Presentation is loading. Please wait.

Presentation is loading. Please wait.

Anti-Money Laundering, Suspicious Activity Report and Fraud Policy Training Policy Effective Date August 13, 2012.

Similar presentations

Presentation on theme: "Anti-Money Laundering, Suspicious Activity Report and Fraud Policy Training Policy Effective Date August 13, 2012."— Presentation transcript:

1 Anti-Money Laundering, Suspicious Activity Report and Fraud Policy Training Policy Effective Date August 13, 2012

2 Anti-Money Laundering Policy
The Board of Directors and/or Senior Management of Peoples Home Equity, NMLS #63371 (hereinafter referred to as Company) is committed to combating money laundering. It is the policy of the Company to prohibit and actively prevent money laundering and any activity that facilitates money laundering or the funding of terrorist or criminal activities by complying with all applicable requirements under the Bank Secrecy Act and its implementing regulations.

3 Background and Overview
The Financial Crimes Enforcement Network (FinCEN) is issuing Anti Money Laundering (AML) program and Suspicious Activity Report (SAR) filing and regulations for residential mortgage lenders and originators as the first step in an incremental approach to implementation of regulations for the broad loan or finance company category of financial institutions. Thus, the definition of "loan or finance company" initially includes only these businesses, but is structured to permit the addition of other types of loan and finance related businesses and professions in future amendments. The Bank Secrecy Act/Anti-Money Laundering (BSA/AML) regulations applicable to mortgage lenders deal with the detection and reporting of fraud. Among the many mortgage related scams FinCEN has identified are false statements, use of straw buyers, fraudulent flipping, flopping, and identity theft. Our general mortgage loan process is specifically designed to verify that no aspect of the mortgage transaction represents fraud for profit or property, and we have procedures in place at all stages of loan production to detect this type of activity.

4 Background and Overview….
This policy is designed to supplement our current anti-fraud procedures and provide guidance on additional required reporting responsibilities. Normally, our gathering and/or underwriting and review of documentation places the highest burden of substantiation on that documentation needed to meet underwriting guidelines. With this new regulation we must now extend the same level of review to areas of inquiry that we normally do not pursue, such as examining and reporting on the nature of an applicant’s self-employment business and whether bank transactions represent potential money laundering activities. In addition, customer facing personnel, such as loan originators, processors, customer service representatives and branch personnel must actively survey customers’ behavior to ascertain whether our company has become a target for potential schemes.

5 Background and Overview….
As mortgage lenders and brokers, we do not process currency transactions, so we limit the scope of our policy to the fraud detection and elements of money laundering which present themselves to our process in the course of our daily business. This generally limits us to customer verification documentation and information reported in the application process.

6 AML Compliance Person Designation and Duties
The company has designated Brian Dutton as its Anti-Money Laundering Program Compliance Person (AML Compliance Person), w full responsibility for the firm’s AML program. The AML Compliance Person has a working knowledge of our AML program. The AML Compliance Person will also ensure that the firm keeps and maintains all of the required AML records and will ensure that Suspicious Activity Reports (SARs) are filed with the Financial Crimes Enforcement Network (FinCEN) when appropriate. The AML Compliance Person is vested with full responsibility and authority to enforce the firm’s AML program.

7 AML Compliance Person Designation and Duties….
The duties of the AML Compliance Person will include monitoring the firm’s compliance with AML obligations and overseeing communication and training for employees. All employees, as relevant to his/her employment, will actively search for suspicious activity. If any is discovered, the AML Compliance Person shall be notified immediately. A “Suspicious Activity Tracking Report” form is to be utilized. The AML Compliance Person will consult with a company officer as to whether a Suspicious Activity Report (SAR) should be filed. If deemed necessary, The AML Compliance Person and the company officer will work together to file the SAR with the appropriate legal and regulatory authorities. All supporting evidence for the SAR will be maintained for a minimum of five (5) years, and will be securely stored.

