Bradley detected indicators suggesting brokered loan fraud in a recently acquired loan portfolio. Which fraud scheme does this most likely represent?

• A. Daisy chain fraud
• B. Money transfer fraud
• C. Brokered loan fraud
• D. Letter of credit fraud

Answer: (C)

This question tests recognizing a loan-fraud scheme that centers on the person who originated and arranged the loans. When indicators appear that a broker was heavily involved in structuring and placing the loans into the portfolio—such as misrepresented borrower information, inflated appraisals, fake or straw borrowers, or undisclosed broker compensation—that points to brokered loan fraud. The broker knowingly manipulates the origination process to push loans into the portfolio that wouldn’t meet lending standards, making the fraud fundamentally tied to the broker’s actions and relationships.

Daisy chain fraud involves a chain of related borrowers and interlinked loans to hide losses or extract funds, which isn’t what’s described here. Money transfer fraud focuses on moving illicit funds rather than misrepresenting loan origination. Letter of credit fraud relates to misuse of trade-finance instruments, not the loan-origination manipulation seen in brokered loan fraud. So the indicators in the acquired portfolio align with brokered loan fraud because the broker’s role in creating and selling the loans to investors is the fraudulent element.