Fannie Mae

Fannie Mae is committed to working with our industry partners to help combat fraud by providing this list of fraud schemes
and their characteristics.
Common characteristics accompany most fraud-for-profit schemes, and identifying them can be helpful in determining
whether a loan is part of a larger fraud scheme. Inconsistencies in the loan file are often a tip-off that the file contains
misrepresentations (more detailed loan-level “red flags” are published in the Fannie Mae document Common Red Flags).
These characteristics are only indicators of a potential scheme; the presence of one or more of these characteristics does
not necessarily mean that there was fraudulent intent, but it may warrant careful examination.
Straw Buyer Characteristics
Straw buyersare loan applicants used by fraud perpetrators to obtain mortgages and are used to disguise the true buyer
or the true nature of the transaction.
 Mortgage payments are made by an entity other than the borrower
 The loan is usually an early payment default
 First-time home buyer with a substantial increase in housing expense
 Buyer does not intend to occupy: unrealistic commute, size or condition of property, etc.
 No real estate agent is employed (non-arm’s length transaction)
 Power of attorney may be used
 “Boiler plate” contract with limited insertions not reflective of a true negotiation
 Income, savings, and/or credit patterns are inconsistent with the applicant’s overall profile
 High loan-to-value (LTV) ratio, limited reserves, and/or seller-paid concessions
 Inconsistent signatures found throughout the file
 Use of gift funds for down payment and/or closing costs, minimum borrower contribution
 Title to the property is transferred after the sale closes
Air Loan Characteristics
An air loan is a loan to a straw or non-existent buyer on a non-existent property
 Air loans typically involve straw buyers (refer to “Straw Buyer Characteristics” section)
 No real estate agent is employed (fictitious transaction)
 Mortgage payments are made by an entity other than the borrower
 Common payer among loans is involved in scheme
 Common mailing address among loans is used in scheme
 Unable to independently validate chain of title
 The lender is experiencing financial distress

Double Sale Characteristics
A double sale is the sale of one mortgage note to more than one investor.
 Mortgage payments are made by an entity other than the borrower
 Mailing address is not the borrower’s address
 Two mortgages recorded on the same property
 Mortgage is not recorded in first lien position
 The lender is experiencing financial distress
 Two notes may be identical except for signatures (or one may be a color copy)
Property Flip Characteristics
Illegal property flipping occurs when property is purchased and resold quickly at an artificially inflated price, using a
fraudulently inflated appraisal.
 Flips typically involve straw buyers (refer to ”Straw Buyer Characteristics” section)
 Flips sometimes involve naïve purchasers
 Seller very recently acquired title, or is acquiring title concurrent with the subject transaction
 No real estate agent is employed (non-arm’s length transaction)
 Property was recently in foreclosure, or acquired at real estate owned (REO) sale at low sales price
 The appraised value is fraudulently inflated
 The appraiser frequently uses other property flips as comparables (examine comparable properties’ sales
histories)
 Owner listed on appraisal and/or title may not match the seller on the sales contract
 Refinance transaction used to pay off private short-term financing
Ponzi/Investment Club/Chunking Characteristics
Ponzi, investment club, or chunking schemesinvolve the sale of properties at artificially inflated prices, pitched as
investment opportunities to naïve real estate investors who are promised improbably high returns and low risks.
 No real estate agent is employed (club recruits buyers and/or non-arm’s length transaction)
 Property was recently in foreclosure or acquired at REO sale at a low sales price
 Borrower may have paid a membership fee to participate in the “club”
 First-time landlord with non-savvy investors
 Seller offers to manage these rental properties
 Borrower may have been told that the seller or the “club” would make mortgage payments
 Borrower purchased multiple properties simultaneously, but did not disclose other loans in process to their
lender (this is called “shot-gunning;” watch for credit inquiries)
 The appraised value is fraudulently inflated (see “Property Flip Characteristics” section)
 Renovations performed by firms owned by members of the investment club

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