Mortgage Fraud Prevention

Stop fraud before it disrupts your business

The Fannie Mae Financial Crimes team dedicates its efforts to identifying fraudulent activities and sharing information that supports and educates our industry partners. Our goal is to help industry professionals become more proactive in the fight against mortgage fraud.

Mortgage fraud is a material misstatement, misrepresentation, or omission relied upon to fund or purchase – or not to fund or purchase – a mortgage, including a mortgage associated with a mortgage-backed security or similar financial instrument. 

We rely on our lender partners and other members of the mortgage industry for identification of potential mortgage fraud. Have information about mortgage fraud? Complete and submit the Suspected Mortgage Fraud Report or call 1-800-2FANNIE (1-800-232-6643). 

Want to receive updates about Fraud Alerts, risk management resources, training opportunities, and more? Subscribe to our Risk Management and Quality Control emails.



What's New

Fraud Alert: Appraiser Identity Theft (January 2024)

This alert involves a significant number of loans with appraisals that were completed by an unlicensed appraiser unlawfully using the identities of other actively licensed appraisers.

Read the Fraud Alert

Consumer Fraud Alert

Fannie Mae has learned of a consumer fraud scam involving a person who claims to be a Fannie Mae employee contacting people offering to modify their mortgage and requesting money or gift cards. Visit our consumer alert web page for more information, and please report any such scams to us:

1-800-2FANNIE (1-800-232-6643) Option 4

Beware of scams


Fraud Alerts

Fannie Mae’s Financial Crimes Team alerts the industry about potential and active mortgage fraud scenarios.


Mortgage fraud trends



May 2, 2024
Fannie Mae’s Financial Crimes team analyzes datasets from its investigative findings to gauge current mortgage fraud loan trends related to reported fraudulent activity.

May 2, 2024
Fannie Mae’s Financial Crimes team analyzes datasets from its investigative findings to gauge current mortgage fraud loan trends related to reported fraudulent activity.

Red flags & helpful tools

These resources will help you notice patterns and circumstances related to fraud. Use these tools to detect, protect from, and deter criminal activities.


Common red flags

Fannie Mae is committed to working with our industry partners to help combat fraud by offering the following list of common red flags that may indicate mortgage fraud. Inconsistencies in the loan file are often a tip-off that the file contains misrepresentations. The presence of one or more red flags in a file does not necessarily mean that there was fraudulent intent. However, several red flags in a file may signal a fraudulent transaction.

