Nonbank mortgage lenders required to file fraud reports

Nonbank mortgage lenders will be required to establish anti-money laundering programs and file suspicious activity reports beginning later this year, according to rules finalized by the Financial Crimes Enforcement Network.

These firms, which also came under Consumer Financial Protection Bureau supervision this year, will now be forced to assist law enforcement agencies with fraud detection just as larger financial institutions are required to do.

“Suspicious activity reports are a critical source of information to law enforcement and regulatory agencies in their investigation and prosecution of mortgage fraud and a wide range of other financial crimes,” said FinCEN Director James Freis.

In November, FinCEN also issued a proposal requiring Fannie Mae, Freddie Mac and the Federal Home Loan Banks to develop the anti-money laundering programs and file fraud reports with the network.

FinCEN found false statements, the use of straw buyers, evidence of fraudulent flipping real estate, flopped short sales and identity theft from these reports.

The rule will give law enforcement and regulators more data on specific crimes, FinCEN said, and provide “a more complete perspective on mortgage related crime trends nationwide.”

According to law firm Ballard Spahr, the impact to nonbank lenders will be extensive. “This means that non-bank mortgage lenders and originators will have to establish AML programs, designate a compliance officer, develop training programs, etc,” said the firm in an email.

“Compliance is looking to be both complex and costly,” the note added.

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