Anti-Money Laundering Laws and How They Affect Mortgage Borrowers

 

It’s no secret mortgage lending is not as simple as it used to be.  National underwriting guidelines require a rather invasive review of a borrower’s income, credit, and asset histories.  Were this not enough, federal legislation including a number of Anti-Money Laundering Laws (AML), regulate banks, financial services, and also affect mortgage borrowers.

 

Money laundering is the process of making illegally-gained proceeds (i.e. “dirty money”) appear legal (i.e. “clean”).  Money laundering can be tied to a number of illegal activities, such as terrorism, drug trafficking, tax evasion, smuggling, and even embezzlement.

The Bank Secrecy Act (BSA) of 1970 was a cornerstone tool created to fight money laundering.  The Financial Crimes Enforcement Network (FinCEN) was created as administrator of the BSA.  Since 1970, numerous other laws (including the Patriot Act of 2001) have enhanced and amended the BSA.

 

How might some recent additions to Anti-Money Laundering Laws effect a mortgage borrower?

 

Mortgage brokers, lenders, and even loan officers must now file Suspicious Activity Reports (SAR’s) if they “know, suspect, or have reason to suspect” that a transaction or pattern of transactions:

1. Involves funds derived from illegal activity or is intended to conceal funds derived from illegal activity;
2. Is designed to evade the reporting requirements of the BSA;
3. Has no legitimate purpose, and the reporting agent “knows of no reasonable explanation for the transaction after examining the available facts;”
4. Involves the broker or lender in facilitating criminal activity.

 

Examples of “Suspicious Activity” might include:

• A borrower’s unusual concern for privacy
• A borrower requesting to pay cash (i.e. a suitcase full of money) at the closing
• Large deposits into a borrower’s bank account that cannot be traced to a legitimate source.
• An unusual or atypical deposit that cannot be reasonably sourced.
• Virtually ANY cash deposit

 

While lenders are required to adhere to these AML’s, I’m also cognizant that not all borrowers use bank services (such as checking accounts and credit cards).  Many “old school” borrowers were raised to pay bills in cash rather than acquire debt.  Some people feel more comfortable keeping their savings under their mattress rather than with a bank.  These borrowers may get caught in the AML net due to their innocuous behavior.

 

For years, I’ve stressed the importance of working with the right mortgage professional.  To ensure a smooth transaction, call us well before you find your new home.  We’ll ensure your mortgage matches your needs, complements your financial plans, and helps you attain your financial goals.

 

Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist®, and a published author. His interviews include Blog-Talk Radio, Newsday, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.