Red flags are indexes that there may be a current or future problem with the borrower or transaction. They assist Underwriters insulate to the point issues that are portion of the overall loan evaluation. They are questionable items, and when there are several, they usually bespeak that something is “amiss” and should be investigated further. Lenders, who have got done extended research on loans that they establish to be fraudulent, establish one consistent pattern in all of the files; the Investment Banker did not experience totally comfy with the data file and had asked inquiries about certain items. However, in every case, they had not gone far enough. They had stopped “one inquiry short.”
The following subdivisions incorporate a representative listing of “red flags” inch the loan package that may alarm the Investment Banker to possible abnormalities in the information submitted by a borrower. The chief intent is to point out typical incompatibilities that have got been establish in fraudulently-obtained loans. It should be emphasized that the presence of one or more than of these points is not necessarily declarative of fraud. They do, however, point out the need for further reappraisal and documentation. These points may be seemingly legitimate when viewed separately, but when aggregated, a pattern of misrepresentation may get to emerge.
Rules for Detecting Fraud:
The general regulations for detecting fraud are simple:
* Use common sense. Bashes the loan data file do sense? e.g., Is the commute from home to work reasonable? Why makes a stock broker not ain any stock himself?
* Go beyond the numbers. Aside from ratios, are all the parts of the borrower’s financial image consistent? e.g., income vs. nest egg vs. liabilities?
* Check written document consistency. Are the information the same throughout the file? e.g., application vs. credit report vs. VOE vs. VOD?
* Trust your intuition. Why don’t Iodine experience comfortable? What inquiries must be answered to finish the package? Follow your instincts, but usage good judgement and maintain an unfastened mind. Ask for letters of account and read them.
SALES CONTRACT
* Seller is realtor, employer, or relative of borrower (non-arm’s length transaction).
* Power of attorney is used.
* Sale is subject to marketer acquiring title.
* Buyer is required to utilize a specific lender or broker.
* Odd amounts used as earnest money.
* Secondary funding is offered by marketer or other parties.
* For sale by Owner (FSBO). No existent estate agent involvement.
* Real estate agent listed but no signature.
* Assignment of contract (“...and/or assignees”) Oregon borrower not listed as purchaser.
* Earnest money held by marketer Oregon 3rd political party other than the title/escrow company.
* Large marketer credits (over 3-4%) Oregon personal property included.
* Contract is “stale dated” (in extra of 2-3 calendar months old).
PRELIMINARY statute title REPORT
* Income tax or judgements against borrower on a refinance.
* Delinquent property taxes.
* Notice of default recorded.
* Seller not on title.
* Alteration understanding on existing loan(s).
* Seller owned property for short clip with cash out on sale.
* Buyer have pre-existing financial interest inch property.
* Borrower not appearing as currently vested on refinance.
APPRAISAL
* “For Sale ” mark in the photographs of the topic on a refinance.
* Resident noted as “tenant” or “unknown” for owner-occupied refinances.
* “For Rent” mark in the photographs of the topic on a owner-occupied refinance.
* Appraised value lower than purchase price.
* Property recently listed for sale.
* Market rent significantly less than amount indicated on rental agreement.
Because Preferred often utilizes in-house Appraisers, our exposure to fraud owed to the existent assessment is limited. However, in reviewing “fee” Oregon “WIC” (Preferred Mugwump Contractor) assessments the following redness flags in improver to some of those already mentioned should be noted:
* Comparables are more than than one mile from subject property (except for rural properties).
* Comparables are all adjusted in the same direction.
* Line accommodations are in extra of 10%.
* Overall accommodations are in extra of 25%.
* Photographs make not fit description.
* Sales contract is dated after appraisal.
* Appraisal ordered by a political party to the transaction (buyer, seller, realtor, etc.).
APPLICATION
* Significant addition or unrealistic change in commute distance.
* Number of household members compared to size of house being purchased not realistic.
* Date of application and days of the month of confirmation word forms not consistent.
* Borrower’s age and number of old age employed not consistent.
* Lack of accretion of assets compared to income.
* Old Age of school not consistent with profession.
* Buyer is downgrading from larger to smaller house.
* Buyer currently dwells in property; buying from landlord.
* High income borrower with small or no personal property.
* Significant addition in lodging expense.
* Down payment other than cash.
* Stock, chemical bonds (liquid assets) not publicly traded.
* “Acquisition information” left incomplete; terms and day of the month purchased not indicated.
