Which action should a lender take if they suspect fraud?

When a lender suspects fraud, the most appropriate action is to report it to the Division of Banking. This is essential because regulatory agencies are equipped to handle potential fraud cases, ensuring that the appropriate investigation and legal measures can be initiated. By reporting the suspicion, the lender is taking a responsible step towards protecting the integrity of the financial system and ensuring that fraudulent activities are addressed by the proper authorities.

Involvement of the Division of Banking helps to verify the lender's suspicions through a more thorough investigation, which may be beyond the scope of the lender's capabilities. This action also helps to maintain compliance with relevant laws and regulations governing mortgage lending practices.

Conducting an internal investigation may seem like a reasonable step, but it should not be the sole action taken, as lenders need to ensure that they are not merely managing the situation in-house without involving necessary oversight. Ignoring the issue could lead to serious repercussions, both legally and reputationally, as failure to act on fraud can result in larger systemic risks. Speaking to the borrower about the fraud might lead to complications or additional issues, and it does not address the need for proper reporting and intervention by regulatory bodies.