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Presentation on theme: "SUSPICIOUS ACTIVITY REPORTING SYSTEM (SARS) AND IDENTITY THEFT Peoples Home Equity, Inc. December 2013."— Presentation transcript:


2 What is SARs?  A “suspicious activity report” or SAR is a report made by a financial institution to the Financial Crimes Enforcement Network (FinCEN), an agency of the US Dept. of the Treasury.  The goal of SAR filings is to help the federal government identify individuals, groups or organizations involved in fraud, terrorist financing, money laundering, and other crimes.  PHE employees involved in the origination, underwriting, and closing/funding processes are required to file a SARs upon discovery of suspicious activity.

3 Filing a SARs  FinCEN requires a SAR to be filed when we notice a suspicious incident or suspected violations of law subject to the Bank Secrecy Act (BSA).  Each SAR must be filed within 30days of the initial determination of suspicious activity.  PHE must maintain our SARs filings for a period of 5years from the date of the filing.

4 Confidentiality of SARs filing  You are prohibited from discussing your SARs filing with anyone. It is required to be only between yourself and our SARs Administrator, Brian Dutton.  Unauthorized disclosure of a SAR filing is a federal criminal offense.  PHE and its employees face civil & criminal penalties for failing to properly file SARs; including a large combination of fines, regulatory restrictions, cease & desist order, or imprisonment.

5 SARs filing options  5 sections to complete containing info about the individual/organization of the suspicious activity in question.  Part 1 – PHE’s name, address, tax ID#, location of the activity, and any account numbers involved in the activity.  Part 2 – Any name, address, SSN or tax ID’s, birth date, drivers license#, passport#, occupation and phone#’s of all parties involved with the activity.

6 SARs filing options  Part 3 – the Date range of the activity, total dollar amount and a list of any law enforcement agency that has been contacted while investigating the activity.  Part 4 – contains the contact information of PHE’s SAR Administrator; Brian Dutton, 5205 Maryland Way, Suite 100, Brentwood, TN 37027. PH: 865-934-1414 or  Part 5 – a written description of the activity.

7 Who conducts fraud?  1 st place = Employees  2 nd place = Customer  3 rd place = Broker or Brokering Agent  4 th place = An Officer of the institution  8 th place = Appraiser  10 th place = Attorney

8 What is mortgage loan fraud?  Mortgage loan fraud is when someone engages in submitting misrepresentations of customer income, employment, credit, occupancy and other requirements; submission of improper gift letters; unduly influencing appraisers to increase values; misrepresenting equity and other information to the underwriting team. Loan Officers were often identified as employees in these activities.

9 What is mortgage loan fraud?  Some accountants/customers committed fraud by providing false financial or occupancy information with their loan application.  Altered or falsified CPA Letters – where either the CPA, the customer, or someone else altered the document.  Fraud by accountants or CPAs include loan modification, debt elimination or short sale fraud schemes in cases of pending foreclosure.  Fraud tax letters stating the customer had self-employment income and owned their own business. Fraudulent tax returns were prepared with the knowledge that they were not intended to be filed with the IRS.

10 Types of activity to report SARs  Elder financial exploitation – perpetrated by a relative or caregiver against elderly victims. Coercing or cajoling the victim into gaining access to financial accounts and/or power of attorney over the victims accounts. Abuse involves forgery, check fraud, suspicious documents or ID presented, wire fraud, embezzlement/theft, and mail fraud. Often involves the sweetheart scam as described below.  Sweetheart scam – involves the fraudster feigning romantic intentions toward a victim, gaining their trust and affection to where the financial accounts and/or identity security are at risk. Most victims are unwilling to charge fraud against the perpetrator or others on the perpetrator’s behalf.

11 Types of activity to report SARs  Insider abuse – involving relatives or friends of current or former employees, or third-party vendors who commit documentation fraud to improve the creditworthiness of a borrower. Examples: Accountant, Appraiser, Attorney, Borrower, Broker, Real Estate Agent, etc.  Occupancy fraud – some borrowers commit mortgage loan fraud by providing false occupancy information with their loan application. Better rates/LTV limits are available for owner-occ vs. investment properties.

