I hope to get some insight from veteran auditors here since I am completely new to both loans and auditing.

I have done many great things for my employer in my 8 years investigating cases of card fraud, check forgery, and online scams usually involving counterfeit checks.

My boss has asked that I begin auditing mortgages/loans to detect instances of loan fraud. I want to do a great job, but have zero experience in either loans or auditing.

My initial thoghts involved sampling loans/mortgages to find these things to warrant further investigation:

-Forged signatures and/or adding joint applicants without consent, especially on applications not submitted in person.
-Late or missed payments shortly after the loan/mortgage was granted.
-Inflated home appraisal values or vehicle loans granted for more than vehicle's value.
-Falsified paystubs or proof of employment.
-Unusual applications before a planned bankruptcy.
-Loan add-on's performed electronically, especially at ATMs on dormant accounts or those accounts whose owners may be at risk of "elder abuse".

Am I headed in the right direction? What else should I be looking for? If someone has info and wishes not to post publicly, please PM me anything that may help.

To my knowledge, we have not incurred large (known)losses from fraud on loans, but could possibly be doing more to detect potential fraud. Thanks so much.

You are headed in the right direction. I have been auditing loans for years and have seen more than a few fraudulent loans, especially on the mortgage side.

It looks like you are looking for both internal fraud and external fraud.

What you are planning on doing will detect loan fraud after the fact, but you should make sure that your organization has controls in place to hopefully prevent the fraud before the loan is originated.

For appraisals, you should have a list of approved appraisers. Make sure their license is current. The appraiser used should be randomly selected from the list, and the final appraisal should be reviewed by someone other then the loan officer.

Vehicle loans should have a printout from NADA or Kelley Blue book to support the loan value. Make sure that the model listed matches what was loaned against (ie., the blue book value is for a extended cab pickup, but the loan is for a regular cab).

Don't rely on the customer to give you the phone # for their place of employment. The loan officer should independently obtain it from the phone book or online, and then call to confirm employment. Consecutive paystubs should be obtained and examinined to make sure the numbers agree.

Watch for multiple loans to the same customer, loans paying off shortly after origination, loans being refinanced with cash out, loans approved and originated by the same person.

The more you review, the more you will learn and see things that don't "feel" right. I think you already have a good idea of what to look for, I just added a few more things I have picked up.

Good Luck.

I always get concerned when mgmt will ask for an audit to detect cases of fraud. Do they know something and not willing to share?

Or they attended a conference and learned it is a good idea.

I would recommend looking for multiple customers with the same address especially a post office box. This is a great check to find fraudulent unsecured loans. It may also discover fraudulent mortgages.

Here is a common list for mortgage fraud:

Occupancy Fraud – applicant claims loan is for primary residence, but property is actually a vacation home, investment property or intended for a family member

Income Fraud – applicant may overstate income to qualify for larger mortgage or understate income to qualify for special programs

Appraisal Fraud – applicant may overstate home value to get more money from sale or cash-out refi, or understate value to purchase property at lower cost

Employment Fraud – applicant may misrepresent where and how long employed, whether unemployed, or whether an independent contractor or self-employed

Liability Fraud – applicants fail to list significant liabilities such as other mortgages and loans

SSN Fraud and other Identity Theft – applicant may use a social security number that doesn’t belong to them, or may have stolen the identity (identities) of other(s) as part of a broader “fraud for profit” scheme

Debt elimination scam – borrowers may attempt to use bogus documents or payment methods to pay off a mortgage and/or eliminate debt (borrowers is usually a scam victim)

Foreclosure rescue scams – borrower / homeowners facing foreclosure may be victimized by “rescuers’ who for a fee purport to provide services to stop or delay foreclosure; may include transfer of title to “rescuer”

Illegal flips – a property has changed hands several times in a brief period, possibly to inflate the value, obtain larger loan, skim equity

Builder bailout – builders with urgent need to sell houses or with scheme to profit in down market, for example; may involve straw borrowers

Straw borrowers – individuals who are recruited and paid to apply for a loan in place of the actual applicant; often provided with false income and employment documents, forged or altered bank statements

Red Flags from SARs
• Invalid documents purporting to cancel obligation and pay off debt
• Same Notary Public or other “authorized representative” sends nearly identical packages of “debt elimination” documents for multiple borrowers
• Bogus certified checks or “non-cash item checks” are drawn on the borrowe’s account rather than a bank’s
• The borrower never moves to the new “primary residence”
• Young buyers are purchasing a home in a senior community
• “Flip” type language in a short-sale contract
• Low appraisal values, close relationship between buyer and seller, or previous fraudulent attempts made in short-sale situation
• Unlicensed buyer’s / seller’s agents
• Past misrepresentations in attempts to secure funding, property, refi or short sale
• Improper or incomplete documentation
• Upon denial of application, a key change in borrower details
• Bank account activity seems to indicate attempts to hide assets to qualify for loan modification programs
• Distressed homeowners pay fees to third parties prior to counseling, foreclosure avoidance or related services
• Third parties misrepresent association with legitimate lenders or the U.S. government
Some common red flags
• Falsification of ID – identification documents are unusual, e.g., logo misplaced, picture appears altered, name misspelled
• SSN fraud / other identity theft – SSN might belong to deceased person, might not have been issued; identification documents seem unusual, e.g., logos, picture; person before you not consistent with age or other characteristic of ID; address discrepancy can’t be explained; alerts on credit report
• Income fraud – income is overstated to qualify for a larger mortgage; income isn’t consistent with occupation, work history or education; W-2s are handwritten, not in same format as pay stubs, applicant name is misspelled; SSN doesn’t match; assets are inflated and are out of line with credit history
• Occupancy – borrower does not move into property purchased; property location is unrealistic commute from work location; primary residence in vacation community; size of property is too small for buyer’s household
• Liability fraud – borrower does not include significant liabilities on application; credit report inconsistent with application; no credit; all accounts paid in full (possible undisclosed consolidation loan); new college graduate has no student debt
• Employment fraud – buyer employment is misstated; verification of employment hand carried; hire date is weekend or holiday; income and employment aren’t consistent; white-outs, cross-outs, squeezed-in numbers

Have you tried http://www.acfe.com/ ? They may have some tools that you could use.

Thanks so much for all of the input. I've had my hands full with my current workload over the last few days, but will definitely review the input soon. I hadn't looked a great deal at the ACFE site yet, but will see what info the site provides.