8 AML Compliance Person Designation and Duties….
Filing and notification procedures A suspicious transaction shall be reported by completing a SAR and collecting and maintaining supporting documentation. A SAR shall be filed no later than 30 calendar days after the date of the initial detection by the reporting loan or finance company of facts that may constitute a basis for filing a SAR If no suspect is identified on the date of the initial detection, a loan or finance company may delay filing a SAR for an additional 30 calendar days to identify a suspect, but in no case shall reporting be delayed more than 60 calendar days after the date of such initial detection.

9 AML Compliance Person Designation and Duties….
Mandatory notification to law enforcement In situations involving violations that require immediate attention, such as suspected terrorist financing or ongoing money laundering schemes, a loan or finance company shall immediately notify by telephone an appropriate law enforcement authority in addition to filing timely a SAR The Company shall make all supporting documentation available to FinCEN, or any Federal, State, or local law enforcement agency, or any Federal regulatory authority that examines the loan or finance company for compliance with the Bank Secrecy Act.

10 Definitions Money Laundering
Money laundering is generally defined as engaging in acts designed to conceal or disguise the true origins of criminally derived proceeds so that the proceeds appear to have derived from legitimate origins or constitute legitimate assets. Generally, money laundering occurs in three stages. Cash first enters the financial system at the "placement" stage, where the cash generated from criminal activities is converted into monetary instruments, such as money orders or traveler's checks, or deposited into accounts at financial institutions.

11 Definitions…. Money Laundering continued
At the "layering" stage, the funds are transferred or moved into other accounts or other financial institutions to further separate the money from its criminal origin. At the "integration" stage, the funds are reintroduced into the economy and used to purchase legitimate assets or to fund other criminal activities or legitimate businesses.

12 Definitions…. Terrorist Financing
Terrorist financing may not involve the proceeds of criminal conduct, but rather an attempt to conceal either the origin of the funds or their intended use, which could be for criminal purposes. Legitimate sources of funds are a key difference between terrorist financiers and traditional criminal organizations. In addition to charitable donations, legitimate sources include foreign government sponsors, business ownership and personal employment.

13 Definitions…. Terrorist Financing continued
Although the motivation differs between traditional money launderers and terrorist financiers, the actual methods used to fund terrorist operations can be the same as or similar to methods used by other criminals to launder funds. Funding for terrorist attacks does not always require large sums of money and the associated transactions may not be complex.

14 Definitions…. Terrorist Financing continued
Our AML policies, procedures and internal controls are designed to ensure compliance with all applicable Bank Secrecy Act (BSA) regulations and Financial Industry Regulatory Authority (FINRA) rules and will be reviewed and updated on a regular basis to ensure that appropriate policies, procedures and internal controls are in place to account for both changes in regulations and changes in our business.

15 Definitions…. Residential Mortgage Lender or Originator
A residential mortgage lender or originator includes: Residential mortgage lender The person to whom the debt arising from a residential mortgage loan is initially payable on the face of the evidence of indebtedness or, To whom the obligation is initially assigned at or immediately after settlement Residential Mortgage Originator A person who accepts a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan.

16 Definitions…. Residential Mortgage Loans
A loan that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on: A residential structure that contains one to four units, including if used as a residence, an individual condominium unit, cooperative unit, mobile home or trailer Residential real estate upon which such a structure is constructed or intended to be constructed.

17 Definitions…. Compliance
The Company can be examined by FinCEN or its delegates under the terms of the Bank Secrecy Act, for compliance with this section. Failure to satisfy the requirements of this section may be a violation of the Bank Secrecy Act The Company, with this policy, is implementing an anti-money laundering program reasonably designed to prevent the Company from being used to facilitate money laundering or the financing of terrorist activities.

18 Dollar Limits for Filing a Suspicious Activity Report (SAR)
The following guidelines will be used in determining when to file an SAR Suspicious transactions where the borrower is a suspect Report if amount equals or exceeds $5,000. Applicable to all mortgages that exceed $5,000. Known violations of the Bank Secrecy Act The Company will file SARs for amounts less than those specified above if there is reason to believe the transaction is tied to an illegal activity.