  • Social Security number discrepancies within the loan file.
  • Address discrepancies within the loan file.
  • Verifications addressed to a specific party’s attention.
  • Verifications completed on the same day they were ordered.
  • Verifications completed on weekend or holiday.
  • Documentation that includes deletions, correction fluid, or other alterations.
  • Numbers on the documentation that appear to be “squeezed” due to alteration.
  • Different handwriting or type styles within a document.
  • Excessive number of automated underwriting system submissions.
  • Significant or contradictory changes from handwritten to typed application.
  • Unsigned or undated application.
  • Employer’s address shown only as a post office box.
  • Loan purpose is cash-out refinance on a recently acquired property.
  • Buyer currently resides in subject property.
  • Same telephone number for applicant and employer.
  • Extreme payment shock (may signal straw buyer and/or or inflated income).
  • Purchaser of investment property does not own residence.
  • Non-arm’s length transaction: seller is real estate broker, relative, employer, etc.
  • Seller is not currently reflected on title.
  • Purchaser is not the applicant.
  • Purchaser(s) deleted from/added to sales contract.
  • No real estate agent is involved.
  • Power of attorney is used.
  • Second mortgage is indicated, but not disclosed on the application.
  • Earnest money deposit equals the entire down payment or is an odd amount for the local market.
  • Multiple deposit checks have inconsistent dates, e.g., #303 dated 10/1, #299 dated 11/1.
  • Name and/or address on earnest money deposit check differ from buyers.
  • Real estate commission is excessive.
  • Contract dated after credit documents.
  • Contract is “boiler plate” with limited fill-in-the-blank terms, not reflective of a true negotiation.
  • No credit history or “thin” credit files.
  • Invalid Social Security number or variance from that on other documents.
  • Duplicate Social Security number or additional user of Social Security number.
  • Recently issued Social Security number.
  • Liabilities shown on credit report that are not on mortgage application.
  • Length of established credit is not consistent with applicant’s age.
  • Credit patterns are inconsistent with income and lifestyle.
  • All tradelines opened at the same time.
  • Authorized user accounts have superior payment histories.
  • Significant differences between original and new or supplemental credit reports.
  • “Also known as” (AKA) or “doing business as” (DBA) indicated.
  • Numerous recent inquiries.
  • Missing pages and/or supplements.
  • Employment discrepancies.
  • Social Security number, death, or fraud alerts.
  • Applicant’s job title is generic, e.g., “manager,” “vice president.”
  • Employer’s address is a post office box, the property address, or applicant’s current residence.
  • Applicant’s residence is (will be) in location remote from employer.
  • Employer name is similar to a party to the transaction, e.g., uses the applicant’s initials.
  • Employer unable to be contacted.
  • Year-to-date or past-year earnings are even dollar amounts.
  • Withholding not calculated correctly (check FICA tables).
  • Withholding totals vary significantly from pay period to pay period.
  • Pay period dates overlap and/or do not correspond with other documentation.
  • Abnormalities in paycheck numbering.
  • Handwritten VOE, pay stubs, or W-2 form.
  • W-2 form presented is not the employee’s copy.
  • Employer’s identification number has a format other than 12-3456789.
  • Income appears to be out of line with type of employment.
  • Self-employed applicant does not make estimated tax payments.
  • Real estate taxes or mortgage interest claimed, but no ownership of real property disclosed.
  • Tax returns not signed or dated.
  • High-income applicant without paid preparer.
  • Paid preparer signs taxpayer’s copy of tax returns.
  • Interest and dividend income do not align with assets.
  • Applicant reports substantial income but has no cash in bank.
  • Large increase in housing expense.
  • Reasonableness test: income appears to be out of line with type of employment, applicant age, education, and/or lifestyle.
  • Down payment source is other than deposits (gift, sale of personal property).
  • Applicant’s salary does not support savings on deposit.
  • Applicant does not use traditional banking institutions.
  • Pattern of loyalty to financial institutions other than the subject lender.
  • Balances are greater than the FDIC or SIPC insured limits.
  • High-asset applicant’s investments are not diversified.
  • Excessive balance maintained in checking account.
  • Dates of bank statements are unusual or out of sequence.
  • Recently deposited funds without a plausible paper-trail or explanation.
  • Bank account ownership includes unknown parties.
  • Balances verified as even dollar amounts.
  • Two-month average balance is equal to present balance.
  • Source of earnest money is not apparent.
  • Earnest money is not reflected in account withdrawals.
  • Earnest money is from a bank or account with no relationship to the applicant.
  • Bank statements do not reflect deposits consistent with income.
  • Reasonableness test: assets appear to be out of line with type of employment, applicant age, education, and/or lifestyle.
  • Appraisal ordered by a party to the transaction.
  • Occupant shown to be tenant or unknown.
  • Owner is someone other than seller shown on sales contract.
  • Appraisal indicates transaction is a refinance, but other documentation reflects a purchase.
  • Purchase price is substantially higher than predominant market value.
  • Purchase price is substantially lower than predominant market value.
  • Subject property obsolescence is minimized.
  • Large positive adjustments made to comparable properties.
  • Comparables’ sales prices do not bracket the subject’s adjusted value.
  • Comparable sales are not similar in style, size, and amenity.
  • Dated sales used as comparable sales.
  • New construction/condo conversion: all comparable sales located in subject development.
  • Comparable properties are a significant distance from the subject, or located across neighborhood boundaries (main arteries, waterways, etc.).
  • Map scale distorts distance of comparable properties.
  • “For Rent” sign appears in photographs.
  • Photos appear to be taken from an awkward or unusual standpoint.
  • Address reflected in photos does not match property address.
  • Weather conditions in photos inconsistent with date of appraisal.
  • Appraisal dated before sales contract.
  • Significant appreciation in short period of time.
  • Prior sales are listed for subject and/or comparables without adequate explanation.
  • Prepared for and/or mailed to a party other than the lender.
  • Evidence of financial strain may indicate a compromised sale transaction (flip, foreclosure rescue, straw buyer refinance, etc.), or might suggest undisclosed credit problems in the case of a refinance; some indicators of financial strain may include:
    • Income tax, judgements, or similar liens recorded
    • Delinquent property taxes
    • Notice of default or modification agreement recorded
  • Seller not on title.
  • Seller owned property for short time.
  • Buyer has pre-existing financial interest in the property.
  • Date and number of existing encumbrances do not make sense.
  • Chain of title includes an interested party such as realtor or appraiser.
  • Buyer and seller have similar names (if concealed non-arm’s length).

