Loan Officer Practice Exam

What might a discrepancy in the amount withheld for Social Security on an applicant's W-2s indicate?

1. Documentation fraud

2. Inaccurate income reporting

3. Valid tax filing

4. Legitimate financial hardship

The correct answer is: Documentation fraud

A discrepancy in the amount withheld for Social Security on an applicant's W-2s can indicate documentation fraud. When an individual provides a W-2 that shows withholding amounts that do not align with their reported income or the standard withholding rates, it raises questions about the authenticity of the document. This might suggest that the applicant is attempting to manipulate their income verification or present misleading information to secure a loan. Detecting inconsistencies such as these is critical for loan officers, as it can prevent potential losses due to fraudulent applications. In contrast, while inaccurate income reporting or legitimate financial hardships can lead to discrepancies in tax filings, these situations typically do not involve the deliberate manipulation of documentation. A valid tax filing would not typically show discrepancies since it would align with both the applicant’s reported income and the expected Social Security withholdings based on that income.