# How to spot fraud and inconsistencies in a loan file

Updated September 26, 2026

Check the file against itself, then against sources the borrower doesn't control. Line up identity, employment, income, assets, debts, occupancy and value across every document, write down each disagreement, and settle it with IRS transcripts, a verbal VOE to a number you found yourself, direct asset verification and a new credit report.

## Key numbers

- **30 days** to notify Fannie Mae after due diligence gives a reasonable basis for fraud (A3-4-03)
- **$1 million** in aggregate UPB, or more than five Freddie mortgages, in a possible scheme triggers Freddie's one-business-day report (3201.2(c))
- **10 business days** before the note date: Fannie's window to confirm current employment (B3-3.1-04)

## Cross-document checks

| Check | Compare | A mismatch can mean | Source |
|---|---|---|---|
| Identity | Name, SSN and address across 1003, credit report, paystubs, W-2s, transcripts, statements | Identity theft or SSN discrepancy | Fannie A3-4-03 (fraud types) |
| Employer | Employer on paystub, W-2 and VOE against an independently found phone number and address | Fictitious or misstated employment | Fannie B3-3.1-04; Freddie 3402.2(b) |
| Income | Paystub year-to-date, W-2, IRS transcript, payroll deposits | Misrepresented income | Fannie B3-3.1-02, D1-3-03; Freddie 3402.2(b) |
| Assets | Statements against direct verification; large deposits | Misrepresented assets, borrowed funds | Fannie B3-4.2-02, D1-3-03 |
| Debts | New credit report against the original; payments on bank statements | Undisclosed liabilities | Fannie D1-3-03; HUD V.A.3.c.ii(A) |
| Occupancy | Insurance policy, appraisal, tax returns or transcripts, leases | Occupancy misrepresentation | Fannie D1-3-03 |
| Value | Appraisal against the contract, comparables and data tools | Inflated value, property flip | Fannie D1-3-03; Freddie 3402.2; HUD V.A.3.c.ii(C) |
| Parties | Participants against exclusion lists | Excluded party involvement | Fannie A3-4-03; Freddie 3201.2(b) |

## Build the grid first

Fannie Mae's fraud topic, A3-4-03, lists the schemes: undisclosed liabilities, misrepresentation of income or employment, credit, assets, occupancy or property value, identity theft or SSN discrepancy, and property flips based on inflated appraisals. Freddie Mac's red flags add "irregularities in the loan application or Mortgage documentation (e.g., false documents, forgeries, excessive gift funds)."

Each scheme leaves traces in more than one document. Put the borrower's name, SSN, current address, employer, income, account balances and monthly debts down the side, the documents across the top, and fill in every cell. Most fraud shows up as a cell that disagrees with the rest of its row.

The agencies expect this. Freddie Mac's 3402.2(c) requires a data integrity review of every sampled mortgage "to ensure that the loan data is accurate and consistent."

FHA requires the lender to evaluate every discrepancy, confirm the documents "were as represented, were not handled by Interested Parties," and resolve conflicting information with the underwriter (4000.1 V.A.3.c.ii(B)(2)).

## Income: go to the IRS and the bank

When tax returns supported the income, Fannie's post-closing QC must request transcripts with Form 4506-C, and the lender "must reconcile the IRS transcript information with the corresponding income documentation in the loan file." That's D1-3-03. Transcripts pulled before closing can be reused, and if they arrive before closing they must be used to verify what the borrower provided.

Freddie Mac's 3402.2(b) asks for tax information covering the full years used in qualifying, whatever the income type, and confirmation that it "supports all taxable income used in qualifying."

In practice, compare the W-2 with the IRS Wage and Income transcript for the same year, the paystub's year-to-date with the W-2's run rate, and the paystub's net pay with the payroll deposits on the same pay dates.

## Employer: call a number you found

A phone number or address copied from the paystub proves nothing. A fabricated document controls both. Fannie's B3-3.1-04 requires the lender to "independently obtain a phone number and, if possible, an address for the borrower's employer" (from the internet, directory assistance or a licensing bureau, for example), confirm current employment within 10 business days before the note date, and document who confirmed it, when, and where the number came from.

Freddie Mac requires the number to come "from an acceptable third-party source," and the file must name it (3402.2(b)).

## Debts, occupancy and value

Pull a new tri-merge report and reconcile it against the one underwriting used "to identify any discrepancies or the existence of any debt that may not have been taken into account." That's Fannie's D1-3-03, and FHA requires the same comparison on post-closing reviews. Then read the bank statements for recurring payments to lenders, auto finance companies or other payees that appear on neither the 1003 nor the credit report.

For occupancy, check the insurance policy, appraisal, tax returns or transcripts, and leases. Look for a mailing address on the policy, the statements or the paystubs that isn't the subject property. When red flags appear, Fannie expects more digging, such as public listing or sale information or a door-knock service.

For value, the collateral review has to assess the comparables, confirm the reconciliation of value is supported, and reconcile Collateral Underwriter flags. Freddie Mac includes the sales contract among the documents compared (3402.2(d)). FHA says lenders should use AVMs, MLS data and public records to spot potential valuation errors.

## A file that doesn't add up

The numbers are illustrative. The 1003 shows salaried income of $8,000.00 a month from an employer of four years, and total monthly debts of $3,120.00, a DTI of 39.0%.