19 Confidentiality of SARs
A SAR and any information that would reveal the existence of a SAR, are confidential and shall not be disclosed except as authorized by the Rule Prohibition on disclosure by The Company, applies to directors, officers, employees or agents None shall disclose a SAR or any information that would reveal the existence of a SAR Any of the listed that are subpoenaed or otherwise requested to disclose a SAR or any information that would reveal the existence of a SAR, shall decline to produce the SAR or such information, and shall notify FinCEN of any such request and the parties response.

20 Rules of Construction Provided that no person involved in any reported suspicious transaction is notified that the transaction has been reported, the above shall not be construed as prohibiting: The disclosure by anyone in the Company, or any director, office employee, or agent of a loan or finance company of: A SAR, or any information that would reveal the existence of a SAR, to FinCEN or any Federal, State or local law enforcement agency, any Federal regulatory authority that examines the loan or finance company for compliance with the Bank Secrecy Act, or

21 Rules of Construction….
Any State regulatory authority administering a State law that requires the loan or finance company to comply with the Bank Secrecy Act or Otherwise authorizes the State authority to ensure that the loan or finance company complies with the Bank Secrecy Act; or any State regulatory authority administering a State law that requires the Company to comply with the Bank Secrecy Act or otherwise authorizes the State authority to ensure that the company complies with the Bank Secrecy Act; or The underlying facts, transactions, and documents upon which a SAR is based, including, but not limited to, disclosures to another financial institution for the preparation of a joint SAR.

22 Prohibition on disclosures by government authorities
A Federal, state, local, territorial, or tribal government authority shall not disclose a SAR, or any information that would reveal the existence of a SAR, except as necessary to fulfill duties consistent with Title II of the Bank Secrecy Act. For purposes of this section, official duties shall not include the disclosure of a SAR, or any information that would reveal the existence of a SAR, in response to a request for disclosure of non-public information or a request for use in a private legal proceeding.

23 Limitation on Liability
A loan or finance company, and any director, officer, employee, or agent that makes a voluntary disclosure of any possible violation of law or regulation to a government agency or Makes a disclosure pursuant to this section or any other authority, including a disclosure made jointly with another institution, shall be protected from liability for any such disclosure, or for failure to provide notice of such disclosure to any person identified in the disclosure.

24 Reporting Requirements
Reports of Suspicious Transactions A transaction requires reporting under this section if it is conducted or attempted by, at, or through a loan or finance company It if involves or aggregates funds or other assets of at least $5,000, and the loan or finance company knows, suspects, or has reason to suspect that the transaction, or a pattern of transactions of which the transaction is a part: Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation

25 Reporting Requirements….
Reports of Suspicious Transactions continued More than one loan or finance company may have an obligation to report the same transaction under this section, and other financial institutions may have separate obligations to reports suspicious activity with respect to the same transaction pursuant to other provisions of this part. In those instances, no more than one report is required to be filed by the loan or finance company and other financial institution involved in the transaction, provided that the report filed contains all relevant facts, including: The name of each financial institution involved in the transaction The report complies with all instructions applicable to joint filings, and Each institution maintains a copy of the report filed, along with any supporting documentation

26 Reporting Requirements….
Reports of Suspicious Transactions continued It is important to recognize that transactions are reportable under the Rule regardless of whether they involve currency. The $5,000 minimum amount is consistent with existing SAR filing requirements for other financial institutions regulated by FinCEN.

27 Record Keeping The Company will do due diligence as a usual and customary part of their business for each transaction Conduct a significant amount of due diligence on both the property securing the loan and the borrower This process of due diligence involves the types of inquiry and collecting the types of information that would be expected in any program to prevent money laundering and fraud and to detect and report suspicious transactions.

28 Employee Training Program
When a new employee is hired, the new hire is required to go through Company training regarding this policy. Any existing employees are required to attend initial training and additional training on updates to the policy as they are added. The Company will provide a Certificate of Completion of the training and that will be kept with the employees records.

