CMFC flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Mortgage fraud definition

A material misstatement, omission, or scheme used to obtain a mortgage loan or related proceeds to which the borrower or participant is not entitled; distinct from predatory lending, which concerns abusive terms.

Fraud for housing

Fraud committed by a borrower who intends to occupy and repay the loan; typically involves income or asset misrepresentation and causes lower average losses than fraud for profit.

Fraud for profit

Fraud committed primarily to extract equity or fees, usually involving industry insiders, straw buyers, or inflated appraisals; causes higher average losses and is the focus of most investigations.

18 U.S.C. § 1014

Federal criminal statute prohibiting knowingly making false statements or willful overvaluations to a federally insured financial institution in connection with a loan application.

Suspicious Activity Report (SAR)

A confidential report filed with FinCEN under the Bank Secrecy Act when a financial institution suspects fraud or other suspicious activity; SAR confidentiality is protected by statute.

URLA / Form 1003

The Uniform Residential Loan Application, the central origination document capturing income, employment, assets, liabilities, occupancy intent, and identity; the most common point of misrepresentation.

Automated underwriting system (AUS)

Software such as Fannie Mae's Desktop Underwriter or Freddie Mac's Loan Product Advisor that evaluates loan data against investor guidelines; its output is compared to third-party verifications.

Income verification (4506-C)

IRS Form 4506-C authorizes the lender to obtain tax transcripts directly from the IRS, used to verify reported income against tax returns and detect overstated or fabricated income.

Straw buyer

A nominal borrower with acceptable credit used to obtain a loan for a property controlled by another party; indicators include inability to explain the purchase and mismatched down payment source.

Appraiser independence (AIR)

Regulation Z § 1026.42 prohibits lenders and loan officers from coercing or influencing appraisers; violations can result in civil penalties and undermine valuation integrity.

Early payment default

A loan that defaults within the first few payments; a strong fraud indicator because it suggests the borrower never intended or was never able to repay.

Occupancy fraud

Borrower represents intent to occupy as a primary residence but actually purchases as an investment or for a straw buyer; red flags include distant property and multiple primary-residence claims.

Income fraud

Overstated or fabricated wages, self-employment income, or rental income; detected through IRS tax transcripts, W-2 matching, written or verbal VOE, and CPA letters.

Asset fraud

Fabricated or inflated bank statements, undisclosed borrowed funds, or gift funds that are actually loans; controlled through source-of-funds documentation and large-deposit sourcing.

Synthetic identity

A fictitious identity combining real and fabricated data, such as a real SSN with a different name; indicators include thin credit history and a SSN that does not match name or age.

Verification mill

A fraudulent service that answers employment or income verification calls on behalf of a fictitious employer; indicators include generic answering services and recently formed businesses.

Appraisal inflation

An appraised value significantly above neighborhood norms or supported by invalid comparables; a common mechanism in flipping and straw-buyer schemes to extract excess loan proceeds.

Property flipping scheme

Purchasing a property, making minimal improvements, and reselling at an artificially inflated price to a straw buyer; indicators include short holding periods and large undocumented price increases.

House stealing

A fraud scheme in which a fraudster transfers title to a property without the owner's knowledge using forged deeds or identity theft, then obtains a loan against it.

Automated valuation model (AVM)

A statistical model that estimates property value from public records and market data; used as a fraud detection and review tool alongside appraisals and MLS history.

Appraiser coercion

Pressure from loan officers or brokers on appraisers to hit a target value; prohibited by Regulation Z § 1026.42 and a red flag for valuation fraud.

Loan officer fraud scheme

Falsifying borrower income, assets, or occupancy to qualify a loan, or steering borrowers to higher-cost products to increase compensation; a common insider fraud pattern.

Builder fraud indicators

Inflated sales prices to cover undisclosed concessions or upgrades, affiliated lender arrangements without disclosure, and phantom upgrades not actually built.

Settlement agent fraud

Altering the Closing Disclosure, failing to pay off prior liens, or diverting escrow or payoff funds; the settlement agent is the last control point at closing.

NMLS licensing

The Nationwide Multistate Licensing System tracks state licensing of loan originators and mortgage brokers; state regulators can suspend or revoke licenses for fraud.

Document red flags

Inconsistent fonts, mismatched dates, photocopies presented as originals, and verification letters with no verifiable contact information; indicators requiring independent corroboration.

Investigative interview funnel

An interviewing technique that begins with open-ended general questions and narrows to specific questions, documenting answers contemporaneously and avoiding leading questions.

Portfolio-level detection

Fraud detection using early payment default review, post-closing QC sampling, and trend analysis of originators, appraisers, and title agents across many loans.

Chain of custody

A documented record of who collected, handled, and stored evidence, when, and how; required to preserve admissibility and prove evidence integrity.

Hash value for e-evidence

A cryptographic fingerprint of an electronic file used to prove it has not been altered; recorded at collection and verified later to establish integrity.

HUD OIG referral

A referral to the Department of Housing and Urban Development Office of Inspector General for suspected fraud in FHA-insured loans; may lead to criminal or civil action and debarment.

FIRREA civil penalties

The Financial Institutions Reform, Recovery, and Enforcement Act allows civil penalties for mail, wire, and bank fraud violations affecting federally insured institutions, often used alongside criminal charges.