My management is looking for (and asking me to prove) the reasons we need to file SARs on customers who state on their loan application they currently occupy the property and we later find out it's a rental or vacation property. The customers say they made a honest mistake but we believe it was intentionally stated to get the better pricing. Does anyone know of a regulatory bulletin, pronouncement, anything I can show them this practice falls under the definition of mortgage fraud. Thanks!!

Personally, I don't think that is a SARable offense. Shame on you for not verifiying current place of residence. I would think that it would be pretty easy. If we reported every loan applicant that fudges on an application, we would have to report basically everybody.

"Shame on you for not verifiying current place of residence."

We do verify residence, that's how we catch these "mistakes." This is done during the loan process and not at funding or any other critical step. Let's not be judgemental here.

Anon - Does your application actually use the word "occupy," rather than "own" or "rent"? If so, I can see where an honest mistake could be made by the applicant.

If you figure this out before the loan is booked, how is there fraud involved? I think we are taking this SAR thing to the nth degree. What about the customer that forgets to list his Sears card as a liability and you catch it when you pull the credit report? What about the customer that lists a monthly car payment as $250 when it's really $350? If you truly believe that one false statement or omission on a credit application triggers a SAR, then you better not start differentiating about which statement that is. Myself, I would only recommend filing a SAR in the case of attempted identity theft or other major false representation that would indicate they are attempting to or actually receive credit under false pretenses that involved more than checking off the wrong box on a application form or other error that they can easily claim as a misunderstanding, oversight, or clerical error.

The application is a standard FNMA 1003. I can't see how customers can get confused.

I appreciate everyone's comments.

I agree with RC. We also have cases where the customer did not give the correct employment information and the latest one is that the apprasial comps were not in line with the property value. These are not frauds they are normal misrepresentations that can be cleared up. I do file on misrepresentations of social security numbers if they actually used a duplicate number.

Just as a heads up as well. When we used to come across these situations where the customer "misstated" the occupancy, we found several cases of fraud. One of which involved a daughter taking advantage of her mentally ill father. There were a lot of gory details that I won't bore you with but we would have never known about it unless if the occupancy issue hadn't been questioned.

I known I'm a bit of an alarmist but that's what working in QC can do for you.

At the California Bankers Compliance conference a couple of years ago, I listened to a gentleman from a major lender talk about the rise in mortgage loan fraud. It is NOT an uncommon fraud, but perhaps many lenders have production incentives in place that would not "encourage" loan reps, processors, and underwriters to dig too deeply to find it.

Property fraud, including mortgage fraud, got so bad in Los Angeles County that the counter recorder now sends a letter to the property address for every Grant Deed, Quitclaim Deed, Deed of Trust, etc., that is filed with the county recorder.

Can you imagine the chutzpah of someone not only stealing the identity of a property owner, but signing a note and deed of trust to encumber their property as well? Most often, though, the deception involved a family member or friend taking advantage of an elderly homeowner.

The fraud units of large mortgage lenders actually look for this particular type of fraud which is quite common in mortgage lending. They have to make some judgment calls on when they file SARS but in most cases of this type at a minimum they - if pre-closing - adjust the pricing. It is done for exactly the reason stated...to qualify for better pricing as if the property is owner occupied. Many lenders charge a higher rate for investment property. Mortgage fraud is rampant. I have, in the past, worked at a bank that had a large broker and correspondent channel. In those channels, as well as the affiliate's retail (direct between the borrower and the lender) channel, the amount of identify theft and social security fraud was incredible. Another very common non-SSN type fraud that is declined is a situation where a borrower is declined for a conventional mortgage due to insufficient income and tries to reapply for a "stated income" (unverified) product. We filed SARS for SSN fraud, identity theft, false credit reports (ordered by brokers or correspondents), falsified appraisals, and so forth but not necessarily for falsified property type on its own. You have to come up with some rules of thumb in order to operate.