Your source for the latest on originations, settlement and ... · PDF fileat a fraud...
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NMP Media Corp. 1220 Wantagh Avenue • Wantagh, New York 11793-2202 516-409-5555 • Fax: 516-409-4600 • E-mail: [email protected] NationalMortgageProfessional.com N A T I O N A L M O R T G A G E P R O F E S S I O N A L M A G A Z I N E N M P N M P N A T I O N A L M O R T G A G E P R O F E S S I O N A L M A G A Z I N E N M P N M P Your source for the latest on originations, settlement and servicing By Greg Holmes Mortgage fraud defi- nitely has not disap- peared since a fore- closure crisis helped bring the American economy to its knees. In fact, fraud is occurring more often and in a wider variety of forms. Industry pro- fessionals are finding that protecting yourself against this new generation of mortgage fraudsters is like wrestling an octopus; as soon as you triumph over one potential source of shady dealing, seven others are standing behind it to continue the struggle. Current crime statistics prove that the battle is definitely ongoing. The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) reports a 31 percent increase in reports of sus- picious mortgage activity between 2010 and 2011. There were more than 96,000 instances of suspicious activity in 2011, and 2012 shows no indication of a meaningful reverse in the trend. A recent FBI report on financial crimes pinpoints a key cause of new concern. It notes that fraud cases are diversifying as well as increasing. “For the first time in recent history,” the Bureau stated in its latest Financial Crimes Report to the Pub- lic, “distressed homeowner fraud has dis- placed loan origination fraud as the number one mortgage fraud threat in many offices.” Though the FBI considers loan origination infractions more egre- gious because of the larger dollar amounts involved, the Bureau “has now adapted its focus to include other new and emerging schemes.” Beware of new tentacles Traditionally, mortgage professionals could focus their efforts only on spotting financial misrepresentations by appli- cants seeking mortgages they can’t afford. It is now necessary to broaden the focus to encompass a whole host of scams. n Social Security Number (SSN) fraud and identity theft: Use of a social se- curity number or a government iden- tification card that belongs to someone other than the applicant, ei- ther to obtain a mortgage or to per- petrate a “fraud for profit” scheme. n Income fraud: Overstating income to qualify for a larger mortgage, or un- derstating income to gain a hardship discount or become eligible for a gov- ernment subsidy. n Liability fraud: Failing to list signifi- cant personal debts in an application, preventing lenders from accurately assessing borrowers’ ability to repay. Arming against the octopus When you consider the variety of ways mortgage lenders can be victimized by scammers and fraudsters, it is easy to see why traditional forms of fraud pro- tection are proving inadequate for today’s tasks. Fighting this particular oc- topus means battling with all its various tentacles at once, thus allowing mort- gage professionals who administer the process to recognize the signs of a swin- dle in the making. Fortunately, technology has come to the rescue of an overburdened mort- gage industry. Today’s professionals can draw on an unprecedented wealth of computerized customer data. Powerful software can mine this treasure trove to uncover more subtle trends in borrow- ers’ habits and backgrounds than ever before, revealing facts that previously wouldn’t have shown up on lenders’ radar screens. One of the most important data tools at a fraud fighter’s disposal is quality control technology such as Undisclosed Debt Monitoring, a technology pio- neered by Equifax. This service monitors a borrower’s credit activity during the “quiet period” from the moment the original credit file is pulled to the day a mortgage loan is closed. The popularity of this service has been spurred in part by Fannie Mae, which recommends that undisclosed debts be verified as part of its Loan Quality Initiative (LQI) guide- lines. Freddie Mac makes the same rec- ommendation as part of its Responsible Lending Guidelines. Quality control technology automat- Mortgage Fraud: Wrestling With the Octopus ... and Winning!
Transcript of Your source for the latest on originations, settlement and ... · PDF fileat a fraud...