* Borrower throws stock in employer (may be self-employed).
* Inappropriate income with regard to amount of loan.
* Significant or contradictory changes, cross outs, or compose overs on handwritten application to typed application.
* No bank accounts - all liquid assets held as “cash on hand.”
* Part of liquid assets held in bank accounts and some as “cash on hand.”
* Invalid Sociable Security number.
SOCIAL security NUMBERS
Social Security numbers place people or estates of descendants. Sociable Security numbers dwell of nine digits. A Sociable Security number is hyphenated after the 3rd and 5th digits: XXX-XX-XXXX.
Social Security numbers can also be identified by the state from which it was issued. The first three numbers are a cardinal to where the applier was living or when they applied for a Sociable Security number. However, since many people make not dwell in the same topographic point as where they originally applied, be careful in assuming that there could be something “fishy” going on when the Sociable Security number makes not fit the State.
The Investment Banker should inquire for a missive of account and/or a missive from the Sociable Security Department to validate a Sociable Security number for the following circumstances:
1. More than one Sociable Security number looks anywhere in the data file for the same person.
2. The Sociable Security number given bring forths a “Hawk Alert” warning Oregon a “victim” or “fraud” statement.
3. The Sociable Security number cannot be legitimized through the usage of the listings provided on the Underwriting Admin web land site (http://www.ssa.gov/foia/stateweb.html).
If ever in doubt, a phone call to the Sociable Security Administration can be good (800) 772-1213.
VERIFICATION OF employment (VOE)
* Income is reported in unit of ammunition dollar amounts.
* Employed by household member.
* Addressed to a peculiar person’s attention (except when it’s the Force Manager).
* Employer’s computer computer address is a mail driblet or Post Office box.
* Document is not creased (possibly never folded and mailed).
* Evidence of whiteout or strikeovers.
* Incorrect spellings.
* Excessive congratulations in comments section.
* Date of hire was on weekend or holiday (Use Ageless Calendar to verify).
* Overlaps in current and anterior employment dates.
* Drastic change from former place or community to current employment status.
* Numbers look to be “squeezed-in.”
* Employer’s signature dated less than one twenty-four hours after originator’s signature (never mailed).
* Illegible signatures with no additional identification.
* Unrealistic income for age and/or occupation.
* Borrower’s name or initials in company name (may be self-employed or a relative may have got completed the confirmation form).
* Income is primarily committees or consulting fees (self-employed).
* Inappropriate confirmation beginning (secretary, relative, any political party to the transaction, etc.).
* No prior old age earnings indicated.
* Seller have same address as employer.
* Prior employer “out of business.”
If the business that is completing the VOE is a large, established, well-known company, the VOE is usually credible. However, when it is a small operation, more than certification may be required to validate the data.
Many modern times a phone phone call or W-2 with a current wage stub may validate the information. However, when making telephone verification, do certain to be alert to any incompatibilities or distinctive features in the mode to which the phone is answered. Red flags could be:
* Answers “hello” versus naming the business (could bespeak a residence).
* Makes not have got a Force Department.
* Makes not acknowledge the employee’s name or the individual who signed the VOE.
* Telephone number is unlisted or disconnected.
W-2 FORM
* Large employer have handwritten or typed W-2.
* Print on W-2 lucifers the black and white of the federal tax tax return (Form 1040).
* Invalid Employer Designation Number (Refer to Internal Revenue Service Federal Soldier Employer Chart).
* Transcript submitted is not “Employee’s Copy” (Copy C).
* FICA, Medicare, and/or SDI taxes withheld transcend ceilings (Refer to Taxable Wage Chart).
On the criterion W-2, the income is broken down to reflect the FICA (Social Security tax), Medicare, federal and state income tax, state disablement tax (SDI-CA only), as well as the wages, tips, and other compensation. Some companies add the Sociable Security and Medicare together, while others interrupt it out into two separate categories. These are calculated at different rates and have got different upper limit limits. The amounts have got changed over the years; therefore, you need to do certain you are using the right year.
PAYSTUBS
* Large employer having handwritten or typed check stub.
* Company name not imprinted.
* FICA tax tax tax tax tax deductions transcend ceilings.
* Unusually high or low income tax deductions.
* Deductions not clarified.
* Name of borrower and/or Sociable Security number makes not fit information on loan application, tax returns, and/or credit report.
* Check stub numbers for each wage time period are in sequence.
* Income figs look in bolder type than pre-printed information (may bespeak pre-printed form photocopied before income numbers typed in).