12 Types of activity to report SARs  Identity fraud – in one instance a cash-out 2 nd lien was applied for by a married couple. When the closing occurred the husband was wrapped head to mid-waist (including hands) in gauze. The closing agent could not verify his identity, only seeing his eyes, and became suspicious. She excused herself to make copies of the ID’s presented, taking the loan file with her, and called the husband’s work to discover he was still at work and had no knowledge of the loan being applied for. The police were notified and it was discovered the wife and her ‘boyfriend’ were using the 2 nd lien funds to take a trip to the tropics.

13 Types of activity to report SARs  Assets fraud – in one instance a VOD was received and appeared to have been altered. The current balance amount seemed to have changed to a larger amount by inserting a “1” between the $ sign and the actual amount. When the bank was contacted to verify the amount they listed on the VOD form, they confirmed the amount was different from what they submitted to the Broker. It was changed so the customer could qualify for their loan requiring 6mos PITI.

14 Types of activity to report SARs  Assets fraud – in another instance on a Purchase loan the customer was using $50,000 down payment from the sale of their home. The HUD-1 from that sale showed the funds were sufficient, however, the customer only deposited $25,000 into their bank account and placed the remaining $25,000 cash into their safe at home. When sourcing the funds they provided a photo of the cash in their safe for the $25k, along with a bank statement for the remaining $25k deposited amount. Because PHE cannot confirm where the cash amount came from, even though it seems likely that it was from the sale proceeds, it becomes a suspicious incident for filing a SAR. FinCEN representatives said PHE should file a SAR.

15 Types of activity to report SARs  Identity fraud – in one instance a customer meets face-to-face with a loan officer to pre-qualify themselves for a mortgage loan. The loan officer pulls a credit report that returns an unacceptable result due to SSN validation. The customer then pulls out another SSN card and says to use a different SSN to order credit under his same name. Because a customer cannot have different or multiple SSNs this is a classic case of ID theft and the LO is required to file a SARs.

16 Types of activity to report SARs  Identity fraud – in one another instance a 2year previous customer came back to PHE for repeat business. The LO copied the previous loan and signed up the customer without re-verifying any possible changed information; the customer signed how they were prepared. During the UW process it was discovered the ID had a different last name for the customer and had been recently been issued within the last 6mos. Investigations showed the customer had divorced within the year and had changed back to her maiden name. When the new re-apped package was signed it was further discovered that the customer signature was “entirely” different than those on the recent package. No similarities between the 2 signatures at all. When questioned, the customer stated that when she changed her name she also changed her signature. Although the explanation sounded reasonable, PHE still could not verify the correct identity and filed a SARs.

17 Types of activity to report SARs  Seller fraud – in one instance the HUD-1 from a Purchase transaction reflected 2 mortgage loan payoffs on the seller side. There was only 1 mortgage listed on the title commitment for $800,000. The payoff amount for the 2 nd payoff was for an even dollar amount, $300,000. The title agency refused to insure over an un-recorded 2 nd lien, and further discovered the disbursement agent was in on the seller scheme and split the $300k between 5 other fraudsters (including herself) when disbursement verification was requested. A SARs was filed by Closing/Funding.

18 The 5 W’s to the SAR narrative  WHO: is conducting the suspicious activity?  WHAT: instruments or mechanisms are being used to identify the suspicious activity?  WHEN: did the suspicious activity take place?  WHERE: did the suspicious activity take place?  WHY: does the SARs filer think the activity is suspicious?

19 The HOW to the SAR narrative  HOW: did the suspicious activity occur?  This is an important feature of a SAR narrative.  The narrative section of the SAR should describe the method of operation of the conducted suspicious activity. In a concise, accurate, and logical manner, the SARs filer should provide a description of how the suspect transaction or pattern of transactions were committed.  Avoid long ramblings. But the narrative should offer a full picture of the suspicious activity.

20 Triggering Events  FinCEN has made it clear that certain triggering events constitute the appearance of mortgage loan fraud. Perpetrators seem to invent new scams all the time.  Some salient schemes are listed next.  Some Documentation Red Flags are listed.  Red Flags do not only pertain to the document process but also extend to the way a customer or loan officer behaves.

