#FAM - Fraud Related to Employment Status or Down Payment/Equity

Fraud related to employment status or down payment/equity is one of the most common forms of fraud that occurs on a day-to-day basis. Why? Because these are some of the easiest forms of fraud to commit. This is why we have to fight fraud – because these types of fraud are committed so casually that they will surely lead to increased application scrutiny if we don’t work together to eliminate them.

Typically, self-employed individuals require increased income verification compared to those who work for a company and receive a computerized paystub. Where an applicant is employed, a lender is likely to ask for a current paystub, job letter and perhaps some banking history. If your client is self-employed on the other hand, they may need to provide 2 years for notice of assessment, T1 generals, financial statements and bank statements. Because some self-employed folks show a much smaller income after expenses are deducted, this makes getting deals done for some self-employed folks difficult – even when you know that they have money. This sets the stage for misrepresentation of employment.

Whether the client endeavours to do this on their own, or they have help from a broker, many self-employed individuals will represent themselves as employed. How can you identify if someone is really self-employed? In this regard, Google is your BFF.

1. Google your client. If you see them identify themselves online as owner, president, managing director – this could be a sign that your client may be self-employed.
2. Even if the bank only wants a paystub and job letter, ask the client for 6-12 months of bank statements. A good fraudster can effortlessly manage deposits for 3 months for the purpose of getting financing.
3. You can also run a search using an online service like OnCorp to see who the registered owner or officers of a company are – search the company name that was provided as the employer.

How about down payment fraud? Gift letters are the most common way that this type of fraud takes place. Thank goodness that CMHC and the bank are ok with accepting gift letters because without them many deals simply would not happen. Others will leverage a gift letter to hide that their down payment is borrowed money from another source or to hide that there is no down payment at all (perhaps the buyer and seller know each other and are working the system to their advantage). One way to uncover this type of fraud often is to ask the person who provides a gift letter to also provide ID and a bank statement showing that they actually have the money.

Being one step ahead of fraudsters by taking extra measures to identify them is step one to improving the mortgage industry and the cost of fraud to all. Purview For Mortgage Brokers has the tools to accomplish this. Call us today at 1.855.787.8439.