A
California regulators issued the warning earlier this month, cautioning mortgage brokers to be on alert for the elaborate scam, where unlicensed fraudulent businesses approach them with offers of
"These scammers are posing as fake lenders. They are recruiting licensed real estate and mortgage brokers as employees to represent the scammer (aka the fake lender) as the scammer's account executives," the notice from the California Department of Real Estate said.
With the enticement of large commissions from the sham lender, account executives are attempting to attract mortgage brokers to use the business as their source of funding with warehouse lines of credit that usually range between $1 million to $5 million.
Upon signing the warehouse line agreements, the mortgage broker subsequently wires 1% — as much as $50,000 — of the available amount to open their account. The fraudulent lender follows up with virtual broker training sessions on how to submit, underwrite and fund loans.
With the ability to then supposedly fund new mortgages, brokers work with unsuspecting borrowers and submit loan documents electronically to the scam business. In some instances, the scammer also draws loan documents to send to escrow for borrower signatures. Upon return of the forms, the credit issuer goes dark, and communication ends, with the transaction never completed.
In a few situations, though, the account executives have been notified by the scam company that it was suddenly "out of business" due to security breaches or the exit of leaders, with no further updates provided.
All modes of contact to the phony lending company, as well as its website and document submission portals, also become disabled, as fraudsters disappear with initial wired broker funds and borrowers' personal identifiable information.
"This fraudulent scheme is not just financially disastrous to legitimate licensees, it damages their livelihood and their reputation," California regulators said.
"Additionally, it is hugely distressful to consumers who anticipate closing their mortgage loan after a long process and who have their PII at risk and who had entrusted their transaction to their mortgage broker," they added.
The new warning arrives at at time when real estate agents face a
California regulators recommend mortgage brokers do their research before opening a warehouse line of credit, ensuring the issuer is licensed and requesting references when doubts emerge. Brokers are also encouraged to contact associated trade groups as well as state or federal regulators governing the lender to determine if the company operates legitimately.
