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FOS Blog

03 Oct
2020

Employment Red Flags In Loan Originations

Employment Red Flags In Loan Originations

In February 2020 Fannie Mae posted information about a 2018 fraud alert related to entities in California identified as allegedly fictitious employers. You can visit https://singlefamily.fanniemae.com/media/6186/display to view the alert.  Misrepresentation of borrower employment is a major fraud concern when originating loans to sell on the secondary market.  There are many red flags that institutions should look for while reviewing employment information provided by borrowers:

  • PO Box for employer’s address
  • Number of years on job not consistent with age of borrower
  • Number of years on job vs number of years in industry not consistent
  • Position/title not consistent based on age of borrower and years of schooling
  • White outs/cross outs located on any income documents
  • Conflicting employer’s name found on the borrower’s credit report
  • An employee other than from Human Resources signed the Verification of Employment
  • Receiving a “Copy D – for Employer” of W2 from borrower
  • Social security numbers on employment support are inconsistent
  • Round numbers found on W2s, paystubs, etc.

In order to mitigate potential fraud, financial institutions must ensure employment documentation is thoroughly reviewed during the underwriting process.  Inconsistencies and irregularities are the biggest fraud red flag indicators.  If all else fails, question documentation and do not draw conclusions without researching in order to protect your financial institution from fraud and fictitious loans.

For additional information contact the author nreifsnider@herbein.com.

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