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Federal Financial Institutions Examination Council,
Examiner Education
3501 Fairfax Drive
•
Room 3086
•
Arlington, VA 22226-3550
•
(703) 516-5588
•
FAX (703) 516-5487
•
 
http://www.ffiec.gov 
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration,Office of the Comptroller of the Currency, Office of Thrift Supervision
.
The Detection, Investigation, and Deterrence of Mortgage Loan Fraud Involving Third  Parties: A White Paper
 Produced by the October 27 – November 7, 2003 FFIEC Fraud Investigations Symposium
 Participants:
Donald Buford, Jeffry Petruy, Jeffrey Talley, James Ware, FDICAvery Belka, FRB-San Francisco, Carol Gorton, FRB-Chicago (Lead Writer),Rodney Jokerst, FRB-Kansas CityDarlene Callis (Moderator), Jon Canerday, NCUADebra Harwood, Randall Hoover, Ken Lennon, Ann Middleton, OCCEd Bodden, OTS
 Development Group:
Karen Currie, Debra Novak, FDICLaurie Bender, Dale Vaughan, FRBLynn Markgraf, NCUAMatt Johnson, Don Wiley, OCCDon Cooper, David Freimuth, OTSDennis Dunleavy, FFIEC, Senior Program Administrator
 Issued February 2005
 
The Detection, Investigation, and Deterrenceof Mortgage Loan Fraud Involving ThirdParties
 
Table of Contents Page
 
Introduction 1Background 1Motives 3Participants 4Basic Mortgage Transactions 5Appraisal Guidance 8Third Party Mortgage Fraud Mechanisms 8Collusion 9Document Misrepresentations 9Identity Theft 12Mortgage Warehousing 12Negligence 12Third Party Mortgage Fraud Schemes 13Appraiser Fraud 13Builder Bailout 13Chunking 14Double Selling 14Equity Skimming 14False Down Payment 15Fictitious Mortgage Loan 15Land Flip 16Phantom Sale 16Straw Borrower 17Red Flags, Internal Controls, and Best Practices 17Applications 18Appraisals 20Credit Report 22Escrow/Closing (Settlement Statement) 23Mortgage Brokers 25Title Insurance 26Verification of Employment 28Verification of Deposit 29Other 30
 
 
Table of Contents (continued) Page
Discovery and Follow-up 31Expansion of Review 32Documentation 33Interviewing 34Suspicious Activity Report (SAR) 35Referrals to State Appraiser Boards 35Conclusion 36AppendicesA - Glossary 37B - Mortgage Transaction Flow Charts 43C - Fraudulent Third Party Mortgage Schemes 47D - Optional Initial Diagnostic Checklist 55E - Criminal Statutes 58F - References and Resources 61G - Independent Appraisal and Evaluation Functions 63
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