White Papers for Federal Financial Institutions Examination Council (FFIEC)

The Detection, Investigation, and Deterrence of Mortgage Loan Fraud Involving Third

FFIEC

The following interagency white paper focuses on ways that financial regulators and the industry can detect, investigate, and deter third party mortgage fraud. Since insider loan fraud was addressed in a separate white paper dated April 2003 1 , this paper does not specifically discuss mortgage fraud involving only insiders.
The first of four sections provides some background information on third party residential real estate (RE) mortgage fraud and discusses the primary motives for this type of fraud. The second section includes a description of some of the key third parties involved in residential mortgage lending and provides examples of the basic loan origination and acquisition processes. It also a summary of the October 2003 Interagency Appraisal and Evaluation Function statement the full text of which is in Appendix - G. The third section details some examples of the more common third party mortgage fraud schemes and describes a number of red flags to help identify them. The fourth section provides examiners with some helpful tips when considering and/or conducting an investigation. Additionally, it provides steps that financial institutions (FI) can take to mitigate the risk of third party mortgage fraud. Lastly, the paper includes appendices that contain additional guidance and references regarding mortgage loan fraud. Many of the terms found throughout this paper are specific to the mortgage industry and are defined in Appendix A – Glossary.

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