Risky Products Add to Foreclosure Workload
There are rising delinquencies, some of which are caused by the economy but others by issues with products, such as with stated-income loans where the income was overstated, said a participant in a panel on managing third parties in the transaction at the SourceMedia Mortgage Fraud Conference here.
Marta McCall, senior vice president, risk management for American Mortgage Network (now part of Wachovia), added there is more competition in the origination business, with some originators not understanding the complexity of the new products on the market. This affects delinquency rates and risk.
There are too many product options out there and to expect third-party originators to understand them all is getting more difficult.
However, Larry Ruder, director, fraud risk management for Wells Fargo Mortgage, noted for the exotic products, if Wall Street did not buy them, originators could not make them.
Because of the shift to third-party originators doing the bulk of applications, lenders have less direct communication with the borrower, Ms. McCall pointed out. Another risk is technology because it gives people the ability to manipulate documents. There are also reports that organized crime is getting involved in mortgage fraud schemes.
To address some of the risks, lenders need to have a strong approval process for brokers and correspondents, she said. As part of this, lenders should measure the level of experience the TPO has and how long the shop has been open.
Ms. McCall said she is seeing a movement away from wholesalers looking at financials, but she feels that they must look at the financial capacity of their clients.
The fraud tolerance level needs to be addressed in the contracts wholesalers have with their brokers and correspondents.
Mr. Ruder addressed the issue of settlement agent fraud, which he said is "extremely nasty," because the fraudster can walk away with everything.
Don't rely on a closing protection letter, he said, noting three recent instances of settlement agent fraud had "a nice" letter.
He called on looking at the seller's side of the HUD-1, which he added is something few people are doing. But things happen at the closing table. However one audience member raised concerns about the lender's access to that document because of Gramm-Leach-Bliley law concerns.
Mr. Ruder noted that lenders don't have much control over the borrower. So they need to look at "does it make sense" for the borrower to be purchasing the property.
Knowing who you are doing business with is the first pre-funding control on fraud, he said, with Ms. McCall adding knowing when to stop doing business with a third party (whether broker, appraiser, settlement agent, etc.) is key. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com