunking involves a third party submitting loan applications on various properties to multiple financial institutions.

Debt Elimination and Foreclosure Schemes

Debt Elimination Scheme 1. Occurs when a fraudulent third party offers to eliminate a borrower's debt for an upfront fee. 2. Phony legal documents are presented to the lender to falsely satisfy the loans. 3. The borrower stops paying and the false documents complicate the collection process. NOTE: Educating and getting the word out to your customers is the best defense against this fraud.

Red flags for the Debt Elimination and Foreclosure Rescue Schemes

The borrower... *Was advised to avoid contact with servicer *States they are sending payments to a third party *Has paid a third party to negotiate on their behalf *Will be renting back from the new owner *Cash back at closing to the delinquent borrower *Quitclaimed title to the third party