U.S. Postal Inspection Service

1. MORTGAGE FRAUD and MAIL FRAUD U.S. Postal Inspection Service Steven Sultan U.S. Postal Inspector John Devereux JP Morgan Chase

2. Federal Violations • Mail Fraud 18:USC 1341 • Wire Fraud 18:USC 1343 • False Statement /Loans 18:USC 1014 • Bank Fraud 18:USC 1344 • Bank Bribery 18:USC 215 • Conspiracy 18:USC 371

3. 18 USC 1341 • Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises ... for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier ... or knowingly causes to be delivered by mail or such carrier according to the direction thereon ... any such matter or thing, shall be [guilty of a crime].

4. 18 USC 1341The Elements • There exists a scheme or artifice to defraud to obtain money or property • Defendant participated with knowledge of its fraudulent nature and with specific intent to defraud • In execution of the scheme, the defendant used or caused the use of the mailsor private or interstate commercial carrier

5. SchemesFraud Types Fraud for Housing Fraud for Profit

6. SchemesSOME Fraud Schemes • Purchases disguised as refinances • Cash-out Purchases/Equity Skimming • Builder Bailouts • Condo Conversions • Appraisal Fraud • True Name Fraud/Identity Fraud • Occupancy Fraud • Collateral Fraud • Flipping • Churning • Straw Buyer • Incentive Fraud • Real Estate Investment Fraud • SS Fraud • Check Kiting • Account Takeover

7. Intent • Often the most difficult to prove • Look at patterns between transactions • Look at mounting lies within transactions

8. Common Misrepresentations • Inflated values • Fabricated / altered usually inflated appraisals • Loan level misrepresentations • Fabricated / altered employment, income and asset documentation • False or misappropriated Social Security #’s • Misrepresentation of borrower source of funds to close • Occupancy misrepresentation • Suspicious disbursements on HUD-1 • Paying off cars; loans; credit cards • Remodeling; excessive commissions

9. Appraisal Report Red Flags • Appraisal dated before purchase agreement • Borrower name is missing or incorrect • Refinance – but the property is “vacant” and “subject to” • Appraisal ordered by the property seller and not broker / lender • Time frame between sales not enough for reported renovations made to property • Missing photos or maps • Age / effective age not supported • Leaving the neighborhood for comps • Photo is shot from a direct front view with no depth of field • Note in file with predetermined value

10. No Depth of Field

11. No Depth of Field

12. Income and Employment • Income and Employment • We’re “Back to the Future” – fraudulent docs • Qualifying documents are being manipulated and manufactured • Websites • Stated Income and No Income loans: • While these products continue to be inherently risky, the current market does not hold the tolerance of the past few years.

13. Loan Application Red Flags • Owner occupied refinance but living elsewhere • Compare against address on credit report / driver’s license • Borrower buying investment property but still lives at home or rents • Borrower is downgrading to smaller or less expensive house • Income inconsistent with the borrowers age and years on the job / profession • Borrower signature inconsistent with rest of the loan file • The employer’s phone number is a cell phone

14. Income Documentation • Pay stubs • Check numbers do not increase chronologically or same check numbers used on multiple checks • Round dollar numbers • Year-to-date totals are not accurately totaled • W-2s • Round dollar amounts • Employer identification number not valid • Wrong SSN or name spelling on W-2 • Font is different

15. VOE Red Flags • Verifications of Employment • Address for employer goes back to “perp” • White-outs or cross-outs on VOE • Round dollar figures or squeezed in numbers • Personnel is misspelled • Compare employment against credit report, bank statement (for automatic payroll deposit) or tax returns • VOE is completed on same day as ordered • Name of employer / employment incorporates some form of borrower’s initials

16. Asset Documentation • Verification of Deposits (VODs) • Bank statements • Down payment checks

17. Asset Documentation Red Flags • VOD not folded or does not contain a mailing address • Significant changes to balance from previous two months • VOD reflects an additional, non-borrowing account holder • VOD completed on the same day as ordered • Gift letter that is not backed up by written transfer of funds

18. Bank Statement Red Flags • Fuzzy copy of bank statement • Account holder name in different font • Statement cut off dates don’t foot with next month beginning date • Carry over balances don’t match with next month’s beginning balance • Debit purchase retailers / vendors out of area • Automatic payroll deposits not consistent with employment listed on loan application • No monthly payment deductions for debts listed on application • Bank statement includes NSF fees but has large balance • Closing check drawn on different bank

19. HUD-1 Who Gets Paid? • Phantom liens • Repair allocations • Referral and/or marketing fees • Non-lien disbursements • Assignment fees

20. Disbursements This is a “no money down” purchase disguised as a refinance This is a purchase transaction with even money payouts to unknown entities

21. HUD-1 Disbursements • Third party non-lien disbursements • Blaring red flags • Commitments made to borrowers (guaranteed rental payments) appear to be coming from proceeds of the sale rather than rental income

22. HUD-1 Red Flags • Property seller is corporation or LLC • No real estate broker involved • No loan payoff for seller • Unusual or unexplained disbursements such as repairs, referral or consulting fees • Seller’s address is the same as broker • Seller’s name inconsistent with name on appraisal and / or purchase agreement and / or title commitment

23. Title Commitment Red Flags • Vested owner on the title commitment is not the seller as listed on the purchase contract or HUD-1 • Should list all the liens against title and match to the HUD-1 • On refinance transaction, borrower is not the vested owner • HUD-1 contains payoffs for items not consistent with liens listed on commitment

24. The Mailor commercial interstate carrier • …places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, • or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier ... • or knowingly causes to be delivered by mail or such carrier according to the direction thereon

25. Two things to note • The statute is not limited only to the mail • Private or Commercial Interstate Carriers are also included • Think FedEx, DHL, UPS, etc… • Pay particular attention to “Interstate” • The fraudsters do not have to send the documents themselves • Causing another to unwittingly transfer the fraudulent documents works as well. • Think the “innocent” mortgage broker, title company, real estate broker, etc.

26. What is being sent? • In the age of electronic files banks still like to at least get a hard copy • After closing a title company usually sends the documents to the lender • As well as the land record authority • Possibly from brokers, appraisers, and other actors

27. One Last Thing • Penalty: • 20 years; $250,000.00 • When a financial institution is affected • 30 years; $1,000,000.00