How to Confirm Employment Using Third-Party Verifications

Mortgage lenders should adopt a meticulous approach during the loan application process due the potential for fake-employer and fraudulent pay stub scams.

Last Updated: May 4, 2021

Fraudulent Employment Data in Mortgage Loan Applications Cause Risks -- for Industry, Lenders and Borrowers

Flight instructors teach new pilots the importance of checking their flight instruments before take-off. For each flight, they are instructed to go through the same checkpoints and protocols — every, single, time. Why? Because while in-flight, it is vital that they trust their equipment. In other words, they need all the data collected and delivered to the cockpit to be as informed as possible.

With the potential for fake-employer and fraudulent pay stub scams, mortgage lenders should adopt a similar meticulous approach during the loan application process, so they can assess risk and make loan application decisions.

For many years, it has been standard practice for mortgage lenders to ask for pay stubs to verify an applicant’s income and employment. But the boom in fake financial documents, including paystubs, means lenders may need to improve their verification processes.

The reality is that today’s consumers can buy just about anything on the internet — including fraudulent income and employment documents. Borrowers can also easily forge these documents themselves. According to Fannie Mae's latest Mortgage Fraud Loan Trends report, half of all mortgage fraud findings in 2020 included incorrect income and/or assets*.

The List of Fake Employers Grows

In 2020, Fannie Mae issued a fraud alert warning mortgage lenders about nonexistent companies listed on loan applications. The original wave of fake employers were located throughout California. Fannie Mae attempted to re-validate the employer information supplied on suspect applications and other supporting documents, such as pay stubs. Several of them are listed within and have other online references. They even had legitimate phone numbers and automated call centers.

Heed These Red Flags

There are red flags that lenders should look for on pay stubs that raise questions about the transaction. Potential red flags include:

  • Employment (occupation and/or position) does not “sensibly” coincide with borrower’s profile (experience)
  • Purported employer does not exist
  • Cannot ascertain employer’s purported location
  • Pay stubs sometimes lack typical withholdings (health, medical, 401(k), etc.)
  • Tax calculations are incorrect

Lenders can Respond with Data from Trusted Sources

Instead of relying on potentially fake documents, lenders can obtain both income and employment verifications from a third party provider. Lenders can verify employment and income information by leveraging GSE-approved verification solutions using The Work Number® database from Equifax.

The Work Number database is the leading commercial repository of employer contributed payroll data. It contains more than 115 million small, medium and large employer contributors - updated each pay cycle. Get more information on mortgage verification solutions from Equifax.

*Fannie Mae. (n.d.). Mortgage Fraud Loan Trends.