Does Your QC Program Catch Borrower Employment Fraud?

The post-financial crisis environment has supported the mortgage industry’s adoption of the digital era. With the advancement of the Mortgage Industry Standards Maintenance Organization (MISMO) and the Uniform Mortgage Data Program (UMDP), industry stakeholders have gained access to extensive amounts of data, helping to eliminate the reliance on information collected manually during the application process that is frequently wrought with errors and often unverifiable. This evolution has given rise to innovative solutions that access and check data from multiple repositories, significantly advancing decade old processes, improving access to credit, and expanding fraud detection capabilities. However, amidst these advances in access to data there are some notable of gaps. For example, employment and income data certainly doesn’t encompass information from every employer throughout the U.S., creating an opportunity for fraudsters to take hold. When lenders have to verify or reverify employer information manually, or when the lender is predominantly reliant on automated tools, income and employment scams such as “fake employers” are more easily missed.

This year has produced a number of fraud alerts from investors that identify “fake employers” and warn lenders to look for red flags when reviewing income and employment information. Fannie Mae issued two alerts entitled Misrepresentation of Borrower Employment Scheme, one in May and another in July calling out over 30 businesses that appeared on documentation, yet whose existence could not be substantiated.These alerts encourage lenders to use “prudent origination, processing, and underwriting practices (to include) looking for red flags.” These notifications go on to caution that lenders should “verify that the borrower’s place of employment actually exists and obtain supporting documentation.”In response to investor requirements to further verify employment data, or in the absence of automated verification of employment, lenders can find themselves stuck in the antiquated process of manual verification.A process that has proven to be time consuming, costly, error prone and increases exposure to fraud risk.