29 Suspicious Activities
Mortgage Accounts It is impossible to define all activity that would qualify as suspicious. The following guidelines quantify the types of suspicious activities that would be red flags, and should be reviewed. If a potential or existing customer either refuses to provide the information when requested, or appears to have intentionally provided misleading information, the employee involved will notify our AML Compliance Officer so that we can determine whether we should report the situation to FinCEN by filing a SAR. A loan does not have to close to require the reporting of suspicious activity. At any point during the transaction, if Red Flags arise that cause concern, the employee should notify the AML Compliance Officer so a determination can be made

30 Suspicious Activities….
Identification The Patriot Act requirements are incorporated into the Companies AML Policy by ensuring that we positively identify each borrower who makes an application with us. Disbarred Participants and Watch Lists In addition to standard verification, for all file, we compare our customers against government watch lists, such as Limited Denials of Participation (LDP), General Services Administration Excluded Party List (GSA), Office of Foreign Assets Control (OFAC) and others, as part of our production quality control plan. OFAC is checked as part of the credit report. LDP and GSA checks are to be done for every loan file.

31 Suspicious Activities….
Identification continued At a minimum, the Companies employees will obtain the following information from a borrower: Name Date of Birth Current Address Identification Number such as a Social Security Number Copy of an unexpired government issued identification such as a drivers license, passport or green card Must be a readable copy

32 Suspicious Activities….
Identification continued The following Red Flags should be considered: A borrower uses unusual or suspicious identification documents that cannot be readily verified. A borrower provides individual tax identification number after previously using a Social Security number. A borrower uses different tax identification numbers or social security numbers with variations of his or her name. There are social security number discrepancies within the loan file The borrower is reluctant to provide identification when requested Address discrepancies within the loan file

33 Suspicious Activities….
Deposit Account Deposit histories can show a pattern of fraud and/or money laundering. The following Red Flags should be considered: A borrower’s deposit accounts show large unexplained deposits into the account that they are utilizing for the mortgage loan A borrower makes frequent or large transactions and has no record of past or present employment experience.

34 Suspicious Activities….
Deposit Account continued Earnest money: Deposit equals the entire down payment and cannot be verified as coming from borrower’s account. Source is not apparent Earnest money isn’t reflected in account withdrawals Earnest money is from a bank or account with no relationship to the applicant Name or address on earnest money check differs from the borrower

35 Suspicious Activities….
Deposit Account continued Applicant’s salary doesn’t support savings on deposit Applicant does not utilize traditional banking institutions Balances are greater than the FDIC, SIPC limits High applicant assets are not diversified Excessive balance maintained in checking account Bank account ownership includes unknown parties Balances verified as even dollar amounts Two month average balance is equal to present balance

36 Suspicious Activities….
Deposit Account continued Reasonableness Test Assets appear to be out of line with type of employment, applicant age, education and/or lifestyle Asset rental Cash or other assets are temporarily placed in the borrower’s account in order to qualify for the loan by use of a Payday type of loan The borrower usually pays a “rental” fee for the temporary use of the assets. Fake down payment Using fictitious, forged, falsified or altered documents to mislead the lender

37 Suspicious Activities….
Income Income borrower stated is substantially different than income documented by a Verification of Employment (VOE), IRS tax returns or transcripts. If or when IRS tax transcripts are received the income reported on the transcripts differs from the income shown on the tax returns provided to the originator. Employer’s address shown only as a PO Box Same telephone number for applicant and employer and application is not listed as self employed

38 Suspicious Activities….
Application The completing of the application may bring concerns up regarding a borrower. The following Red Flags should be considered: A borrower’s home or business telephone is disconnected. The borrower’s background differs from what would be expected on the basis on his or her business activities. The Realtor’s or Seller’s in the file are not able to be contacted or are not readily identified. Unusual terms in the contract that are not common for the area the property is located in, or the type of financing requested Loan type is a cash out on a recently acquired property Significant or contradictory changes from initial to final application Inconsistent signatures throughout the file

39 Suspicious Activities….
Verifications Verifications are a part of the loan process where a third party provides the Company with information needed to verify in a loan file. The following Red Flags should be considered: Verification is sent to a specific person’s attention Verifications were completed on a weekend or a holiday Documentation includes deletions, corrections or other alterations