21 Salient Schemes  Occupancy Fraud  Income Fraud  Appraisal Fraud  Employment Fraud  Liability Fraud  Debt Elimination  Foreclosure Rescue  SSN / ID Theft  HECM Fraud – reverse mortgage fraud to acquire taking title to a home.

22 Document Red Flags  Customer submits invalid documents to cancel mortgage obligations or to payoff loan balances.  Some notary public prepares, signs, and sends packages of nearly identical debt elimination documents for multiple customers with outstanding mortgage balances.  Some notary public works with and/or receives payments from unusually large numbers of customers.

23 Document Red Flags  Falsification of certified checks, cashier’s checks drawn against customer’s account, rather than from the account of a financial institution.  Customer applies for a “primary residence” loan but does not reside in the new residence as indicated on the loan application; instead it is being used as a 2 nd home or investment property.  Customer of a younger age purchases a “primary residence” in a senior citizen residential development.

24 Document Red Flags  Low appraisal values, non-arm’s length relationships between short sale buyers and sellers, or previous fraudulent sale attempts in short-sale transactions.  Agent of the buyer and/or seller in mortgage transaction is unlicensed.  Customer reluctance to provide more information and/or unfulfilled promises to provide it.  Apparent resubmission of a rejected loan application with key applicant details changed or modified.

25 Document Red Flags  Request from 3 rd party affiliates on behalf of distressed homeowners to pay fees in advance of the homeowner receiving mortgage counseling, foreclosure avoidance, a loan modification, or other related services.  3 rd party solicitation of distressed homeowners for purported mortgage counseling services may claim to be associated with legitimate mortgage lenders, the US government, or a US government program.

26 Applicant Red Flags  Appears nervous for no good reason.  Avoids eye contact.  Asks about reporting rules.  Asks that rules be “bent.”  Questionable source of funds.  “Forgot” drivers license claim, lost due to drunk driving, or had wallet/purse stolen.  Drivers license is outdated or picture is smudged beyond recognition.  Comes in just before closing and asks for ‘paper work’ to be skipped.  Is impatient and tries to hurry.

27 Applicant Red Flags  Offers a cash bonus (aka ‘bribe’) for skipping required information.  Pretends to be sick or very tired and just ‘wants to get the application over with.’  Provides incomplete or suspicious information.  Behaves abnormal or irregular.  Claims the application is for a friend and does not have the required information.  Lists funds that are inconsistent with the customers financial or economic situation.  Causes suspicion of attempting a straw buyer transaction.  Elicits suspicion of structuring.  Provides apparent fraudulent documentation.

28 Loan Officer Red Flags  Almost never takes a vacation.  Does not want supervisory personnel to see or be aware of transactions with an applicant.  Behavior changes to secretive with certain applicants.  Whispers with certain applicants.  Asks certain applicants to come back later when nobody is in the office.  Acts guilty. (Whatever that means!)  Lives beyond means.

29 Q3 2013 Fraud Hot Spots  The 10 highest overall mortgage fraud risks areas in the United States:  1 Fayetteville-Springdale-Rogers, AR-MO  2 San Francisco-Oakland-Fremont, CA  3 Los Angeles-Long Beach-Santa Ana, CA  4 San Diego-Carlsbad-San Marcos, CA  5 Modesto, CA  6 Miami-Ft Lauderdale-Pompano Beach, FL  7 San Jose-Sunnyvale-Santa Clara, CA  8 Bakersfield, CA  9 San Luis Obispo-Paso Robles, CA  10 Tulsa, OK

30 Q3 2013 Fraud Hot Spots  The 10 highest ZIP code fraud risks areas in the United States:  1 Hercules, CA 94547, 362 incidents  2 Rogers, AR 72756, 358 incidents  3 La Jolla, CA 92037, 357 incidents  4 San Jose, CA 95111, 348 incidents  5 San Diego, CA 92127, 343 incidents  6 Downey, CA 90240, 336 incidents  7 Harbor City, CA 90710, 330 incidents  8 Alhambra, CA 91801, 317 incidents  9 Joliet, IL 60435, 317 incidents  10 San Mateo, CA 94403, 307 incidents

31 Q3 2013 Mortgage Fraud Types  The chart below shows the changes in overall risk from Q2 2013 to Q3 2013. Large increases were discovered in Identity / Occupancy, while a large decrease is seen in Employment / Income fraud risks.