Purchase transactions

  • Real estate listed on application, yet applicant is a renter.
  • Applicant intends to lease current residence.
  • Significant or unrealistic commute distance.
  • Applicant is downgrading from a larger or more expensive house.
  • Sales contract is subject to an existing lease.
  • Occupancy affidavits reflect applicant does not intend to occupy.
  • New homeowner’s insurance is a rental policy (declarations page).

Refinance transactions

  • Rental property listed on application is more expensive than subject property.
  • Different mailing address on applicant’s bank statements, pay advices, etc.
  • Different address reported on credit report.
  • Significant or unrealistic commute distance.
  • Appraisal reflects vacant or tenant occupancy.
  • Occupancy affidavits reflect applicant does not intend to occupy.
  • Homeowner’s insurance is a rental policy (declarations page).
  • Reverse directory does not disclose subject property address.
  • Borrower or seller names are different than sales contract and title.
  • Sales price is inconsistent with contract, loan approval, and/or appraisal.
  • Excessive earnest money or builder deposit.
  • Earnest money deposit is inconsistent with sales contract and/or application.
  • Payouts to unknown parties.
  • Refinance pays off previously undisclosed liens.
  • Excessive sales commissions.
  • Excessive fees and/or points.
  • Seller-paid closing costs, especially for purchaser with sufficient assets for down payment.
  • Cash proceeds to borrower are inconsistent with final application and loan approval.

Fraud schemes and their characteristics

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. 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 buyers are 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 (due to 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.

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.

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).

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, or chunking schemes involve 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.

A builder bailout is when a seller pays large financial incentives to the buyer and facilitates an inflated loan amount by increasing the sales price, concealing the incentive, and using a fraudulently inflated appraisal.


  • Typically involves new construction or new condo conversion.
  • Builder’s marketing material advertises rent credit and/or payment credit to investors.
  • The Closing Disclosure reflects unexplained pay-outs or inflated commissions (paid outside closing to buyer).
  • All comparables are from within the subject’s development and had inflated sales prices.

The homeowner is current on the mortgage, but the value of the home has fallen below the amount owed, so he or she applies for a purchase money mortgage on another home. After the new property has been secured, the buy and bail borrower will allow the first home to go into foreclosure.


  • The borrower defaults on the original mortgage shortly after purchasing a second property.
  • The borrower will be a first-time landlord (renting out the original property).
  • The borrower has minimal or no equity in the original property.
  • Inability to validate lease terms with the purported tenant.
  • Purported tenant has a pre-existing relationship with the homeowner.

A foreclosure rescue scheme involves foreclosure “specialists” who promise to help the borrower avoid foreclosure. The borrowers often pay for services that they never receive and, ultimately, lose their homes.


  • The borrower was advised by a foreclosure specialist to avoid contact with the servicer.
  • The borrower has paid someone to negotiate with the servicer on his or her behalf.
  • The borrower states that he or she is sending mortgage payments to a third party.
  • Borrower receives a purchase offer greater than the listing price.
  • Borrower states that he or she will be renting back from new owner.
  • The borrower quitclaimed (any portion of) the title to a third party at the advice of a foreclosure specialist.
  • Borrower signature varies between the short sale contract and loan origination documents.
  • The borrower has recently updated his or her contact information.
  • Borrower claims he or she does not have to pay because the mortgage is invalid (debt elimination).

In short sale fraud, the perpetrator profits by concealing contingent transactions or falsifying material information, including the true value of the property, so the servicer cannot make an informed short sale decision.


  • Sudden default, no workout discussions, and immediate offer at short sale price.
  • Ambiguous or conflicting reasons for default.
  • The mortgage delinquency is inconsistent with the borrower’s spending, savings, and other credit patterns.
  • Short sale offer is from a related party.
  • Short sale offering price is less than current market.
  • Cash-back at closing to the delinquent borrower or other disbursements that have not been expressly approved by the servicer (sometimes disguised as “repairs” or other payouts).
  • The buyer and real estate agent may be the same person or related parties.

