Standardization and Automation Keys to Mitigating Mortgage Fraud
Since the economic downturn, mortgage fraud has been a prevalent issue plaguing the housing industry for several years.
It seems that every single time new regulations are issued by the federal government to try to mitigate mortgage fraud, scammers always seem to be one step ahead of financial institutions and are already preparing their next scheme.
At the 2013 Mortgage Bankers Association’s National Fraud Issues Conference in Hollywood, Fla., National Mortgage News hosted a roundtable that included top executives from risk mitigation firms who monitor various types of fraudulent activity throughout the country such as loan modification scams, appraisal fraud, foreclosure rescue schemes, short sale fraud and bankruptcy fraud, as well as technology firms that provide software to lenders and servicers in order to prevent fraud from occurring within their businesses.
Moderating the discussion was Mark Fogarty, editorial director of the mortgage group at SourceMedia, and Evan Nemeroff, fraud reporter for National Mortgage News. They were joined by Tim Anderson, director of compliance services for DocMagic; Lisa Binkley, senior vice president of business development and mortgage solutions for Platinum Data Solutions; Darius Bozorgi, president of Veros; Becky Walzak, president of rjbWalzak Consulting; Connie Wilson, executive vice president of Interthinx; Andrew Liput, president of Secure Settlements; and Ed Gerding, senior fraud and risk strategist for CoreLogic.
The first part of the conversation explained the latest trends happening in mortgage fraud and what lenders and servicers can do to detect illegal loan applications they receive from a borrower.
In this segment of the discussion, the panelists explain how a closing agent is now doing a vendors job verifying the information that is submitted on a loan application. But do these employees really know how to locate fraudulent red flags on an application? Also, the group talks about the importance of standardizing the loan application process and the need to automate the quality control process.
FOGARTY: Obviously, people want to know is what is the trend in fraud? Is it up? Is it down? Is it stable? With the new entire universe of compliance and regulations—has that had any affect in helping currently or will it in the future?
WILSON: A concern that I am seeing today is a lot of loans where we’re putting a lot of responsibility back on the closing agent to do a vendors job. You know, verification of employment, W-2 and paystub should be brought to closing. Well, excuse me people, I don’t think closers have any idea how to review those documents and we should not allow that.
LIPUT: It doesn’t matter if you put in it in the closing instructions if they don’t know what they’re doing.
ANDERSON: I think the CFPB is covering that, because it is that third party. You notice on the lender now for any compliance a third party that they use for whatever. So the lender really now says, “Hey, if they commit fraud and you used them, they are coming after you and not them.” So that put some teeth in the lender having to be accountable for that, at least part of that.
WALZAK: Well, it goes back to standards. The CFPB is all about standards, everything is measured by standards. Well, if we have no standards for what we expect of a closing agent and we don’t define those standards, and we don’t identify how we are going to measure those standards and what’s a good measurement to have, then we’re spinning our wheels again.
ANDERSON: Or they’d be defined by you.
WILSON: The closing industry should voice in and say, this is what our job is. This is where we draw the line. We are not going to verify your documents for you. That should have been done prior to us getting involved. So until they do, speaking as an ex-lender, we tend to be a little bit lazy sometimes and get in a hurry to get a loan closed so we kind of push the responsibility off on other people. And while the regulations will help, it’s not going to get rid of it.
BOZORGI: The key to standardization, you know everyone’s talking about that 50/50 mix of technology and the human element. For standards to be truly effective, they’ve got to be pushed very early in the loan manufacturing process, all the way through the life of that loan. We’ve made some good strides with appraisals, but really that’s just the tip of the iceberg. We really have to standardize on that data technology side of this equation. Every aspect of the loan file has to be boiled down to its individual data elements, standardize those across the industry and push those standards all the way through the life of that loan.
WALZAK: I’ve been talking about this for 25 years. We shouldn’t be doing quality control 90 days or 60 days after the loan closes. If we’re going to automate, let’s automate the quality control process. Let’s have something that analyzes this data, has a rules based system that says: “Whoa, stop, something’s wrong here.” So we fix it right then and there. And we’ve got those standards, you can meet them, you can measure them, but trying to get Fannie and Freddie and HUD to change their quality control requirements is like trying to push a 10-ton bolder up a hill. They’re not going to do it. And it’s really harming us, because people who want to do that still have to do all this back-end stuff and they are looking at what is all this stuff going to cost me? So if we want to automate, let’s automate that quality control process.