Selling Guide

Published December 4, 2018

A3-4-03: Preventing, Detecting, and Reporting Mortgage Fraud (08/07/2018)

This topic contains information on preventing, detecting, and reporting mortgage fraud, including:

Overview

Fannie Mae takes mortgage fraud very seriously and seeks to work with its lenders and servicers to prevent and detect mortgage fraud. There are two primary motivations for committing mortgage fraud.

  • Fraud for house is motivated by a desire to get a marginal borrower into a house and may involve misrepresentation of information on loan applications.

  • Fraud for profit is motivated by a desire of mortgage participants to improperly acquire mortgage loan proceeds for personal gain. Often fraud for profit schemes involve a pattern: two or more mortgage loans, multiple parties in various roles within the mortgage industry, and no true intent to repay the mortgage. Participants in fraud schemes can include borrowers, originators, appraisers, brokers, real estate agents, closing agents, builders, lenders, and title companies.

There are a variety of types of mortgage fraud including:

  • undisclosed liabilities,

  • misrepresentation of income or employment,

  • misrepresentation of credit,

  • identity theft and/or Social Security number discrepancy,

  • misrepresentation of assets,

  • misrepresentation of occupancy,

  • misrepresentation of property value,

  • property flips based on inflated appraisals or other false characteristics,

  • misrepresentation of the subject property characteristics or comparables,

  • sale of fraudulent loans or double selling of loans,

  • mishandling of escrow funds or custodial accounts, and

  • diversion of sales proceeds.

Lender Fraud Prevention Measures

Fannie Mae assumes that the information and processes on which loan decisions are based are honest, accurate, and credible, and that lenders are striving for information and process integrity at every stage in the life of a mortgage—from application through servicing.

The following table contains general requirements related to fraud prevention.

The lender must...
have proper hiring practices in place.
confirm that the individual does not appear on the Federal Housing Finance Agency’s Suspended Counterparty Program list before engaging the services of any contractor or vendor or other individual involved in activities related to the origination or servicing of loans owned by Fannie Mae.
aggressively sample loans that have a high risk for fraud as part of the quality control process.
evaluate appraisers and get references. Confirm that the appraiser is currently licensed and has not been the subject of disciplinary action.
be selective in choosing closing attorneys and settlement agents, and communicate concerns about suspicious files to these individuals.
modify closing instructions to prevent flips without lender consent.
report suspected fraud to the proper authorities and to Fannie Mae.
FRAUD PREVENTION REQUIREMENTS
The lender must...
Lender Hiring Practices

The lender must follow a written procedure for checking all employees, including management, involved in the origination of mortgage loans (including application through closing) against the U.S. General Services Administration (GSA) Excluded Parties List (EPL), the HUD Limited Denial of Participation List (LDP List), and the Federal Housing Finance Agency’s (FHFA) Suspended Counterparty Program (SCP) list.

If, at the time of hire or any time later, the lender has determined that an individual is on the GSA, LDP, or SCP list, the lender may not permit that employee to manage or perform origination functions on loans sold to Fannie Mae, irrespective of the reason the individual is on such list.

Lenders can access the GSA, LDP, and SCP lists via the links provided below:

The GSA and LDP lists are also available via AllRegs.

If the lender obtains third-party originated loans, the lender must confirm that the third-party originator has a documented procedure for checking their potential employees against the lists.

Lender Reporting Requirements

A lender must notify Fannie Mae if a reasonable basis exists to conclude that any misrepresentation or fraud occurred in connection with the origination or sale of the loan.

Before notifying Fannie Mae about any misrepresentation or fraud, a lender should conduct appropriate due diligence to determine whether a reasonable basis exists to conclude that misrepresentation or fraud may have occurred, regardless of whether or not a breach of the Lender Contract occurred.

If such reasonable basis exists, a lender must notify Fannie Mae within 30 days via the Lender Self-Report Mailbox (see E-1-03, List of Contacts). A record of activity under the internal audit and management control systems must be maintained and made available to Fannie Mae upon request.

Tools and Resources

Fannie Mae has resources for help in preventing and detecting mortgage fraud at Mortgage Fraud Prevention. Fannie Mae also has anti-fraud tools available to registered lenders with DU.

Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcements Issue Date
Announcement-SEL-2018-06 August 07, 2018
Announcement SEL-2016–02 February 23, 2016
Announcement SEL-2014–11 August 26, 2014
Announcement SEL-2014–10 July 29, 2014
Announcement SEL-2013–06 August 20, 2013
Announcement SEL-2013–03 April 9, 2013