An advance fee scheme perpetrated by foreclosure rescue specialists during which fees and/or payouts that were not approved by the servicer agreeing to the short sale are reflected on the Closing Disclosure.


  • Short sale Closing Disclosure has unauthorized management, consulting, or short sale negotiation fees.
  • Short sale Closing Disclosure reflects excessive unauthorized payoffs to second lien holders.

A non-arm’s length short sale scheme involves a fictitious purchase offer made by the homeowner’s accomplice (straw buyer) in an attempt to fraudulently reduce the indebtedness on the property and allow the borrower to remain in their home.


  • Purchaser has previous or current ownership of the subject property.
  • Purchaser address matches the borrower’s address.
  • Purchaser’s name is similar to the borrower’s.
  • Purchaser employment address matches the borrower’s employment address.

In a short sale flip scheme, the perpetrator manipulates the short sale lender into approving a short payoff and conceals an immediate contingent sale to a pre-arranged end buyer at a significantly higher sales price.

Short sale flip: title issues –transfer to business, LLC, or trust

Short sale loan characteristics

  • The borrower is not in title to the property on the date the short sale closes.
  • Short sale Closing Disclosure dated after title transferred to third party, yet borrower is listed as seller.
  • The borrower is transferring title to a business, trust, or LLC.

End purchase loan characteristics

  • The seller is not the recorded title holder.
  • The seller on the sales contract does not match current owner on appraisal or vesting on title.
  • The title commitment is dated prior to the sales contract or initial loan application.
  • Title commitment requires additional deeds to be recorded to perfect “current vested owner.”
Short sale flip: bait-and-switch with “decoy closing disclosure”


  • The seller is netting significant cash.
  • Title reflects outstanding significantly higher liens than amounts to be paid on the Closing Disclosure.
  • All liens reflected on title are not being paid on the Closing Disclosure.

In a reverse mortgage fraud scheme, the perpetrator manipulates a senior citizen into obtaining a reverse mortgage loan and then pockets the senior victim’s reverse mortgage loan proceeds.


  • The senior claims he/she received the house free from a “special government program.”
  • Distressed property is quitclaimed to the senior just prior to the reverse mortgage loan application.
  • There is a power of attorney acting on behalf of the senior.
  • A caregiver or family member appears to be coaching the senior.
  • The power of attorney is held by a caregiver, but the senior has relatives (children, grandchildren).
  • The senior has no prior homeownership.
  • “For Sale” sign in the yard.
  • Appraisal photos suggest the property is vacant.
  • Appraisal uses comparable sales that are outdated or outside of the property’s neighborhood.
  • Communication with the loan officer is only done through the person holding power of attorney.
  • The senior’s credit report is inconsistent with information on the loan application.
  • Monthly mortgage statements are not sent to the senior’s address.
  • The senior borrower withdraws large amounts of cash or has unusual spending activity.
  • The senior obtains a reverse mortgage but deposits little or no funds into his or her bank account.
  • Proceeds of the reverse mortgage are being used to satisfy a non-borrower lien.
  • Power of attorney documentation is inconsistent with physician letters and dates regarding competency of the senior borrower
  • The senior claims he or she invested the loan proceeds in an annuity or other financial product
  • The senior takes Home Equity Conversion Mortgage loan proceeds in a lump sum at closing (fraudsters are not interested in the line of credit or annuity distribution options.)
  • The loan officer’s bank account reflects large deposits/withdrawals inconsistent with income.

In affinity fraud, perpetrators rely on a common bond and exploit the trust and friendship that typically exist in the group of individuals with a common bond to support the scheme. Certain ethnic, religious, professional, or age-related groups are targeted.


  • Parties to the transaction (loan officer, closer, realtor, borrower, appraiser, etc.) have a common bond.
  • Common surnames for multiple parties to the transaction.
  • The borrower’s excessive assets do not align with job type.
  • Large gifts from group members as the source of down payment.
  • The borrower works for what appears to be a member of the group.
  • Common tactics include the use of straw buyers, falsified gift funds, and altered employment or asset documentation.

In reverse occupancy fraud, a borrower buys a home as an investment property and lists rent proceeds as income to qualify for the mortgage. But then instead of renting the home, the borrower occupies the home as a primary residence.


