The Pay Stub That Did Not Match the Tax Transcript
A loan officer submits a $320,000 purchase file. The borrower states monthly income of $7,800. The file contains a W-2 from Northstar Staffing showing $93,600 in wages, pay stubs showing $7,800 per month, and a tax transcript showing $41,200 in wages. The verification of employment reaches an HR representative who says the borrower is an on-call associate with no guaranteed hours. The borrower's handwritten letter says she is a senior account manager working 50 hours per week. The pay stubs have no state withholding, a font mismatch in the year-to-date column, and an employer identification number that does not match the W-2. When the borrower calls to ask why the loan is delayed, she says, 'My boss will fix the letter.' The loan officer says, 'She's a nice lady; maybe the payroll company messed up.'
1. Evaluate the income and identity indicators and explain what distinguishes a document defect from potential fraud.
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The file has multiple independent inconsistencies. The tax transcript is the strongest third-party evidence and shows $41,200 in wages, far below the $93,600 W-2 and the $7,800 monthly pay stubs. The HR statement that the borrower is an on-call associate contradicts the written employment letter claiming a senior account manager with 50 hours per week. The pay stubs lack state withholding, which may be legitimate in some states but requires explanation, and the font mismatch in the year-to-date column suggests alteration. The EIN mismatch between the W-2 and pay stubs is a serious document-integrity indicator because the same employer should have the same EIN.
A single defect can be a clerical error. Here, the defects are cumulative and point in the same direction: income inflation. The borrower's statement that her boss will 'fix the letter' is ambiguous; it could reflect a helpful employer or an attempt to manufacture support. The loan officer's comment minimizes the issue without investigation. The combination warrants a fraud inquiry, not a quick explanation.
2. Plan the investigative interview: sequence, question style, documentation, and how to avoid contaminating the evidence.
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Interview the borrower before confronting the loan officer, and use a non-accusatory, fact-finding approach. Start with open-ended questions: 'Describe your job and how you are paid,' 'Who prepares your pay stubs?', 'Why does the tax transcript show a different amount?', and 'Walk me through the employment letter.' Let the borrower explain before presenting documents. Then move to specific questions about the EIN, state withholding, hours, and the person who would 'fix the letter.' Ask for permission to contact the employer's payroll provider and for original documents.
Document the interview contemporaneously: date, time, participants, questions, answers, and any documents provided. Do not reveal the HR statement early if doing so would allow the borrower to tailor an explanation; instead, ask about her understanding of her employment status. Do not threaten criminal prosecution or promise leniency. If policy permits recording, obtain consent. Obtain a signed written statement if the borrower is willing. Preserve the original pay stubs, W-2, tax transcript, employment letter, and all emails. After the borrower interview, interview the loan officer and preserve the comment about the payroll company.
3. What decision should be made about the loan, and what reporting or escalation is appropriate?
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The loan should be suspended and, if the income cannot be independently verified, denied. The file cannot rely on the W-2 and pay stubs when the tax transcript and HR statement contradict them. A new verification of employment, a tax transcript recheck, and direct contact with the payroll provider may resolve the discrepancy, but the burden is on the borrower and the employer to explain. The loan officer's minimizing comment and the borrower's offer to have the letter 'fixed' increase the risk of misrepresentation.
Escalate to compliance and management. Document the conflicting evidence and the interview. If the institution is BSA-covered, evaluate whether the conduct meets the SAR threshold; income fraud and altered documents can qualify depending on the amount and pattern. Notify the investor if the loan has been sold or is subject to repurchase. Consider whether the loan officer facilitated the submission of altered documents and whether a licensing or employment referral is warranted. Do not accuse the borrower of identity fraud without evidence; the current record supports income misrepresentation, not necessarily identity theft.