Getting to Know Your Borrower Client

In the battle against mortgage fraud, mortgage brokerage professionals play a key role in identifying red flags and communicating those red flags to the lender. In an ideal world, a mortgage brokerage professional would meet all borrower clients in person and take steps to verify their identity with supporting documentation. But now, with more and more business being done electronically, meeting that client in person may not be practical.

It’s no surprise the risk of mortgage fraud substantially increases when the identity of the borrower is not properly verified. Even worse, if the lender is under the impression the mortgage brokerage professional has taken steps to verify the identity of the borrower when they haven’t, the lender may not do as much due diligence. Mortgage professionals need to communicate to the lender what steps they have taken to verify the identity of the borrower.

While a mortgage broker may verbally communicate with a lender and explain what steps they have taken to verify the identity of the borrower, under the legislation a mortgage brokerage must disclose in writing all steps, if any, that have been taken to verify the borrower’s identification and any supporting documentation collected. It is not sufficient to verbally communicate this information to the lender. Some mortgage brokerages fulfill this requirement by having borrower clients complete an Identification & Documentation Disclosure Statement “Know Your Client” form and submitting it to the lender.

A good disclosure statement should include a checklist of:

• type of contact with the borrower (face to face or never met them)
• information on the referral source
• what documentation is attached to verify the client’s identification
• what steps have been taken to verify that information

Mortgage brokerages should keep this disclosure statement in the mortgage file along with any relevant notes indicating how and when it was received by the lender.

Not only is this disclosure statement a valuable tool to combat mortgage fraud, it may also provide protection from liability if a lender who was the victim of mortgage fraud sues the mortgage brokerage for not taking adequate measures to prevent the mortgage fraud. Clearly communicating in writing what steps were taken to verify the identity of the borrower ensures the lender is clear on what steps the mortgage brokerage has taken and what further steps may be needed for the lender’s due diligence.

Mortgage professionals need to be aware of red flags, and more importantly, they need to take appropriate steps when there are red flags. Even if the responsibility of verifying identity and supporting documentation remains with the lender, mortgage professionals have a professional duty to notify their broker or the lender – or both – if they have any concerns about a borrower.

Mortgage professionals may be unsuspecting and unwilling participants in mortgage fraud simply by not taking steps to ensure the borrower on the mortgage application is who they say they are. As a mortgage professional, a lender will associate a borrower’s application with your name, and your name is your reputation. If you do not take the time to know your borrower client, or receive information from a third party on behalf of the applicant, you are potentially putting lenders – and yourself – at risk. This could affect your reputation as a mortgage professional. Take the time to know your client.

For more information on verifying borrower information, check out these Guidelines for Mortgage Broker/Associate Originated Applications.