The June 15 paystub (semi-monthly) shows gross pay of $4,000.00 and year-to-date gross of $44,000.00. That's 11 pay periods × $4,000.00, so the stub is internally consistent. Net pay is $2,712.40. The prior-year W-2 shows wages of $52,800.00, or $4,400.00 a month, and the IRS Wage and Income transcript matches it. The bank statement shows payroll deposits of $1,698.20 on May 31 and June 15, or $3,396.40 a month.

Three things disagree. Claimed annual income of $96,000.00 is 81.8% above last year's W-2 ($96,000.00 ÷ $52,800.00 = 1.818). The June 15 deposit is $1,014.20 less than that paystub's net pay ($2,712.40 − $1,698.20). And monthly deposits are 42.5% of the claimed gross ($3,396.40 ÷ $8,000.00), but 77.2% of the W-2 rate ($3,396.40 ÷ $4,400.00).

Test the innocent explanations. A raise doesn't fit: $44,000.00 year-to-date by June 15 means the $8,000.00 rate ran from January 1, yet the June deposits are still at the W-2 level. A split direct deposit doesn't fit: the stub shows one deposit account, and it's the one on the statement. Payroll deductions don't fit: they're listed on the stub and already reflected in its net pay.

A verbal VOE to an independently sourced number confirms the current salary at the W-2 rate. Qualifying income falls to $4,400.00, a $3,600.00 monthly overstatement, and DTI rises from 39.0% to 70.9% ($3,120.00 ÷ $4,400.00). The finding is misrepresentation of income on an altered paystub. The loan is re-underwritten under D1-3-03 and reported within the agency deadline.

## Once you suspect fraud

Investigate mismatches and test ordinary explanations, but apply each agency's reporting trigger and deadline. Freddie Mac's urgent reporting rules can apply to possible schemes and suspected activity before an investigation is complete.

Fannie Mae tells sellers to "aggressively sample loans that have a high risk for fraud" in QC. Once due diligence gives a reasonable basis to conclude misrepresentation or fraud occurred, the lender must notify Fannie Mae within 30 days through Loan Quality Connect (A3-4-03).

Freddie Mac requires discretionary QC samples when fraud is suspected. Routine reports go through the Tip Referral Tool within 30 days after QC results reach senior management in writing; activity discovered outside QC has a 30-day clock from discovery. The one-business-day triggers in 3201.2(c) apply even when QC discovers the activity. They include possible schemes involving more than five Freddie mortgages or at least $1 million aggregate UPB, as well as specified funds or collateral events, likely significant publicity, specified judgments or law-enforcement matters, and possible terrorist financing or money laundering. Apply the full deadline table; do not wait for the routine QC cycle when an urgent trigger applies. A mortgage involving any misstatement, misrepresentation or omission is not eligible for sale.

FHA requires the lender's QC team to investigate and decide whether fraud occurred. Findings of fraud or material misrepresentation must be reported to FHA "immediately," through the Loan Review System self-report for Title II mortgages (4000.1 V.A.2.c). The QC scope must also expand when fraud or patterns of deficiencies turn up.

The lender remains responsible for investigation, underwriting decisions and fraud reporting.

## FAQ

**Can the employer's phone number come from the paystub?**
No. Fannie requires the lender to obtain it independently, for example from the internet, directory assistance or a licensing bureau (B3-3.1-04). Freddie requires an acceptable third-party source (3402.2(b)).

**When does Freddie Mac require a one-business-day report?**
Among other triggers, when a possible scheme involves more than five Freddie Mac mortgages or at least $1 million in aggregate UPB (3201.2(c)).

**Does FHA allow any time to report fraud found in QC?**
No. Findings of fraud or material misrepresentation must be reported to FHA immediately (4000.1 V.A.2.c).

## Sources

- Fannie Mae Selling Guide, published September 2, 2026: https://selling-guide.fanniemae.com/
- A3-4-03, Preventing, Detecting, and Reporting Mortgage Fraud (12/10/2025): https://selling-guide.fanniemae.com/sel/a3-4-03/preventing-detecting-and-reporting-mortgage-fraud
- D1-3-03, Lender Post-Closing Quality Control Reverifications (04/01/2026): https://selling-guide.fanniemae.com/sel/d1-3-03/lender-post-closing-quality-control-review-data-integrity
- B3-3.1-04, Verbal Verification of Employment (03/04/2026): https://selling-guide.fanniemae.com/sel/b3-3.1-04/verbal-verification-employment
- B3-3.1-02, Tax Return and Transcript Documentation Requirements (06/03/2026): https://selling-guide.fanniemae.com/sel/b3-3.1-02/tax-return-and-transcript-documentation-requirements
- B3-4.2-02, Depository Accounts (12/14/2022): https://selling-guide.fanniemae.com/sel/b3-4.2-02/depository-accounts
- Freddie Mac Guide Section 3201.1, Fraud prevention and detection measures (effective 05/06/2026): https://guide.freddiemac.com/app/guide/section/3201.1
- Freddie Mac Guide Section 3201.2, Fraud and other Suspicious Activity reporting requirements (effective 05/06/2026): https://guide.freddiemac.com/app/guide/section/3201.2
- Freddie Mac Guide Section 3402.2, Quality control processes (effective 09/02/2026): https://guide.freddiemac.com/app/guide/section/3402.2
- HUD Handbook 4000.1, Update 18 (issued August 12, 2026), V.A.2.c, V.A.3.a and V.A.3.c: https://www.hud.gov/sites/default/files/Housing/documents/40001-hsgh-Update-18.pdf

This guide summarizes agency requirements as of the date above. It is not legal advice.