Commercial Mortgage Loan Screening Checklist

The following is a list of common “red flags” to help alert processors, underwriters, and auditors to possible irregularities in the data submitted by a borrower or other parties to the transaction. It’s main purpose is to point out typical inconsistencies, which have been found in fraudulently obtained loans. While the presence of one or more of these terms is not necessarily indicative of fraudulent intentions, it should point out the need for additional review and documentation. These items may seemingly be legitimate when viewed independently, but when taken as a whole. a pattern of deception may begin to emerge.

Loan Application

• Borrower and co-borrower work for the same company.
• Same telephone number for home and work.
• Employer on application does not match employer name on pay stubs or W-2′s provided.
• Date of application and dates of verification forms are not consistent.
• Significant or contradictory changes from original to final typed loan application.
• Unsigned/undated application.
• Less than two year history for residence and employment on loan application.
• Unreasonable accumulation of assets compared to income.
• Lack of accumulation of assets compared to income.
• Borrower buying investment property but does not own current residence.
• Years of schooling not congruent to profession.
• Application discloses new automobile but no loan or lease on credit report.
• Purchase price not consistent with borrower’s earnings.
• Price/date of original purchase price not shown for refinances or does not match information provided on appraisal.

Employment Documents

• Round dollar amounts for YTD and past earnings.
• VOE sent to POB without any explanation.
• VOE prepared/signed by lender on same date as prepared/signed by employer.
• Incorrect spelling of something.
• Illegible signatures with no further identification.
• Employer has same name and address as seller.
• Income disproportionate to type/location of employment.
• Drastic change from previous position or profession.
• Borrower is professional but not registered/licensed.
• Incorrect FICA taxes on W-2′s and pay stubs.
• Company name not printed on paychecks.
• Company or Employee name not shown on paychecks and W-2′s.
• Excessive praise in remarks section of Verification of Employment.
• Date of hire was on holiday or weekend.

Tax Returns

• Tax computation does  not agree with tax tables.
• Address and/or profession on page two of the 1040′s does not agree with other information on loan application.
• High income borrower does not use a professional tax preparer.
• Professional tax preparer used off the shelf software such as Turbo Tax or Simply Tax.
• Real estate taxes paid but no property owned or vice versa (Schedule A).
• No mortgage interest paid but loan application represents property ownership or vice versa (Schedule A).
• No interest income claimed but loan application shows substantial cash in banks (Look for Schedule B).
• No “cost of goods” sold on retail or similar operations (Schedule C).
• Few or no deductions for high income taxpayer (Schedule A).
• Tax Returns marked “Draft” or are not the most recently filed tax returns.

Credit Report

• No established credit
• Variance in employment/residence data with loan application.
• Multiple recent inquiries from mortgage lenders.
• Borrower is authorized user on several trade lines.
• High income borrower with no accounts or recently established accounts.
• All trade lines opened same time.
• Dates on lines of credit do not correspond with borrower’s age.
• Limited credit history for income/age.
• AKA or DBA used by borrower (not maiden name).

Preliminary Title

• Seller not in title (double escrow)
• Prepared for/mailed to party other than lender.
• Seller in title for short period of time but will receive substantial cash out.
• Seller is a corporation and property is not new construction.

Signature

• Signature of borrower not consistent throughout loan package.
• All signatures in loan package appear the same.

Appraisal

• Information left blank or addendum’s missing.
• Ordered earlier than sales contract execution date.
• Comparable sales over 6 months old (3 months for declining markets).
• Multiple line adjustments in excess of 10% or gross adjustments over 25%.
• Property has or is currently listed for sale or refinance.
• Ordered by party other than the lender.
• Sales contract has sales concessions but no mention by appraiser.
• Photographs do not match description.
• Three years sales history has large increase/decrease in sales price without explanation from appraiser.

Source of Funds

• VOD prepared/signed by lender on same date as prepared/signed by depository.
• Account jointly owned with another party not on the loan.
• Unfamiliar depository institution.
• VOD sent to POB without an explanation.
• Out of state investment accounts are borrower’s only source of funds.
• Recently opened account with no source of funds.
• Excessive balance in checking account vs. savings.
• Borrower has no bank account (does not believe in banks) but has established credit.
• Round dollar amounts or squeezed in numbers.
• Illegible signatures with no further identification.
• NSF charges on account with high average balance.
• Bank statements appear to be PC generated without additional support to verify it is applicant’s account.
• Regular deposits (payroll deposits) are at odds with the pay stubs provided.