I am looking for feedback regarding what we need to do, if anything. We extended a mortgage loan to an individual which was subsequently sold on the secondary market. Later, our quality review revealed that the applicant had fraudulently altered a statement of an account at a credit union.....a good alteration job, BTW. In Texas, under the penal code, mortgage fraud is punishable by imprisonment for a term of 2 to 99 years and a fine not to exceed $10,000. Anyway, we will file a SAR on this person, but we don't know of anything else that needs to be done. According the mortgage department, the loan won't land back our lap unless the investor's quality control catches the fraud. So, we're not hurt, the investor isn't hurt. Do we just file the SAR and go on?

I would also recommend contacting your investor. They may make you repurchase the loan. Then I would see if prosecution is an option.

FWIW - I agree with CompDat. Most investor agreements require the originating lender to notify them if fraud is discovered at any time during the QC or servicing of the loan. Unfortunately, notification generally does result is a request for repurchase or if the loan is performing, they may accept an idemnification agreement.

did anyone say SAR?

Yes, my original post.

Generally, the originating bank is contractually required to notify the investor if fraud is subsequently discovered. Not notifying the investor smacks of unethical if not fraudulent behavior.

According to our mortgage center, the investor IS notified through a audit reporting process.

Then you will be covered. {But then why would the same mortgage center have asked whether to report?)

The second answer came after I pressed them for it. Evidently, they don't directly report it on the spot, but it shows up in the audit report the investor recieves later. Do you think that's OK?