Red Flags on Paystubs and Undisclosed Self-Employment Can Point To Fraud

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The presence of one or more red flags is not necessarily indicative of fraudulent intent, but it does point out the need for additional review.

Red flags must be documented in the loan file, including red flags identified through various underwriting engines like Fannie Mae (DU), Freddie Mac (LPA).

The following are just some examples of red flags related to paystubs:

• Payroll checks that are numbered, but do not increase chronologically with the pay dates.
• Dates of pay periods are inaccurate.
• Year-to-date totals do not balance or do not reflect the sum of pay period earnings, or year-to-date or pay period dates are inconsistent or overlap from paystub to paystub.
• Social Security number of the pay stub does not match the borrower’s Social Security number.
• Amount of income is not reasonable for the position held.
• The paystub from a major employer is handwritten rather than computer generated.
• There are inconsistencies in deductions when more than one check is present.
• All figures are in round dollar amounts.
• Amounts withheld for Social Security or Medicare are not consistent with the Social Security Program Rates and Limits.
• Employer’s address is a P.O. Box.
• Debts reflected on the payroll deductions are not reflected in the application.
• Name of the employer is similar to the borrower

The following are examples of red flags related to undisclosed self-employment:

• The business name contains the name or initials of the salaried borrower.
• Borrower and co-borrower are listed as “president” and “vice president” of the same company, yet not listed as self-employed.
• Borrower’s home phone number and employment phone number are the same, yet not listed as self-employed.

While this list is not intended to cover every red flag, this should serve to remind you that most fraudulent applications have telltale signs of potential fraud.

Stay tuned for more tips coming in the future.

Editor’s Note: A technical glitch cut off some of the bullets points in the original post. This has been corrected.  Our apologies for any confusion.

About the Author

Elliot Salzman

As Chief Credit/Compliance Officer, Elliot Salzman is responsible for enhancing and managing both the credit and compliance policy functions for LoanLogics LoanHD® platform to deliver a more comprehensive approach for ensuring loan quality. Additionally, Salzman oversees the organization's Credit and Compliance Policies and Procedures. With over 26 years of mortgage industry experience, he has held numerous executive and supervisory roles related to operations, credit and compliance policy. Elliot's areas of expertise include in-depth knowledge of the end-to-end loan origination process, process improvement, quality assurance, quality control, compliance, secondary, loss mitigation and servicing. A former Underwriting Standards Manager for Fannie Mae, he most recently served as Senior Director of Credit Operations for First Guaranty Mortgage Corporation. Salzman's previous roles include Senior Vice President, Director of Consumer Policy and Underwriting for BBVA Compass Bank and Vice President of Correspondent Lending for The Bank of Oklahoma. Prior to this, Elliot built a Wholesale Banking platform in 2002 that originated to his firm's own guidelines for sale into the secondary markets. In late 2006, Elliot sold the company to a small boutique Wall Street firm. Mr. Salzman attended State University of New York at Albany.