40 Suspicious Activities….
Sales Contract The sales contract needs to be reviewed for the following Red Flags: Non arms-length transaction: seller is real estate broker, relative, employer, etc. Seller is not currently reflected on title Purchaser(s) deleted from or added to the contract No real estate agent is involved Power of attorney is used Second mortgage is indicated, but not disclosed at time of application Real estate commission is excessive Contract dated after credit documents

41 Suspicious Activities….
Credit Report A credit report is required for all mortgage loan files. The following Red Flags should be considered: Invalid Social Security number or variance from that on other documents Duplicate Social Security number or additional user of Social Security number Recently issued Social Security number Length of established credit is not consistent with applicant’s age Credit patterns are inconsistent with income and lifestyle All trade lines are opened at the same time

42 Suspicious Activities….
Credit Report continued Authorized user accounts have superior payment histories Significant differences between original and new or supplemental credit reports Also Known As (a/k/a) or Doing Business As (d/b/a) indicated Numerous recent inquiries Employment listed different on credit than on application Social security alerts

43 Suspicious Activities….
Appraisal The appraisal needs to be reviewed for the following Red Flags: Occupant shown to be tenant or unknown Owner is someone other than seller shown on sales contract Purchase price is substantially higher or lower than predominant market value Subject property obsolescence is minimized Large positive adjustments made to comparable value Comparables’ sales price don’t bracket the subject’s value Comparable sales are not similar in style, size and amenity All comparable sales located in the same subject development for new construction or condominiums

44 Suspicious Activities….
Appraisal continued Comparable properties are a significant distance from the subject, or located across neighborhood boundaries (main arteries, waterways, etc.) “For Rent” sign appears in photographs Photos appear to be taken from an awkward or unusual standpoint Address reflected in photos does not match property address Weather conditions in photos inconsistent with average marketing time, date of appraisal Appraisal dated before sales contract Significant appreciation in short period of time Prior sales are listed for subject and/or comparable without adequate explanation

45 Suspicious Activities….
Title The title policy provides information about the borrower, seller (if applicable) and the property. The following Red Flags should be considered: Prepared for and/or mailed to a party other than the lender Evidence of financial strain may indicate a compromised sale transaction (flip, foreclosure rescue, straw buyer, refinance, etc.), or might suggest undisclosed credit problems in the case of a refinance Income tax, judgments or similar liens recorded Delinquent property taxes Notice of default or Modification agreement recorded

46 Suspicious Activities….
Title Seller not on title Seller owned property for short time Buyer has pre-existing financial interest in the property Date and amount of existing encumbrances don’t make sense Chain of title includes an interested party such as realtor or appraiser Buyer and Seller have similar names (property flips often utilize family members as straw buyers)

47 Suspicious Activities….
Owner Occupancy The occupancy status being manipulated can lead to the discovery of fraud. The following Red Flags should be considered: All Transactions Significant or unrealistic commute distance Occupancy affidavits reflect applicant does not intend to occupy and loan is not for an investment property New or existing homeowner’s insurance is a rental policy (declaration page)

48 Suspicious Activities….
Owner Occupancy continued Purchase Transactions Real estate listed on application, yet applicant is renter Applicant intends to lease current residence Applicant is downgrading from a larger or more expensive home Sales Contract is subject to an existing lease

49 Suspicious Activities….
Owner Occupancy continued Refinance Transactions Rental property listed on application is more expensive than subject property Different mailing address on applicant’s bank statements, pay advices, etc. Different address reported on credit report Appraisal reflects vacant or tenant occupancy Reverse directory does not disclose subject property address

50 Suspicious Activities….
HUD-1 Settlement Statement The following Red Flags need to be considered: Borrower or Seller names are different than sales contract and title Sales price is inconsistent with contract, loan approval and/or appraisal Excessive earnest money or builder deposit Earnest money deposit is inconsistent with sales contract and/or application Payouts to unknown parties Refinance pays off previously undisclosed liens

51 Suspicious Activities….
HUD-1 Settlement Statement continued Excessive sales commissions Excessive fees and/or points Seller paid closing costs, especially for purchaser with sufficient assets for down payment Cash proceeds to borrower are inconsistent with final application and loan approval Fraudulent use of shell company A business entity that typically has not physical presence, has nominal assets, and generates little or no income is a shell company Shell companies are not illegal and may be formed for legitimate purposes, but can also be used for fraud schemes

52 Suspicious Activities….
A borrower having any of the items listed is not, in and of itself, a determination of a Suspicious Activity, but does give you a reason to take a closer look at the file. A file does not have close or be denied to require the filing of a SAR. If the red flags are noticed at appointments, the application, processing, or any stage of the process, they need to be reported.

