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FinCEN Requires AML Program and SAR Filing for Non-Bank Mortgage Lenders and Originators
By Catherine M. Brennan

On February 7, 2012, the Financial Crimes Enforcement Network (FinCEN) issued regulations requiring non-bank residential mortgage lenders and originators to establish anti-money laundering (AML) programs and file suspicious activity reports (SARs), as FinCEN requires of other types of financial institutions.

The new regulations intend to mitigate some of the risks and minimize some of the vulnerabilities that criminals have exploited in the non-bank residential mortgage sector. Analysis of SARs reported in FinCEN’s annual, quarterly, and special fraud reports shows that independent mortgage lenders and brokers originated many of the mortgages that were the subject of bank SAR filings. In a further step to combat fraud in the residential mortgage markets, FinCEN also issued a proposal in November 2011 that would require the federal government sponsored enterprises Fannie Mae, Freddie Mac, and the Federal Home Loan Banks to develop AML programs and file SARs with FinCEN.

Taken together, the final rules issued February 7, 2012 and the proposed rules issued in November provide additional tools for financial institutions and law enforcement to hold scammers accountable for their fraud and other financial crimes. Among the many mortgage-related scams FinCEN has identified in its reports are false statements, use of straw buyers, fraudulent flipping, flopping, and identity theft. The new regulations likely will significantly increase the number of mortgage-related SAR filings, give law enforcement and regulators more comprehensive data on specific crimes, and provide government and industry with a more complete perspective on mortgage-related crime trends nationwide.

The final rule takes effect 60 days after publication in the Federal Register.

Catherine M. Brennan is a partner in the Maryland office of Hudson Cook, LLP. Cathy can be reached at 410-865-5404 or by email at cbrennan@hudco.com.

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