Fraud and Prevention

It's Time to Share

Perspectives by Ann Fulmer
October 28, 2009

I got a call this past week from a friend at a large national bank who told me that she'd gotten a call from another banker who'd gotten a tip that the purchaser of a pending short sale had inked contracts to flip the property six times after the purchase. Using the address, my friend checked the pipeline and discovered a pending application for the property.

On its own, the borrower's file and the collateral value looked fine. But under closer scrutiny, prompted by the tip, my friend discovered that the source of the borrower's funds for closing costs - and his deposit account records - had been misrepresented, and that there was no mention of the additional sales or the rapid increase in collateral value.

The deal was immediately nixed. My friend told me that quick action after the warning saved the bank at least $100,000 on that transaction.

Tips can be very effective at stopping fraud, but they're not a very efficient or reliable way to deal with an industrywide problem. With all our data and knowledge, why do we still hoard what we know? Judging from the very vocal frustration of senior underwriters at a recent conference, it's not because we don't want to share. It's because up until now, we have been led to believe that we can't.

Fortunately, it looks like that has just changed. At the 2009 MBA annual convention, said that it has taken the first step in establishing a utility that provides an early-warning alert system to enable industrywide data sharing while protecting consumer and lenders' privacy.

MERS FraudAlert is a flexible system that will allow all players in the mortgage industry (originators, investors, servicers, etc.) to easily integrate into the system and share data. The platform will also accommodate the integration of third party analytic vendors.

The new system, unlike any fraud database we've seen before, will help identify and prevent fraud through the sharing and reporting of key data and the tracking of more than 62 million loans currently registered on the MERS System. Leveraging the MERS MIN as the unique ID and the MERS system for tracking ownership and rights holders, FraudAlert prevents the duplication of loan applications and tracks any change of the rights holder throughout the life of a loan.

Subscribers will submit loan application data and incident reports for suspected or confirmed fraudulent activity to a centralized database. An incident report is different from a SARS report because it focuses on the entire transaction and all participants, not just one individual. Reporting will thus be much less cumbersome than for SARs, which require separate reports for each individual.

The monitoring platform will automatically push alerts to subscribers twice daily, notifying lenders, servicers and investors of potential risk associated with loans in their inventories.

By utilizing the MERS system of record, FraudAlert will track all rights holders associated with a loan transaction and push notification alerts to them without requiring downstream players to resubmit data. Downstream players (investors, servicers) will be notified of potential fraud even if they did not submit the original loan transaction.

This is a revolutionary system to identify confirmed and potential fraud pre- and post-funding. To maximize results, it is vitally important that everyone participate. Only by working together and sharing can we help rid our industry of fraud and its disastrous effects.

Ann Fulmer is the vice president of business relations at Interthinx. For more information, visit http://www.interthinx.com.