53 Fraud Characteristics
General Fraud Items No real estate agent is employed Possible Non-arms length transaction, or Fictitious transaction Mailing address is not the borrower’s address The lender is experiencing financial distress Property was recently in foreclosure, or acquired at REO sale at a much lower sales price

54 Fraud Characteristics….
Straw Buyer Straw buyers are loan applicants used by fraud perpetrators to obtain mortgages, and are used to disguise the true buyer of the true nature of the transaction First-time home buyer, with substantial increase in housing expense Unrealistic commute to employment Size of the property will not accommodate the borrower’s family Power of attorney is being used Income, savings and/or credit patterns are inconsistent with applicant’s overall profile

55 Fraud Characteristics….
Straw Buyer continued Example A couple wanted to buy a home but did not qualify because their debt ratio was too high. To help them, one of their parents applied for the loan and was approved for a 97% LTV product, and stated they would owner occupy The couple moved into the house, but could not make the payments The servicer called the “straw buyer” parent and were told by the parent that his daughter and son-in-law were supposed to be making the payments Despite being contractually obligated, the straw buyer refused to bring the loan current The lender was forced to foreclose and take a loss on the property

56 Fraud Characteristics….
Air Loan Air loans typically involve straw buyers, view straw buyer characteristics Common payer among various loans Common mailing address among loans Unable to independently validate chain of title Double Sale A double sale is the sale of one mortgage note to more than one investor Two mortgages recorded on the same property Mortgage is not recorded in first lien position

57 Fraud Characteristics….
Double Sale continued Example A borrower colluded with a mortgage broker to use the borrower’s property as collateral for numerous home equity lines of credit at different financial institutions The scheme was executed by closing on multiple HELOC’s in a short period of time to take advantage of the delay in recording the mortgages. In addition, the mortgage broker misrepresented the borrower’s financial information in order to increase the borrower’s debt capacity The property with less than $125,000 in equity was used to obtain over $1 million in credit from several financial institutions

58 Fraud Characteristics….
Property Flipping Illegal property flipping occurs when property is purchased and resold quickly at an artificially inflated price, utilizing a fraudulently inflated appraisal Flips typically involve naïve purchasers Seller very recently acquired title, or is acquiring title concurrent with the subject transaction Property was recently in foreclosure, or acquired at REO sale at a much lower sales price The appraised value is fraudulently inflated The appraiser frequently uses other property flips as comparables Examining comparable properties sales histories Owner listed on appraisal and/or title may not match the seller on the sale contract Refinance transaction utilized to payoff private short-term financing

59 Fraud Characteristics….
Ponzi/Investment Club/Chunking The sale of properties at artificially inflated prices, pitches as investment opportunities to naïve real estate investors who are promised improbably high returns and low risks First-time landlord Seller offers to manage the rental property Borrower told the seller will make the mortgage payments Borrower purchased multiple property simultaneously, but did not disclose other loans in process Watch for credit inquiries

60 Fraud Characteristics….
Ponzi/Investment Club/Chunking continued Example A borrower attends a seminar that outlined how to get rich by investing in real estate with no money down A third party, a presenter at the seminar, encouraged the borrower to invest in three real estate properties Under the third parties guidance, the borrower completed the required application and provided documentation for the loans The borrower is unaware that the third party owned numerous properties in the name of a LLC and submitted application on not just the three properties known to the borrower, but on total of 15 different properties

61 Fraud Characteristics….
Ponzi/Investment Club/Chunking continued Each application was sent to a different lender, and all were scheduled to close within a one week timeframe The borrower attended three of the closings with a different representative of the LLC as the seller The third party then acted as an agent for the borrower, with power of attorney, at the other 12 closings The borrower ended up with 15 mortgages instead of three the borrower knew about Loans end up in foreclosure since borrower cannot repay the debts