  • The subject properties are sold as investment properties.
  • Purchasers are first-time home buyers with minimal or no established credit.
  • Purchasers have low income but significant liquid assets that are authenticated by bank statements.
  • Purchasers make large down payments.
  • The appraisal has a comparable rent schedule (to show expected rental income from the subject property).
  • Purchasers present “rent free” letters stating they are not paying rent to live in their primary residence.
  • The purchasers and other parties to the transaction belong to an identifiable group that share certain characteristics that are often seen in cases of affinity fraud.
  • Transactions occurring in a specific geographic region.

The use of a combination of legitimate personally identifiable information (PII) along with other real or fabricated information to create a new fictitious person or entity in order to commit a dishonest act for personal or financial gain.

Desktop Underwriter potential red flag messages

Desktop Underwriter® (DU®) red flag messages help lenders detect inconsistencies and potentially fraudulent transactions. This information is intended to provide greater clarity around what causes DU to return each potential red flag message and our recommended approach for reviewing information when each of these messages is received. The appearance of these messages does not affect the underwriting recommendation from DU, but the messages are designed to help lenders detect inconsistencies and potentially fraudulent transactions. The absence of any of the following messages does not indicate or imply Fannie Mae’s acceptance of the accuracy of the data submitted to DU. Lenders continue to be responsible for the accuracy of the data entered

Message text 
Based on the credit data received, a borrower has frozen their account with one of the credit repositories. No data from that repository was used in underwriting the loan casefile. The lender remains responsible for preventing fraud, which includes, but is not limited to, ensuring the borrower’s identity has been verified. In addition, the lender must continue to investigate any liabilities or derogatory credit that is disclosed by the borrower but not reflected on the credit report.

Note: For borrowers without a credit score, a similar message will be issued that will also state there is no data available from the other two repositories.

What causes DU to return this message?
When credit for the borrower(s) is frozen at one of the three credit repositories (Equifax, Experian, or TransUnion).

We recommend review of the following:

  • Borrower’s identity to help prevent fraud.
  • Online loan application and file documentation to review and investigate any liabilities or derogatory credit disclosed by the borrower.

Message text 
Based on information provided on a prior submission, it appears that the subject property address and/or Doc File ID have been modified. As a reminder, the DU loan casefile ID is unique to an individual mortgage loan. The same casefile ID may not be used to underwrite more than one mortgage loan in DU. If a new loan is being originated, a new DU loan casefile must be created. The data associated to the existing loan casefile must then be updated to reflect the final terms of the loan it was originally used to underwrite.

What causes DU to return this message?
When the subject property address or the Doc File ID is changed from the previous submission. Once the message is issued, it will continue to be issued on all resubmissions, even if the information is changed back to the original values.

We recommend review of the following:

  • Current submission data to ensure only data for the specific loan is included in the loan casefile.
  • Previous submission data to ensure no other loans were delivered with that casefile ID.

Message text 
This loan has experienced an unusually high number of submissions. Excessive submissions can indicate improper manipulation of loan application data. We recommend that you review the loan application to ensure accuracy.

What causes DU to return this message?
An unusually high number of submissions on the loan transaction in combination with changes to certain data elements.

We recommend review of the following:

  • Appraisal to ensure that an accurate value has been provided.
  • Credit documents to check the accuracy and integrity of the borrower’s asset and income data.

Learn more about mortgage fraud

Anti-fraud partnership training series

Our anti-fraud training tutorials offer preventative measures to keep your team informed and able to detect and prevent fraud. The tutorials can support existing policies, processes, and procedures and encourage new and more effective approaches.

Types of mortgage fraud

The FBI has prioritized mortgage fraud into two distinct areas: fraud for profit and fraud for housing.

Fraud for profit

Fraud for profit occurs when industry professionals misuse their expertise to participate in fraudulent activity in effort to maximize cash and equity on a loan transaction. These industry insiders include licensed and non-licensed appraisers, attorneys, loan originators, mortgage bankers, and mortgage brokers.

Fraud for housing

Fraud for housing is committed by borrowers who participate in illegal activities in an attempt to either acquire or maintain homeownership. They manipulate information and industry professionals.

Fraud can be committed by the homebuyer, seller, or lender, and often relates to deceoption involving income, debt, credit, and/or property value.