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Report
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.
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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.

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.
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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 selfemployment 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.

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.
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.
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The AML Compliance Person is vested with full
responsibility and authority to enforce the firm’s AML
program.
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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.
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
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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.
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Mandatory notification to law enforcement
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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.

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.
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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.
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Terrorist Financing
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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.
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Terrorist Financing continued
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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.
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Terrorist Financing continued
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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.

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.

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.
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Compliance
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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.

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
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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.
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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.
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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
 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.
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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.
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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.

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

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
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Reports of Suspicious Transactions
continued
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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.
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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.
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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.
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.
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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
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
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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.
Identification continued
 At a minimum, the Companies employees will
obtain the following information from a
borrower:
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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
Identification continued
 The following Red Flags should be considered:
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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
Deposit Account
 Deposit histories can show a pattern of
fraud and/or money laundering. The
following Red Flags should be considered:
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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.
Deposit Account continued
 Earnest money:
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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
Deposit Account continued
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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
Deposit Account continued
 Reasonableness Test
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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
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
Application

The completing of the application may bring concerns up
regarding a borrower. The following Red Flags should be
considered:
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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
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
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Sales Contract
 The sales contract needs to be reviewed for
the following Red Flags:
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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
Credit Report
 A credit report is required for all mortgage loan
files. The following Red Flags should be
considered:
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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
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
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Appraisal
 The appraisal needs to be reviewed for the following
Red Flags:
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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
Appraisal continued
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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
Title
 The title policy provides information about the
borrower, seller (if applicable) and the property.
The following Red Flags should be considered:
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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
Title
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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)
Owner Occupancy
 The occupancy status being manipulated
can lead to the discovery of fraud. The
following Red Flags should be considered:
 All Transactions
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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)
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
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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
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HUD-1 Settlement Statement
 The following Red Flags need to be
considered:
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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
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
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 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
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.
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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
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Straw Buyer
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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
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Straw Buyer continued
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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
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Air Loan
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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
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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
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Double Sale continued
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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
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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
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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
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Ponzi/Investment Club/Chunking
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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

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

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

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

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

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

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

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


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)

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

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

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

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

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

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

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

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

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

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

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

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 agerelated groups are targeted
 Parties to the transaction have a common
bond

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



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.



A minimum of once a year, the company’s
internal auditor or an independent thirdparty 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.




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.

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