62 Fraud Characteristics….
Builder Bailout/Excessive Sales Incentive Builder/Seller pays large financial incentives to buyer, and facilitates an inflated loan amount by increasing the sales price, concealing the incentive and utilizing a fraudulently inflated appraisal Typically involves new construction, or new condo conversion Builder’s marketing material advertises rent credit to investors, and/or payment credit HUD-1 reflects unexplained pay-outs or inflated commissions All comparables are from within the subject’s development and also had inflated sales prices

63 Fraud Characteristics….
Builder Bailout/Excessive Sales Incentive continued Examples A builder convinces buyers to purchase property by offering to pay excessive incentives that are undisclosed to the lender, including down payments, no money down promotions, and/or closing cost assistance In an effort to attract participants, a builder promises to manage properties as rentals and absorb any negative cash flow for the first 12 to 18 months

64 Fraud Characteristics….
Buy & Bail The homeowner is current on their mortgage but the value of their home has fallen below the amount owed, so they apply for a purchase money mortgage on another home. After the new property has been secured, the Buy & Bail borrower will allow the first home to go into foreclosure The borrower will be a first time landlord renting out the current property The borrower has minimal or no equity in the current property Inability to validate lease terms with the purported tenant Purported tenant has a pre-existing relationship with the home

65 Fraud Characteristics….
Buy & Bail continued Example A self-employed child care provider is living in a house purchase for $500,000 two years ago that is now worth approximately $350,000. Monthly payment on the ARM are $3,000, with payment rising shortly to $3,700, which the borrower cannot afford Borrower finds a home selling for $200,000 and obtains a loan on that property by falsely claiming to rent the existing property After moving into the second home, the borrower defaults on the initial mortgage loan

66 Fraud Characteristics….
Foreclosure Rescue Foreclosure specialists promise to help the borrower avoid foreclosure The borrower often pay for services that he/she never receives and ultimately loses their home The borrower was advised by foreclosure specialist to avoid contact with their servicer The borrower has paid someone to negotiate with the servicer on their behalf Borrower receives a purchase offer which is greater than the listing price Borrower states that they will be renting back from new owner

67 Fraud Characteristics….
Foreclosure Rescue continued The borrower quit claimed, any portion of, title to a third party at the advice of a foreclosure specialist Borrower signature variations between the short sale contract and loan origination documents The borrower has recently updated their contact information Borrower claims they do not have to pay because the mortgage is invalid (debt elimination)

68 Fraud Characteristics….
Short Sale Fraud The perpetrator profits by concealing parties to the transaction and/or contingent transactions or falsifying material information including the true value of the property so the servicer cannot make an informed short sale decision Sudden default, no workout discussions, and immediate offer at short sale price Ambiguous or conflicting reasons for default The mortgage delinquency is inconsistent with the borrower’s spending, savings and other credit patterns

69 Fraud Characteristics….
Short Sale Fraud continued Short sale offer is from a related party Short sale offering price is less than current market Cash-back at closing to the delinquent borrower, or other disbursements that have not been expressly approved by the servicer (sometimes disguised as repairs or other payouts) The buyer and real estate agent may be the same person or related parties

70 Fraud Characteristics….
Unauthorized Fees and/or Payouts An advance fee scheme perpetrated by foreclosure rescue specialists where fees and/or payouts that were not approved by the servicer agreeing to the short sale are reflected on the Hud-1 Short sale HUD-1: Has unauthorized management, consultant or short sale negotiation fees Reflects excessive, unauthorized payoffs to second lien holders

71 Fraud Characteristics….
Non-Arm’s Length Short Sale A fictitious purchase offer is made by the homeowner’s accomplice (straw buyer) in an attempt to fraudulently reduce the indebtedness on the property and allow the borrower to remain in their home Purchaser has previous or current ownership of the subject property Purchaser address matches the borrower’s address Purchaser’s name is similar to the borrower’s Purchaser employment address matches the borrower’s employment address

