Due Diligence and Ongoing Monitoring

For those of you in the mortgage space, are you checking all of your vendors and third-party relationships against the FNMA Suspended Counterparty List? We have several "lists" that we review, but this has never been one of them. I'd truthfully never even heard of it, so I just wanted to see what anyone else might be doing with that list as a part of onboarding and ongoing monitoring?

I had not even heard of FNMA. When I google FNMA I keep getting bouncing to the FHFA site, which I do cross-check ALL my vendors against. 

Hello,

I wanted to share some background information that may be helpful for other members reading the thread. The Federal Housing Finance Agency (FHFA, which includes Fannie Mae, Freddie Mac, and Federal Home Loan Banks) maintains a list of suspended counterparties to help prevent mortgage fraud.

Mortgage fraud can be classified into two types: fraud for house and fraud for profit. The former is committed with the intention of helping a marginal borrower obtain a home and may involve providing false information on loan applications. The latter involves mortgage participants who aim to obtain mortgage loan proceeds for personal gain. This type of fraud typically consists of a pattern of two or more mortgage loans, multiple parties in various roles within the mortgage industry, and no real intention of repaying the mortgage. The participants in such fraud schemes can include borrowers, originators, appraisers, brokers, real estate agents, closing agents, builders, lenders, and title companies.

The Federal Housing Finance Agency (FHFA) maintains the Suspended Counterparties List, containing names of individuals and companies suspended by the FHFA for committing mortgage fraud. If you are a Seller/Servicer, you should not hire or contract with anyone on this list for any job related to FHFA mortgages. HUD (the US Department of Housing and Urban Development) also has the Limited Denial of Participation List, which serves a similar purpose.

While not overly prescriptive, the FHFA does require that sellers and servicers do the following:

• Have proper hiring practices in place.
• Confirm that the individual does not appear on the federal housing finance agency's suspended counterparty program list before engaging the services of any contractor or vendor, or other individual involved in activities related to the origination or servicing of FHFA loans.
• Aggressively sample loans that have a high risk for fraud as part of the quality control process.
• Evaluate appraisers and get references. Confirm that the appraiser is currently licensed and has not been the subject of disciplinary action.
• Be selective in choosing closing attorneys and settlement agents and communicate concerns about suspicious files to these individuals.
• Modify closing instructions to prevent flips without the lender's consent.
• Report suspected fraud to the proper authorities

Reviewing employees and vendors against the suspended counterparties list (or a similar list, as applicable) is highly recommended to ensure that your organization meets regulatory requirements. This step can be included as a mandatory part of the vendor due diligence and employee screening processes. I hope this information is helpful, but I would appreciate hearing from other members with experience in the mortgage industry.