Dispute Over Dueling Anti-Fraud Databases

SAN DIEGO-MERS and Interthinx jointly launched a national fraud detection database at the Mortgage Bankers Association's annual convention here. First American responded by launching its own fraud detection database. In a matter of one week, the mortgage industry has gone from having no fraud database to having two. But what differentiates the two? And more importantly, will they be enough to curb mortgage fraud?

First, MERS and Interthinx launched their own national fraud prevention database that will allow lenders to seek, identify and share suspected fraudulent activity in loan applications from the point of origination. MERS FraudAlert, powered by Interthinx, will help identify and prevent fraud through the sharing and reporting of key data among the more than 62 million loans currently registered on the MERS System. Lenders using MERS FraudAlert will submit loan application data and incident reports with suspected or confirmed fraudulent activity to a centralized database. The system will then notify other lenders who have loans that may have connections to the data, alerting them to possible fraudulent transactions in their pipelines.

"While the industry currently has access to excellent loan-level fraud detection technology, lenders still face unacceptable risk. Fraudsters circumvent those tools by perpetrating multiple instances of fraud concurrently because no one is speaking to each other," said R.K. Arnold, MERS president and CEO. "Only by creating a collaborative industrywide fraud prevention database can this activity be stopped. MERS FraudAlert will become the national mortgage fraud detection and prevention utility. By participating, lenders can show that they take fraud prevention seriously."

Lenders who register their loans on the MERS System will have immediate access to the database of fraud-related information through the new product, making any fraud screening technology more effective. "Our goal from the beginning has been to eradicate mortgage fraud, and we have developed the industry's best tools to accomplish that. But our technologies are most effective when they have access to more data," said Kevin Coop, president of Interthinx. "Through this database, we will be even better at helping lenders detect fraud before loans are funded."

In response, First American CoreLogic says it has built its own national fraud data repository to help clients combat all types of mortgage fraud and to further enhance the predictive performance of its anti-fraud solutions that is more all encompassing as compared to what MERS and Interthinx have done. The First American CoreLogic National Fraud Database includes more than 80 million loan applications or 65% of all loan applications annually and has the largest aggregation of reported fraud data including contributions from more than 35 lenders and investors with application and performance history dating back to 2005.

The First American database has a collection of fraud information (including default, foreclosure, charge-off and repurchase indicators) for building pattern recognition scoring models. The database accepts daily contributions of application and lien information from 17 lenders within First American's Multi-lien Closing Alert Program. In addition, the database includes title, lien release and payoff information to aid in detecting various types of first- and second-lien fraud; third-party information including loan information on more than 160,000 brokers, 135,000 appraisers, account executives, loan officers and retail branches; and property and neighborhood-specific fraud and foreclosure data.

"The best scoring and analytic products stem from and rely upon robust data assets," said Tim Grace, senior vice president of Fraud Analytics at First American CoreLogic. "We commend Interthinx and MERS, but we're not asking lenders to contribute their data, we already have that data. We have data on 65% of the loans originated this year.

"Our new National Fraud Repository enables our clients to have access to fraud-identifying data and analytics, new and innovative scoring products, and comprehensive fraud and risk alerts, making their internal safeguards more effective. As the number of participants and reporting companies grow, it will make fraud risk more transparent and make it harder for perpetrators to carry out fraudulent activity."

Interthinx and MERS counter by saying that it's not about who has more data, it's about creating an industry utility where all the data is accessible to any risk mitigation vendor that wants access. MERS and Interthinx believe vendors should be competing on the value of their fraud detection services and not over access to data.

"Clearly the quantity of data and quality of algorithms are crucial factors for any effective fraud prevention database," countered Mr. Arnold. "And some entities, including Interthinx, can proudly boast about those elements and their fraud scoring systems. But the joint effort of MERSCORP Inc. and Interthinx has yielded a unique, game-changing technology with systems that will enable the entire industry to collaborate, share and track suspicious activity and confirmed fraud in a way never thought possible until now."

"MERS FraudAlert is not only unique in its offering as a public utility, but has been designed to spur on competition," added Mr. Coop. "No third-party fraud prevention and detection vendor is advantaged or disadvantaged in any way. All may access the database, share the database and compete head to head with algorithms and possible fraud scoring based on the strengths of their individual platforms. MERS FraudAlert will bolster all analytic tools and predictive modeling, enabling industry members to make better decisions about possible fraud and risk."