NMP Media Corp.1220 Wantagh Avenue • Wantagh, New York 11793-2202
516-409-5555 • Fax: 516-409-4600 • E-mail: [email protected]
NATI
ONAL
MORTGAGE PROFESSIONAL
MAGAZINE
NMPNMP NATI
ONAL
MORTGAGE PROFESSIONAL
MAGAZINE
NMPNMP
Your source for the latest on originations, settlement and servicing
By Greg Holmes
Mortgage fraud defi-nitely has not disap-peared since a fore-closure crisis helpedbring the Americaneconomy to its knees. In
fact, fraud is occurring more often andin a wider variety of forms. Industry pro-fessionals are finding that protectingyourself against this new generation ofmortgage fraudsters is like wrestling anoctopus; as soon as you triumph overone potential source of shady dealing,seven others are standing behind it tocontinue the struggle.
Current crime statistics prove that thebattle is definitely ongoing. The U.S.Treasury Department’s Financial CrimesEnforcement Network (FinCEN) reportsa 31 percent increase in reports of sus-picious mortgage activity between 2010and 2011. There were more than 96,000instances of suspicious activity in 2011,and 2012 shows no indication of ameaningful reverse in the trend.
A recent FBI report on financial crimespinpoints a key cause of new concern. Itnotes that fraud cases are diversifying aswell as increasing. “For the first time inrecent history,” the Bureau stated in itslatest Financial Crimes Report to the Pub-lic, “distressed homeowner fraud has dis-placed loan origination fraud as thenumber one mortgage fraud threat inmany offices.” Though the FBI considers
loan origination infractions more egre-gious because of the larger dollaramounts involved, the Bureau “has nowadapted its focus to include other newand emerging schemes.”
Beware of new tentaclesTraditionally, mortgage professionalscould focus their efforts only on spottingfinancial misrepresentations by appli-cants seeking mortgages they can’t afford.It is now necessary to broaden the focusto encompass a whole host of scams.
n Social Security Number (SSN) fraudand identity theft: Use of a social se-curity number or a government iden-tification card that belongs tosomeone other than the applicant, ei-ther to obtain a mortgage or to per-petrate a “fraud for profit” scheme.
n Income fraud: Overstating income toqualify for a larger mortgage, or un-derstating income to gain a hardshipdiscount or become eligible for a gov-ernment subsidy.
n Liability fraud: Failing to list signifi-cant personal debts in an application,preventing lenders from accuratelyassessing borrowers’ ability to repay.
Arming against the octopusWhen you consider the variety of waysmortgage lenders can be victimized by
scammers and fraudsters, it is easy tosee why traditional forms of fraud pro-tection are proving inadequate fortoday’s tasks. Fighting this particular oc-topus means battling with all its varioustentacles at once, thus allowing mort-gage professionals who administer theprocess to recognize the signs of a swin-dle in the making.
Fortunately, technology has come tothe rescue of an overburdened mort-gage industry. Today’s professionals candraw on an unprecedented wealth ofcomputerized customer data. Powerfulsoftware can mine this treasure trove touncover more subtle trends in borrow-ers’ habits and backgrounds than everbefore, revealing facts that previouslywouldn’t have shown up on lenders’radar screens.
One of the most important data toolsat a fraud fighter’s disposal is qualitycontrol technology such as UndisclosedDebt Monitoring, a technology pio-neered by Equifax. This service monitorsa borrower’s credit activity during the“quiet period” from the moment theoriginal credit file is pulled to the day amortgage loan is closed. The popularityof this service has been spurred in partby Fannie Mae, which recommends thatundisclosed debts be verified as part ofits Loan Quality Initiative (LQI) guide-lines. Freddie Mac makes the same rec-ommendation as part of its ResponsibleLending Guidelines.
Quality control technology automat-
Mortgage Fraud:Wrestling With the Octopus ... and Winning!