72 Fraud Characteristics….
Short Sale Flips Title Issues, Transfer to Business, LLC or Trust Short Sale Loan The borrower is not in title to the property on the date the short sale closes Short sale HUD-1 dated after title transferred to third party, yet borrower is listed as seller The borrower is transferring title to a business, trust of LLC

73 Fraud Characteristics….
Short Sale Flips continued End Purchase Loan The seller is not the recorded title holder The seller on the sales contract does not match current owner on appraisal or vesting on title The title commitment is dated prior to the sales contract on initial loan application Title commitment requires additional deeds be recorded to perfect current vested owner

74 Fraud Characteristics….
Short Sale Flips continued Bait-and-Switch with Decoy HUD-1 The seller is netting significant cash Title reflects outstanding significantly higher liens than amounts to be paid on the HUD-1 All liens reflected on title are not being paid on the HUD-1

75 Fraud Characteristics….
Reverse Mortgage Fraud The perpetrator manipulates the senior citizen into obtaining a reverse mortgage loan and then pockets the senior victim’s reverse mortgage loan proceeds The senior claims he/she received the house free from a special government program Distressed property is quit claimed to the senior just prior to the reverse mortgage loan application There is a power of attorney on behalf of the senior

76 Fraud Characteristics….
Reverse Mortgage Fraud continued A caregiver or family member appears to be coaching the senior The power of attorney is held by a caregiver but the senior has relatives (children, grandchildren) The senior has no prior home ownership For sale signs in the yard Appraisal photos suggest the property is vacant

77 Fraud Characteristics….
Reverse Mortgage Fraud continued Appraisal uses comparable sales that are outdated or outside of the property’s neighborhood Communication with the loan officer is only done through the person holding power of attorney The senior’s credit report is inconsistent with information on the loan application Monthly mortgage statement are not sent to the senior’s address The senior borrower withdraws large amounts of cash or has unusual spending activity The senior obtains a reverse mortgage but deposits little or no funds into his/her bank account

78 Fraud Characteristics….
Reverse Mortgage Fraud continued Proceeds of the reverse mortgage are being used to satisfy a non-borrower lien Power of attorney documentation is inconsistent with physician letters and dates regarding competency of the senior borrower The senior claims he/she invested the loan proceeds in an annuity or other financial product The senior takes HECM loan proceeds in a lump sum at closing Fraudsters are not interested in the line of credit or annuity distribution options

79 Fraud Characteristics….
Affinity Fraud In affinity fraud, perpetrators rely on a common bond and exploit the trust and friendship that typically exist in the group of individuals with a common bond to support the scheme. Certain ethnic, religious, professional or age-related groups are targeted Parties to the transaction have a common bond

80 Fraud Characteristics….
Affinity Fraud continued Common surnames for multiple parties to the transaction Large gifts from group members as the source of down payment The borrower works for what appears to be a member of the group Common tactics include the use of straw buyers, falsified gift funds and altered employment or asset documentation

81 Enhanced Due Diligence
New borrowers are expected to live or work in an area that makes sense to the location of the property. Borrower’s that don’t meet the residency requirement will be asked to explain why the property location works for them. Failure to provide a sufficient explanation will be grounds for denying the loan.

82 Procedures for Monitoring Compliance with this Policy
A minimum of once a year, the company’s internal auditor or an independent third-party will review the company’s suspicious activity file. The auditor will ensure that all identified suspicious activity was reviewed and appropriately handled. The Company will provide additional training as needed when the policy is revised.

83 Procedures for Monitoring Compliance with this Policy
Annual testing of our AML program will be primarily focused on PATRIOT Act compliance matters by a qualified independent third party or internally by a qualified member of the Company’s staff. The annual testing will include an audit of our compliance with our AML program. The auditor will issue a report of the auditor's findings upon completion their audit to senior management. We will address each of the resulting recommendations.

84 Exhibits

85 Exhibits

86 Exhibits

87 Exhibits

88 Exhibits

Download ppt "Anti-Money Laundering, Suspicious Activity Report and Fraud Policy Training Policy Effective Date August 13, 2012."

Similar presentations

Ads by Google