Fraudulent Employment Data in Mortgage Loan Applications Cause Risks for Industry, Lenders and Borrowers
During flight school, pilots are taught the importance of checking flight instruments and equipment before takeoff. For each flight, they are instructed to go through the same checkpoints and protocols. Why? Because while in flight, it is vital for them to trust what their equipment is telling them. In other words, they need all their data to be as accurate as possible. With growing fake-employer and fraudulent pay stub scams, mortgage lenders should adopt a similar approach to assess risk and loan quality.
For many years, it has been standard practice for mortgage lenders to ask for pay stubs to verify an applicant’s income and employment. But with the increasing availability of fake financial documents, lenders must improve their verification processes.
Consumers can buy just about anything on the internet —including documents that support the falsification of income and employment data. Borrowers can also forge these documents themselves; in fact, some lenders are reporting as many as 20% of the pay stubs provided to them are fabricated. Think that number is shocking? According to Fannie Mae’s third quarter Mortgage Fraud Loan Trends report, nearly half of all mortgage fraud investigative findings through the first three months of 2019 included incorrect income and/or assets*.
A Growing List of Fake Employers
Fannie Mae recently issued a fraud alert warning mortgage lenders of nonexistent companies listed on loan applications. The original wave of fake employers was generally located throughout California. Fannie Mae attempted to re-validate the employer information supplied on suspect applications and other supporting documents, i.e. pay stubs, etc. 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.
What can Lenders Do?
Lenders can use a third party provider to obtain both income and employment verifications. The Work Number® database from Equifax leverages GSE-authorized verification reports to verify employment and income information provided by an applicant.
Data from Trusted Sources
The Work Number database is the leading commercial repository of employer-contributed payroll data. It includes millions of payroll records representing more than 700,000 small, medium and large employer contributors. Employers provide the data and update it each pay cycle.
Heed Red Flags
Lenders should also look for certain red flags on pay stubs that raise questions about the transaction. Potential red flags include:
- Employment (occupation) does not “sensibly” coincide with borrower’s profile (age or experience)
- Purported employer does not exist
- Can’t ascertain employer’s purported location
- Pay stubs sometimes lack typical withholdings (health, medical, 401(k), etc.)
- Tax calculations are incorrect
- Handwritten verification of employment, pay stubs or W-2 forms
Visit Equifax for more information on mortgage verification solutions.
*Fannie Mae. (n.d.). Mortgage Fraud Loan Trends. Retrieved Mar. 3, 2020, from https://singlefamily.fanniemae.com/media/8461/display