For every positive step taken by lenders and the law enforcement community to stop people from scamming the system, it seems that fraudsters are one step ahead, experts conceded at the Mortgage Bankers Association’s National Fraud Issues Conference in Phoenix this week.
Take the now all-important 4506-T, the Internal Revenue Service document that allows lenders to pull applicants’ tax returns directly from the government. Even as lenders increase their use of tax transcript requests via the 4506-T process, a panel session on trends every lender should know said the miscreants are learning creative ways to “game” the system.
Borrowers are using the process to misrepresent their actual income, said Sonya Andreassen-Henderson of PNC Bank.
“Borrowers may have strategically filed false tax returns, either original or amended, so the 4506-T would validate false income or substantiate multiple years of income,” said Andreassen-Henderson, who works in the financial intelligence unit of PNC’s Mortgage Investigative Services Group.
She also advised lenders to look for a pattern of filing an initial return, followed by an amended return or variations of information between federal and state returns. And it’s also possible that the borrower is filing amended returns to correct false returns that the lender has already “verified.”
The cheats also are extremely active in the short-sale arena, said Christa Greco, a senior intelligence analyst with the FBI. One popular ruse is to hide listings by posting them incorrectly in the local multiple listing service so the property fetches no offers other than the low-ball contract submitted by the fraudster.
In other cases, the property may not even be listed at all.
Greco advised lenders to use “arm’s-length” affidavits that must be signed by the seller, buyer, their real estate agents and the closing agent” and then notarized for validity.
She said the affidavit is “a very effective tool,” whereas Edward Gerding, a senior fraud and risk strategist at one mortgage vendor, said the form is “worth its weight in gold.”