TAX RETURNS
* Address and/or community makes not hold with other information submitted on the loan application.
* No FICA (self-employment) paid by self-employed borrower.
* Income or deductions shown in even dollar amounts.
* High income taxpayer with few or no deductions.
* High income taxpayer makes not utilize a professional tax preparer.
* Paid tax preparer manus composes tax return.
* Self-employment income shown as wages and wages (okay if incorporated).
* Unemployment income shown.
* Evidence of whiteout or changes (printed lines look to be “broken”).
* Different handwriting, type style, or computing machine software packages used within one return.
* No estimated tax payments made by self-employed borrower.
* Type style and alliance of type is the same for all tax old age submitted.
* Tax preparer is a relative.
* Tax tax tax tax tax return is incomplete.
* Information of W-2 makes not fit that on the tax return.
SCHEDULE Type A (Itemized Deductions)
* Real estate taxes paid but no property owned (or frailty versa).
* No mortgage interest disbursal paid when borrower shows ownership of property (or frailty versa).
SCHEDULE Type B (Interest and Dividend Income)
* Amount or beginning of income makes not hold with information submitted on application.
* No dividends earned on pillory owned (may be closely held).
* Borrower with significant cash in bank shows small or no interest income.
SCHEDULE Degree Centigrade (Profit/Loss from Business Owned)
* Gross income makes not hold with entire income from Form 1099’s.
* No individual retirement account or KEOGH deductions.
* No “cost of commodity sold” for retail or similar operations.
* No Agenda selenium filed (computation of self-employment tax).
SCHEDULE Vitamin E (Rents, Royalties, Partnerships, and Trusts)
* Additional rental places listed but not shown on loan application
* Net income from rents plus depreciation makes not equal cash flow as submitted by borrower.
* Subject property looks as a rental when borrower is applying for an owner-occupied loan.
* Borrower shows partnership income (may be apt as a general partner).
There are other beginnings within each Region to check on the legitimacy of information received. There are numbers to name to get information on tax tax returns and whether they have got been filed in the current year. Mention to State Fact-Finding Resources for a listing of state particular phone numbers which can be used to verify licensing and business registration as well as respective other countries of possible concern.
VERIFICATION OF sedimentation (VOD)
* Cash in bank not sufficient to finish transaction.
* New Oregon recently opened bank account.
* Unrealistically high balances for age and/or occupation.
* Round dollar amounts (especially on interest bearing accounts).
* Significant change in balance over anterior two (2) months.
* Master VOD not creased (possibly never folded and mailed).
* Evidence of whiteout of strikeovers.
* Numbers look “squeezed-in.”
* There is no twenty-four hours of the month postage Oregon “date received” postage on the written document by the repository (VOD may have got been completed by the borrower).
* Bank account not in borrower’s name.
* Excessive balance in checking account vs. nest egg account.
* Account was opened on a Lord'S Day Oregon holiday (Use Ageless Calendar to verify).
* Illegible bank employee’s signature with no additional identification.
* Depository’s signature dated less than one day after originator’s signature (never mailed).
* Non-depository “depository” - escrow trust account, Title Company, etc.
* Brokerage statements from “lesser known” brokerage houses.
BANK STATEMENTS
* Regular sedimentations (payroll) significantly different from income stated on application.
* Earnest money deposit not debited from checking account.
* NSF (“non-sufficient funds”) items noted.
* Large backdowns (may bespeak unrevealed financial duties or investments).
* Statement looks “homemade” or altered (possible “cut and paste”).
* “Interest earned” or “dividends paid” on statements different from income stated from those beginnings on application.
* Address on statements different from computer address indicated on application.
GIFTS
* Gift from “friend” or “distant relative.”
* Signature or script on gift missive and/or check similar to those establish on other written written documents in loan file.
* Occupancy is questionable and borrower using ‘gifted’ funds.
* Gifted finances look unrealistic compared to the transaction; non proprietor or second home.
CREDIT REPORT
* No credit history (possible usage of alias).
* Invalid Sociable Security number or discrepancy from that on other documents.
* Personal information not consistent with handwritten mortgage application - name, addresses, age, “Jr.” vs. “Sr.”, etc.
* AKA or DBA indicated.
* Employment information is different from mortgage application and VOE.
* Recent mortgage enquiries from other mortgage lenders.
* Numerous enquiries within last 90 days.
* Numerous recently opened credit accounts.
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