White Papers for Federal Financial Institutions Examination Council (FFIEC)

FFIEC Issues White Paper on Third Party Mortgage Loan Fraud ...

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FFIEC Issues White Paper on Third Party Mortgage Loan Fraud
As referenced above, the Federal Financial Institutions Examination Council
(\"FFIEC\") issued a white paper in February 2005 entitled The Detection,
Investigation, and Deterrence of Mortgage Loan Fraud Involving Third Parties: A
White Paper, (\"White Paper\") which served as the basis for many of the standards set
forth in the Argent Consent Order.
The White Paper is based on work undertaken at the FFIEC\'s Fraud Investigations
Symposium, in late 2003, and is divided into four sections. The first section provides
background information on the steady increase of third party mortgage fraud andexplains the three motives for such schemes: fraud for profit, fraud for housing, and
fraud for other criminal purposes.
The second section identifies key third parties typically involved in residential
mortgage lending, namely the buyer, seller, real estate agent, originator, processor,
appraiser, underwriter, warehouse lender, and closing/settlement agent. This section
also explains basic processes for loan origination and acquisition.
The third section describes common third party mortgage fraud mechanisms and
schemes. The section also lists \"red flags,\" internal controls and best practices for
various stages of the loan process designed to help financial institutions detect and
prevent the incidence of mortgage fraud. The \"red flag\" topics include: applications,
appraisals, credit reports, escrow/closing, mortgage brokers, title insurance/opinion,
and verification of employment and deposits.
The fourth section provides tips to examiners in conducting examinations. This
section also suggests measures that financial institutions can take to mitigate the risk
of falling victim to third party mortgage fraud, namely reporting potential fraud or
misconduct to the Financial Crimes Enforcement Network through a Suspicious
Activity Report and, where appropriate, the state appraiser board.

View the White Paper

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