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|Issued:||June 17, 2010|
|Subject:||Updated Advisory to Financial Institutions on Filing Suspicious Activity Reports Regarding Loan Modification/Foreclosure Rescue Scams|
The Financial Crimes Enforcement Network (FinCEN) is issuing this advisory to supplement the guidance in its advisory of April 6, 2009, regarding loan modification and foreclosure rescue scams (April 2009 Advisory).1 Continuing fraudulent activity in the housing market and recent adjustments and promotions related to the Home Affordable Modification Program (HAMP) and other Federal programs2 is the impetus for issuing this advisory. With increased consumer activity in these programs, incidents of modification and foreclosure "rescue" schemes also could increase. Information contained in this advisory is intended to inform and assist financial institutions when filing Suspicious Activity Reports (SARs) regarding such activities. Additional information on foreclosure rescue schemes and mortgage fraud in general may be found on the Mortgage Fraud Section3 of FinCEN's website.
SARs continue to be one of the most valuable sources of data for law enforcement and regulatory agencies in their investigation and prosecution of crimes involving loan modification and foreclosure rescue schemes and other residential mortgage-related crimes. This advisory contains updated examples of common fraud schemes and potential "red flags" for fraudulent activity related to loan modification and foreclosure rescue schemes. It also reminds financial institutions to use key words when completing SARs to assist law enforcement in its efforts to target this type of fraudulent activity.4 Using this additional information, the vigilance of financial institutions together with law enforcement efforts against illicit mortgage-related activities will make an important contribution to the minimization of illicit financial schemes.5 3
Potential Indicators of Foreclosure Rescue Scams and Advance Fee Schemes
Early SARs indicating loan modification and foreclosure rescue schemes identified subjects purporting to be loan modification or foreclosure rescue specialists, who targeted financially distressed homeowners with promises of assistance, but whose actions resulted in the homeowners' loss of ownership in or title to their property. In a typical advance fee arrangement, the perpetrators contact financially distressed homeowners with promises to negotiate a loan modification to prevent foreclosure. The perpetrators insist upon payment of an advance fee, sometimes totaling thousands of dollars. They frequently caution the homeowner from discussing the arrangement, particularly with the lender, to avoid jeopardizing the negotiations. The perpetrators never contact the lender to modify the loan, and the homeowner's loan continues to foreclosure.
Financial institutions should be alert to indicators of suspicious activity where customers may be either unwitting victims or willing collaborators with the scheme's primary subject. The activities of financial institutions may intersect with these loan modification/foreclosure rescue scams in two ways. First, persons or entities perpetrating loan modification/foreclosure rescue scams may seek the services of financial institutions for the purpose of receiving, depositing or moving funds relating to the scams. With respect to these circumstances, consistent with anti-money laundering obligations pursuant to 31 CFR Part 103, financial institutions are reminded of the requirement to implement appropriate risk-based policies, procedures, and processes, including conducting customer due diligence on a risk-assessed basis to avoid misuse and aid in the identification of potentially suspicious transactions. Second, financial institutions may become aware of such scams through their interactions with customers who have become victims.
The following list of "red flags" identifies only possible signs of fraudulent activity and any one red flag should be viewed in context with other indicators and facts. The presence of any of these red flags in a given transaction or business arrangement may underscore the need for further due diligence and possibly the need to file a SAR.
Red Flags Identified by FinCEN's State Regulatory Partners
Recent Red Flags Identified Through SAR Reporting
Jointly with this advisory, FinCEN issued a June 2010 Mortgage Loan Fraud Report7 that reviewed and analyzed a sample dataset of over 3,500 relevant SARs filed between January 1, 2004, and December 31, 2009. The most prevalent activities relating to loan modification and foreclosure rescue schemes described in SARs filed since April 2009 - the date of the initial Advisory regarding foreclosure rescue scams - are listed below by industry sector.
Based on SAR analysis, perpetrators have been resourceful in abusing all types of financial institutions to further their criminal activity. Reporting of mortgage loan fraud activity by financial institutions other than depository institutions may indicate that the financial industry as a whole has benefited from the April 2009 Advisory.
Depository Institution SARs
Money Services Businesses SARs
Securities and Futures Industries SARs
Suspicious Activity Reporting Suggestions Regarding Loan Modification/ Foreclosure Rescue Scams
FinCEN's April 2009 Advisory resulted in a significant increase in SAR filings related to loan modification and foreclosure rescue schemes. However, filers continue to use a variety of descriptive terms for loan modification and foreclosure rescue schemes instead of the requested term "foreclosure rescue scam." This advisory reminds filers that including the term "foreclosure rescue scam" enables law enforcement to search for and identify fraudulent activity more easily when reviewing SAR information, which assists in focusing investigative resources.
We further request that the Suspect/Subject Information Section of the Suspicious Activity Report include all information available for each party suspected of engaging in suspected fraudulent activity - including information such as individual or company name, address, phone number, and any other identifying information.10 When the homeowner is believed to be simply a victim, the SAR filer should include all available information in the narrative portion of the SAR about the homeowner and his or her property to better assist law enforcement in investigating and prosecuting these potential crimes. The homeowner should not be listed as a suspect unless there is reason to believe the homeowner knowingly participated in the fraudulent activity.
FinCEN continues to monitor SARs that identify mortgage loan fraud and loan modification and foreclosure rescue schemes. Further advisories and reports will be issued as appropriate, to provide institutions with timely and useful guidance and information.
Financial institutions that have questions or comments regarding the contents of this Advisory should contact FinCEN's Regulatory Helpline at 800-949-2732.