On June 20th, 2014, Fannie Mae published a reminder for mortgage servicers regarding the upcoming FinCEN Anti-Money Laundering (AML) requirements established by the Bank Secrecy Act (BSA). [1] The guidelines will become active on August 25, 2014.

Fannie Mae guidelines are directed to mortgage servicers whether they are subject to AML provisions as per the BSA.

When subject to the BSA, servicers are required to be in compliance with the provisions of the Act and implement its regulations:

• report all instances of AML requirements whenever the servicer identifies no-compliance or failures, and whenever the servicer is subject to a sanction
• report all suspicious activity related to Fannie Maes loans or business activities
• report changes in ownership interest using the Lender Record Information Update Process , Form 582
• Fannie Mae reserves the right to make additional inquiries to the servicer regarding any owner, whether he/she/it may be direct, indirect, beneficial owners, and/or foreign party

Servicers that are not subject to the BSA, must:

• Develop internal policies, procedures and controls to identify suspicious activities that may involve money laundering, fraud, terrorist financing, and/or other financial crimes similar to those covered by the AML

FinCEN, [2] the Financial Crimes Enforcement Network, is a bureau of the Department of the Treasury. Its mission is to prevent and combat the misuse of our Financial System, and to promote national security. The Bureau collects, analyzes, and disseminates financial intelligence and strategic use of financial authorities. The Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Residential Mortgage Lenders and Originators [3] rule was finalized on February 14, 2012, and it is intended for non-bank residential mortgage lenders and originators, and requires us to establish anti-money laundering and reporting programs.

Some examples of mortgage and real estate fraud that involved money laundering charges since the AML became active include [4]:

• Andrea Lorraine Avery, Los Angeles, California, was sentenced to 84 months in prison and fined $10.3 million to the FDIC for her conspiracy to commit fraud, mail fraud, and money laundering. From 2005 through 2008, Avery and her co-conspirators contracted the purchase of 24 residences in Florida, Georgia, Louisiana, TExas, and California through the submission of loan applications in which she made false statements about names, SSNs, income levels and assets. She and her co-conspirators received $16 million in loans.
• Johnny Eugene Grivette, Jr. Sacramento, California, was sentenced to 54 months in prison for his conspiracy to commit mail fraud and money laundering. Grivette, manager of Advantage Financial Partners of California, AFP, would buy residential properties at market prices and later sell these to straw buyers who were investors of a so-called investment program. AFP contracted appraisers who agreed to overstate the value of the properties, and allowed the properties to be financed for higher loan-to-value ratios.
• James Olivos, Lake Mary, Florida, was sentenced to 60 months in prison and fined $2.8 million for bank fraud and money laundering. From 2003 through 2007, Olivos recruited straw purchasers to acquire luxury residences. He prepared and submitted mortgage applications that overstated the applicants income and gave false employment histories. Olivos played a double dealt entering agreements with buyers and sellers. With buyers, Olivos agreed he would find renters for the investment property, but he directed the mortgage applicants to claim the properties would be their primary residence. With sellers, he would convince sellers to inflate the costs of necessary improvements, and he would split the proceeds. He caused losses of over $3 million to lenders.

You can read more cases here: http://www.irs.gov/uac/Examples-of-Mortgage-and-Real-Estate-Fraud-Investigations-Fiscal-Year-2014

The Federal Government has taken real action in stopping and preventing money laundering. The reports we are required to file with finCEN will help identify suspicious activity as it relates to mortgage applications. Although this reporting imposes time and money costs on us, it is a cheaper alternative to the losses inflicted by fraud and criminal activity on our industry at large. If you are ever in doubt, read the annual fraud and sentencing reports to get an idea of the pervasive impact of this type of crime.

1) https://www.fanniemae.com/content/announcement/svc1411.pdf

2) https://www.fanniemae.com/content/announcement/svc1411.pdf

3) https://www.federalregister.gov/articles/2012/02/14/2012-3074/anti-money-laundering-program-and-suspicious-activity-report-filing-requirements-for-residential

4) http://www.irs.gov/uac/Examples-of-Mortgage-and-Real-Estate-Fraud-Investigations-Fiscal-Year-2014

Here you can report instances of money laundering: http://bsaefiling.fincen.treas.gov/main.html

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