Beware of Fake Employers Posing Threat to Your Loan.
August 15, 2018 (Updated March 14, 2020)
By Curtis Knuth
Fannie mae encourages lenders to scrutinize employer information within the loan file.
In January 2020, Fannie Mae updated their list of fictitious employers. If you’ve never visited Fannie Mae’s mortgage fraud prevention page, I highly encourage you to do so. You don’t need to be an underwriter or risk officer to appreciate this resource; and it’s important for vigilance throughout your lending shop to know how to read the red flags. Compared to the preceding year, 2019 shows a triple increase in fraudulent employers listed on borrower applications.
“Prudent origination, processing, and underwriting practices should include looking for red flags in the loan documents that raise questions about the transaction.”
In 2018, Fannie Mae sent out three fraud alerts to lenders after identifying fictitious employers found in California. Since then, they have identified a total of 65 entities that have been found in loan misrepresentation of employment. Fannie attempted to re-validate the employer information supplied on suspect applications and other supporting documents. Click here to get some tips on fraud awareness and view red flag exhibits outlined by Fannie Mae.
When researching the employer for a verification of employment, several of them are listed within yellowpages.com and have other online references. They also have legitimate phone numbers and automated call centers. Most likely this falsified information is caught in QC; otherwise, the loan could have turned into an EPD (Early Payment Default) or other financially negative scenarios for the lender.
Fraudsters setting up fictitious employment verification call centers and consumer employment services are not new. Additionally, organizations exist that provide fake employment services for consumers in a variety of scenarios, i.e. job history verification. Google CareerExcuse.com (which incidentally happens to be located in Northern California). I don't recommend navigating to their website, but look at the Google search description and review the YouTube results if your shop permits that activity.
In a 2015 Al Jazeera America interview, CareerExcuse’s founder William Schmidt explains how his firm has set up over 200 virtual employers for his clients to lay claim as references. Schmidt insists his service is not being used in fraudulent loan applications. "We will and have, refused service to anyone who attempts to use CareerExcuse.com’s job reference service in an attempt to obtain a loan from a financial institution", he says. But in general, these companies are out there as a source to be challenged.
With the volume increase in loan and refinance applications that continues to rise, so are the mortgage fraud investigative findings on loan applications. Therefore, it is crucial for a mortgage lender to consider a vetted third party verification provider to help streamline their risk mitigation processes.
Mortgage lenders, it’s good practice in your vendor review for VOE services or in review of internal verification policies -- make certain that the procedures to validate the applicant's employer are robust. Look out for red flags regarding the name, address and telephone number by using multiple data sources, and don't depend upon a simple Google search. In the example of the employers Fannie Mae could not validate, several of them listed legitimate addresses, had legitimate phone numbers and call attendants (I called a few) and had information on file with the Yellow Pages.
Our team spends significant time researching, developing. and refining our leading edge VOE solution as new schemes appear and old ones are reinvented. Our VOE platform retains and gathers records on fake employers and utilizes both public and paid resources to validate employer information. Rather than an ancillary function, employer validation is critical in VOE and should be scrutinized in a vendor review.
Ability to repay, or capacity, is one of the core factors of creditworthiness in the otherwise dubbed term known as the “5 C’s”; character, capacity, collateral, capital, and conditions. I would encourage you, or the appropriate party at your shop, to confirm you have appropriate controls around this important data validation point. Make sure your applicant's employer is legitimate.