Mortgage Fraud: Know Your Applicants

Mortgage fraud is on the rise. The federal regulatory agencies, including FinCEN, have issued warnings or statements about their level of concern. Mortgage fraud can take a variety of forms, but no matter what approach the fraud takes, the best form of prevention is to know with whom you are dealing. This means that CIP (also known as Know Your Customer) is a very important element of mortgage application processing.

When it comes to mortgage applications, there is a tendency to do less work on the best qualified applications. Unfortunately for lenders, the crooks have figured this out. Many fraudulent applications appear to be easy approvals with highly qualified applicants and good property ratios.

Given the multitude of ways in which fraudulent applications may appear, the best defense is CIP. Fraudulent applicants are best identified, not by verifying the financial information provided. This has been taken care of by the fraudsters. Instead, the surest method for identifying a fraudulent application is to follow careful CIP procedures.

When fraud is being committed, there is usually something that doesn't add up. Since the fraudulent applications have been carefully designed to pass underwriting systems, the most likely place to find inconsistencies is in the identity of the applicants and the persona that they present. This means that CIP is a critical and essential element of reviewing applications. Lenders should study all documents for more than qualifications; they should study them carefully to be sure they know who the applicant is - or isn't.

Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 12, 11/04