NMP Media Corp.1220 Wantagh Avenue • Wantagh, New York 11793-2202
516-409-5555 • Fax: 516-409-4600 • E-mail: [email protected]
NATI
ONAL
MORTGAGE PROFESSIONAL
MAGAZINE
NMPNMP NATI
ONAL
MORTGAGE PROFESSIONAL
MAGAZINE
NMPNMP
Your source for the latest on originations, settlement and servicing
ically alerts a lender of any potentiallyrisky activity or misrepresentation duringthe loan’s quiet period. Credit inquiries,tradelines or secondary reissues are im-mediately noted, and the lender is noti-fied in a user-friendly report that makesquick, easy work of investigating any dis-crepancies. The quality control technol-ogy is also a discreet and effective way ofdetermining which of your customers are“shopping around” with other mortgageloan providers. Salespeople can use analert as a sign that the borrower needsmore personalized attention and addedreassurance that your company’s offer isworth accepting.
Borrowers can benefit from qualitycontrol technology as much as lenderscan. A borrower in the mortgage origina-tion process may unwittingly get a newpiece of furniture or take out an addi-tional credit card, changing their debt-to-income ratio and jeopardizing the loanclosing. The borrower’s loan officer is im-mediately notified of the change, afford-ing them plenty of time to work with theborrower to clear up credit issues andclose the mortgage loan on schedule.
Quality control technology is only oneof the many technologies available tomake the mortgage loan originationprocess smoother and more free fromfraud. A few of the other valuable mort-gage fraud prevention tools include:
n Tax Return Verifications: A variety ofservice providers have developedways to improve the otherwise cum-bersome and slow process of compar-ing the tax returns a borrower submitswith the actual data on file at the IRS.Tax Return Verification technology in-stantly highlights any items a bor-rower has failed to disclose, including
self-employment income and non-re-imbursed business expenses. As a time-saving bonus, it also allows theunderwriter to complete a cash flowanalysis using reliable, IRS validateddata. In addition to verifying a bor-rower’s income, Tax Return Verificationconfirms a borrower’s Social Securitynumber by comparing it to the correctSSN on the original tax forms. If the twonumbers don’t match, it’s time to startasking questions.
n Identity Validation: Addresses the 60percent of mortgage fraud that in-volves identification discrepancies. Itprovides a validation score, specificwarning messages, household incomeestimates, and checks of watch lists.
n Social Security Number (SSN) Verifica-tion: Establishes the legitimacy of theapplicant’s SSN and name combina-tion, along with confirmation that theSSN and name are not on the SocialSecurity Association death master list.This tool meets Fannie Mae LQI re-quirements.
n Mortgage Participant Report: App-li-cants are automatically checkedagainst industry watch lists (OFAC-SDN, GSA-EPLS, HUD-LDP, and ap-praiser license data.)
Taming the beast with red flagsWhile the availability of such powerfultools is heartening, it can also be a chal-lenge. Mortgage professionals are alreadyoverburdened with the tasks of seekingnew clients and managing the flurry ofloan paperwork necessary in today’stransactions. It’s tough to juggle all the el-
ements of the normal origination processwhile simultaneously implementing amatrix of independent fraud tests, thencobbling together the results into a co-herent picture of a client’s credit worthi-ness. This already murky picture is beingfurther clouded by the identity fraud de-tection mandates of the Federal TradeCommission (FTC) under its Red FlagsRule, instituted in 2011. The Rule requiresfinancial institutions and creditors to im-plement a written program to detect thewarning signs of identity theft, and re-quires lenders to systematically incorpo-rate the elements of the preventionprogram into their daily operations.
Clearly, this mandate presents a chal-lenge to mortgage industry professionals.Sensing an opportunity, the credit report-ing industry has responded with a newgeneration of products that package a setof Red Flag identity theft instruments intoa form that makes implementation easier.
If you ask any successful mortgage pro-fessional about industry trends, you willget an earful about a loan originationprocess that is already too complicatedand growing more unwieldy every day.
Lenders need to welcome a new set ofsolutions. This set of solutions shouldideally prevent them from gettingwrapped up in the tentacles of a frauddetection regimen that drowns themwith paperwork, while also having amonstrously significant impact on theircustomer relationships and their com-pany’s profitability.
Greg Holmes is national director of salesand marketing at Salisbury, Md.-basedCredit Plus Inc., a provider of credit andmortgage information services since1928. He can be reached by e-mail at [email protected].
