Fraud and Prevention

The Lure (Don't Buy In): Some Loan Fraud May Seem Minor, but Fraud is Fraud

Perspectives by Michael S. Richardson
September 30, 2009

First and foremost, know this: Fraud is a crime. Second, ignorance does not equal innocence. As an industry, as professionals, as colleagues, as supervisors, as employees, as individuals it is up to us to fight fraud collectively and singularly. Otherwise, we're just as culpable as the fraudsters themselves.

Before we continue our discussion of the "The Lure," let's be clear on this one thing: loan fraud occurs when a lender makes an inappropriate loan, because the property is overvalued or the lender has a false picture of the buyer's financial position.

It's often done with the best of intentions, but manipulating contracts, appraisals, sources of downpayment, and sale prices to help buyers qualify for a higher loan amount - even if the borrower, real estate professional, suggests it or the lender - is fraud. The problem is that, unlike you, most of our colleagues are simply not proactive about identifying, preventing, or reporting fraud.

Now, I'm not saying I was any different from anyone else in this industry. In fact, before fraud happened to me I was just as uninformed as the rest. I was busy, I worked hard, I subscribed to the industry periodicals, I vetted my employees carefully, and I supervised them well. What more could I do?

Well, I'm here to tell you that you're never too busy to become a victim of fraud. That should be sobering news. You can work as hard as the next guy - harder, even - but I can guarantee you that a motivated fraudster is working twice as hard to dupe you into being defrauded.

No matter how hard you work, you will never, ever be able to control the will of another human being. Fraudsters can work with you, bowl with you, eat dinner with you, come to your house for holidays, come early, stay late and play fantasy football every weekend, but if they want to commit fraud - and you're willing to let them either through ignorance or bliss - they will find a way.

Therefore, the choice is clear: Be vigilant against fraud and avoid it or look the other way and become a victim. What's it gonna be? For me, the choice was clear. Fraud may be insidious, but so is its cure. Little by little, day-by-day, I find myself learning more and fighting harder to prevent fraud.

Is it harder? Sure. I wish fraud didn't exist but, as we now know, it does. Is it difficult? Sometimes. Is it impossible?

No way ...

If I can do it, you can do it. It's just that simple. Now, there are many steps to avoid fraud but the first and foremost is to resist it yourself. The lure of easy money is a powerful one, and those of us who manage to avoid it all our lives can often fall prey without even realizing it, if we're not careful.

Fraudsters stalk their prey no differently than do lions in the jungle. They can spot weakness from across a crowded office and pick up cues better than a frat boy on the prowl down sorority row. They are cunning, smart and shrewd, and the lures they use revolve around the oldest of all pursuits: money.

It's easy in this industry to let things go by that might not normally be overlooked. Fraudsters prey on you whether it's busy or slow. Here's how: Let's say you run a small mortgage company with a dozen employees. You run a tight ship, or so you think, and your top loan originator has been with you for three or four years. You know her, she knows you, and both you and your employees trust her. Business is good, nobody's looking, and one day she submits a loan application to underwriting that needs just a little "tweaking" to pass muster. Nothing much, just an inflated appraisal value is needed from the appraiser here or modified verification there.

It's one out of maybe twenty your company submitted for approval that week. Who's going to notice, right? This is the lure, this is the come-on and this is the dupe.

This is how good people go bad - a little at a time. First, it's this form, next week it's another, and before you know it there's one a week, then one a day.

A quick buck here, a few grand there and soon she and your company are committing fraud, the company in most cases is unknowingly participating. It's blunt, but it's true. Changing information yourself or even letting someone knowingly change information is fraud. If you're doing it, it's fraud. If you're letting, someone do it, its fraud. If you even suspect someone's doing it, it's fraud.

You must resist.

You must identify.

You must prevent.

You must report.

It's just that simple ...

Michael S. Richardson is the director of Forensic Mortgage Services at Lenders Compliance Group and Author of "An American Epidemic, Mortgage Fraud a Serious Business." For more information, visit http://www.lenderscompliancegroup.com.