Freddie Mac: 3 Red Flags + 4 Tips to Fight Affinity Fraud
April 28, 2016
Can you trust someone simply based on the fact you share a religion, neighborhood or other commonality?
Affinity fraudsters want you to think so.
With affinity fraud, a scam artist preys upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are – or pretend to be – members of the group.
In the past few months, the Freddie Mac Financial Fraud Investigation Unit (FFIU) has heard an increase in reports from Seller/Servicers related to suspected affinity fraud. That’s why we want to help you – and your borrowers – understand the psychology and sociology behind this type of fraud.
What Should You Know?
- We tend to trust people like us. We assume they have the same values as we do. Any good salesperson can do this, but a salesperson within your own community increases the chance you’ll go along with it.
- Affinity fraud cases are usually geographically-centric. We’re inclined to feel comfortable in our own neighborhoods. Sometimes the most egregious offenders are hiding in plain sight.
- Proving that there’s affinity fraud is harder than with other types of fraud because participants are often less willing to admit to an “outsider” that fraud occurred. They’ll protect others within the group or may be too embarrassed to tell anyone.
Recent Affinity Fraud Examples
In one recent instance, a mortgage fraudster was sentenced to 30 to 99 years in prison and ordered to pay $400,000 in restitution for a “faith-based” mortgage assistance scam that was marketed through Christian networks and ministries.
Freddie Mac’s FFIU has also investigated reverse occupancy schemes that involve a common ethnicity and an investment scheme in which all the participants worked out at the same gym.
Three Red Flags
To help you detect, prevent and report affinity fraud as soon as possible, please look out for:
- Overuse of gift funds. The amount given by the gift donor doesn’t feel reasonable.
- Questionable income and employment. All the borrowers are in similar lines of work.
- Questionable occupancy. Borrowers qualify for an investment mortgage using rental income to offset a mortgage payment they wouldn’t otherwise qualify for and assets that don’t match their levels of income.
Four Tips to Avoid Affinity Fraud
Follow these four tips for avoiding this scam – and share them with your organization and with your borrowers, too.
- Do your research. Someone offers you a real estate opportunity. Check out the person’s background, as well as the investment itself, no matter how trustworthy the person who brings the investment opportunity to your attention seems to be. When doing business with someone you know, it’s wise to have an objective person review the transaction/documents before moving forward.
- Don’t make assumptions. Beware of making any investment based solely on a recommendation from a member of an organization or group to which you belong. Not everyone like you is on the up and up.
- There’s no free lunch. Be skeptical of any investment opportunity that promises risk-free returns or mortgage/default relief with fees. If it sounds too good to be true, it probably is.
- Get it in writing. Avoid agreeing to anything you can’t get in writing and situations where you are told to keep the investment opportunity confidential or a secret.
For More Information
- Read the Single-Family mortgage fraud mitigation best practices document [pdf] and mortgage screening checklist [pdf].
- Visit the Freddie Mac fraud prevention web page and share our updated resources with appropriate members within your organization.
- Refer to Single-Family Seller/Servicer Guide Chapters 3100 and 3200 for our complete requirements on fraud prevention, detection and reporting.
- Contact us immediately if you suspect fraud related to any loans we’re working on together. Call (800) 4FRAUD8 or email Mortgage Fraud Reporting.
Source: Freddie Mac