Perspectives

Don’t Let Fraud Add to the Pain of a Natural Disaster

Jennifer HorneHurricane Florence has battered the Carolinas and surrounding areas with historic rainfall and flooding, and remnants of the storm are expected to continue for days. Around this same time last year, Hurricane Harvey pummeled many southern U.S. states and Puerto Rico was devastated by Hurricane Maria, both storms leaving behind unprecedented destruction.

While many individuals respond to natural disasters with kindness and generosity – opening their hearts and their wallets to those in need, providing aid and assistance when it is needed most – some unscrupulous individuals will take advantage of the situation to line their own pockets through fraud.

In the aftermath of Hurricane Maria, the Financial Crimes Enforcement Network (FinCEN), a unit of the U.S. Treasury department, issued an advisory to warn financial institutions about a possible uptick in fraud in disaster areas. FinCEN drew attention to three specific avenues of fraud: Benefits Fraud, Charities Fraud, and Cyber-Related Fraud. It is important to be familiar with each of these scams.

Benefits Fraud

Benefits fraud is when individuals apply for emergency assistance benefits to which they are not entitled. This could include a fraudster lying about his or her circumstances to obtain financial assistance from the government or a nonprofit organization, or a fraudster attempting to wrongly acquire the benefits of a legitimate victim through fraud or theft. Such actions blunt the impact of aid organizations and make it that much harder to help those in need.

Charities Fraud

In the wake of every natural disaster, charities are created to help care for those most in need. Sadly, criminals often seek to exploit charitable entities for their own gain. Their methods can include setting up fraudulent charities and soliciting donations, or attempting to collect money on behalf of legitimate charities, which is then stolen. Such schemes can be perpetrated via many different means such as mailings, door-to-door collections, telephone calls, as well as many others.

Cyber-Related Fraud

FinCEN's 2017 advisory warned that cyber criminals often take advantage of public interest during natural disasters to conduct fraud and to spread malware. Their approach can be as simple as setting up a website that claims to support the victims of a given tragedy, but in reality steals money and personal information from donors. Many fraudsters attempt to mimic the website of a legitimate relief organization to make their efforts that much harder to detect. In addition, phishing attempts typically increase in the wake of natural disasters, as criminals seek to acquire people's personal information via social engineering.

In addition to the disaster-related fraud schemes described by FinCEN, two others have become particularly common in areas affected by natural disasters – Loan Modification and Repair fraud – which target homeowners affected by disaster.

Loan Modification Fraud

With a Loan Modification scam, fraudsters will seek out mortgage borrowers affected by a natural disaster and promise a loan modification or forbearance for a fee. Once they collect the fee, however, the fraudsters are never heard from again.

Repair Fraud

With a Repair Fraud scam, fraudsters promise to make repairs to damaged homes. This is especially attractive to those affected by the natural disasters, as repair contractors are often difficult to find given the extensive damage in disaster areas. Once again, however, a fee to begin the work is collected, then the fraudsters disappear.

It is important for mortgage borrowers to deal only with official, authorized personnel regarding their loan or their home. Loan modifications and forbearances can only come from a borrower's servicer, and all repair work should go through official, documented channels.

Regardless of whether you are a homeowner recovering from a natural disaster, a financial institution working to serve those affected, or a concerned individual wanting to help, we urge you to be cautious. And if you suspect disaster-related fraudulent activity, please report it. Suspected fraud regarding a Fannie Mae loan should be reported to Fannie Mae – please visit our website for contact information and other resources. Additionally, the FinCEN advisory contains guidance for financial institutions on reporting fraud to the government, while individuals can contact the Department of Justice to report disaster-related fraud.

Jennifer Horne
Vice President for Anti-Fraud and Anti-Money Laundering

September 18, 2018