DRE Urges Licensees to be on Alert for Growing Warehouse Lines of Credit Schemes

SACRAMENTO – The Department of Real Estate has learned about an elaborate fraudulent scheme concerning unlicensed, unregulated, imposter wholesale lenders who have entered the marketplace and are defrauding licensed real estate brokers out of hundreds of thousands of dollars overnight. 

What the Scheme Looks Like

• 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. 

• This account executive position comes with the promise of substantial commissions for signing up mortgage brokers for the scammer’s warehouse lines of credit. 

• These warehouse lines of credit offer a mortgage broker the ability to fund mortgage loans more quickly and to have more control over the underwriting, funding, and closing process as well as to make additional compensation for engaging in secondary market note sales negotiations.

• The account executives then proceed to solicit mortgage brokers to begin using the scammer as their primary funding source by offering the mortgage broker a warehouse line of credit. 

• The mortgage broker signs all of the warehouse line of credit contracts and agreements and then wires their pledge money of 1% of the credit line request, directly to the scammers bank account, to open the mortgage broker’s warehouse line account.  This is similar to when someone opens a new checking account at their local bank and the bank requires them to deposit $50 as an opening balance.  Typical warehouse lines of credit offered under this scheme have been between $1,000,000 and $5,000,000 which means the mortgage brokers are wiring between $10,000 and $50,000 to the scammer. 

• Once the wire is confirmed as received by the scammer, the mortgage broker is then required to attend virtual training on the submission, underwriting, and funding process. 

• After the training is complete, the mortgage broker is then able to originate and submit loans to the scammer electronically. Note that the loan packages contain significant amounts of a borrower’s private and personal information to include addresses, dates of birth, social security numbers, bank account information, and other personally identifiable information (PII) that could be used for identity fraud and other nefarious purposes. 

• In some instances, after the loan packages are submitted, the scammer draws loan documents and sends the loan documents to escrow. The borrower signs the documents, and then escrow returns them to the scammer, but the scammer becomes unresponsive, and the process stalls.

• The scammer “goes dark”; the loans never fund. There is no communication from the scammer, email addresses are disabled, phone numbers are disconnected, websites are taken down, mortgage broker training and submission portals are closed, and the scammer absconds with the mortgage broker’s pledge money and borrower’s PII. 

• There have been a few circumstances in which the account executive is informed that the scammer must close immediately due to urgent issues, such as security breaches or key leaders leaving, resulting in the scammer going out of business and all communication abruptly ceasing. 

This fraudulent scheme is not just financially disastrous to legitimate licensees, it damages their livelihood and their reputation. 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. 

How to Prevent the Scam

Mortgage brokers are encouraged to:

• Do their research into any lender they consider obtaining a warehouse line of credit from and contact the Department of Real Estate, the Department of Financial Protection and Innovation, the Consumer Financial Protection Bureau, U.S. Department of Housing and Urban Development (HUD), Veterans Affairs (VA), or any other state regulator that may have jurisdiction over the licensing and activities of the lender. 

• Ask for licensing information from the lender and thoroughly vet the licensing background.

• Request references with whom the lender has been affiliated with and follow up with those references. 

• Contact mortgage and related trade organizations to gain their insight on the lender, including members’ experiences with the lender, affiliations, and references.  

If you are a mortgage broker who believes they may have been a victim of this complex scam, contact your local, state, and federal law enforcement agencies. Brokers can also contact the California Department of Real Estate at 877-373-4542 or file a written complaint online at www.dre.ca.gov.

©DRE Communications