32 Identity Theft Prevention  The moment you give your personal information to another entity – a bank, the DMV, or even a medical provider – you give up control over that information and how it might be used.  We can’t control what happens when we willingly share our information with a company or with friends.  Short of hiding in a closet and using cash only for purchases, every person is at risk of identity theft.

33 ID Theft signs  There are several things people do everyday that makes it easier for thieves to steal their identities:  Giving personal info to those who call or email you  Post personal info on social media sites  Carry your SSN card in your wallet  Access the internet over public/insecure Wi-Fi networks  Throw away mail, checks or financial docs intact  Leave outgoing mail in your mailbox  Let online retailers save your credit card number

34 What is ID Theft used for?  Financial fraud  Includes bank fraud, credit card fraud, social program fraud, tax refund fraud, mail fraud, etc.  Typically used to fund a criminal enterprise  Financial fraud is investigated by the U.S. Secret Service  Criminal activities  Taking someone’s identity in order to commit a crime, enter a country, get special permits, hide one’s own identity, or commit an act of terrorism  Can include: computer/cyber crimes, organized crime, drug trafficking, alien smuggling, and money laundering

35 ID Theft victims get their life back  ID Theft Victim To Do List; take your life back in 7 steps (website:  1) contact the credit bureaus; ask that they issue a fraud alert and attach a statement to your credit report, get copies from the 3 credit bureaus (TransUnion, Equifax, and Experian)  2) review your credit reports thoroughly; look for accounts you didn’t apply for or open, inquiries you didn’t initiate, or defaults and delinquencies you didn’t cause  3) file a report with your local police or in the community where the ID theft took place; keep a copy of the police report

36 ID Theft victims get their life back  4) fill out an ID theft victim’s complaint and affidavit form; available from the FTC at  5) close any accounts that have been accessed fraudulently; contact all creditors, including banks, credit card companies, and other service providers where your accounts have been compromised  6) stop payment on checks; if a thief stole checks or opened bank accounts in your name, contact a major check verification company to report the fraud activity  7) contact the local postal inspector; if you believe someone has changed your address through the post office or has committed mail fraud, ask the postmaster to forward all mail in your name to your own address

37 Other ways to protect your ID  Monitor your credit annually  Request fraud alerts from the 3 credit bureaus  Opt out of junk mail / internal marketing lists  Use a P.O. Box  Small box costs around $5 range  Freeze your credit  Freezing/unfreezing costs around $10 range

38 Hacked/Phished ID Theft  To Do List when computer is hacked or phished  Change all passwords  Run anti-spyware and anti-virus  Clear out private info in your browsers  Clear out sensitive data from Temp folder  Close online accounts

39 Contacting 3 credit bureaus  Equifax Credit Information Services - Consumer Fraud Div. P.O. Box 105496 Atlanta, Georgia 30348-5496 Tel: (800) 997-2493  Experian P.O. Box 2104 Allen, Texas 75013-2104 Tel: (888) EXPERIAN (397-3742)  TransUnion Fraud Victim Assistance Dept. P.O. Box 390 Springfield, PA 19064-0390 Tel: (800) 680-7289

40 Prosecuting ID Theft  Reporting to the FTC  Consumer Response Center Federal Trade Commission 600 Pennsylvania Ave, NW Washington, DC 20580 Toll-free 877-FTC-HELP (382-4357) On the Web: For consumer information:

41 What will PHE do?  If a customers personal information becomes compromised at PHE, we will enroll each customer into monitoring services for a period of 24-months to help track changes to their identity, credit, and/or account information.  Staff training and reporting  PHE employees are trained to detect and respond to Red Flags.  Report any incident of ID theft to the Compliance Committee at 615-872-0220 x603 or

42 Thank You!  When filing a SARs it must be filed using the attached fillable PDF form.  Questions?  File your SARs with the SAR Administrator, Brian Dutton, 865-934-1414 or  Report any incident of ID theft to the Compliance Committee at 615-872-0220 x603 or

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