Loan Mods Pose Heightened Risk for Fraud
Las Vegas-Loan modifications might be an area ripe for mortgage fraud, said panelists in a session on risk control at the SourceMedia Mortgage Fraud Conference here.
Gary Lacefield, executive vice president, director of compliance at WR Starkey Mortgage, said that part of the problem is that you are modifying people and keeping them in a product that wasn't suitable in the first place. The modification continues the predatory pattern and practice.
Al Macdonald, chief executive and founder of NominoData, when asked about borrowers who were involved in mortgage fraud, said before just simply modifying the loan, the originator should re-screen the borrower to make sure there wasn't fraud.
He later said that technology is merely a tool to help catch fraud. Lenders need to be constantly monitoring their systems to make sure technology is filling the role that was originally intended.
Mr. Lacefield said lenders need to get back to the basics. The key in every company's fraud policy needs to be "zero tolerance," he said.
The zero tolerance message was repeated in a later session by Merle Sharick, vice president-manager at MARI. Lenders need to trust only through verification and re-verification.
The old lender quality control model doesn't work anymore. If the problem is caught before funding, the lender is going to end up with a fraudulent loan.
It is important to protect the single-family loan as an investment vehicle, Mr. Sharick said, so the mortgage industry can continue to draw investment capital to the business.
Lenders need to know their employees, borrowers and vendors because that is where the fraud is coming from, he said.
The president of IMARC, Bob Simpson, said much of the problem was because the people in the quality control department knew the loans were bad, but sales people and production management overrode them. The industry, he said, has to "go back to paternalism" in originating loans, declaring the crisis will not end until what he called the "five timers," those who owe five times more than what they earn, are no longer in their homes.
With a zero tolerance policy, Mr. Lacefield said, the fraudsters will know which company to stay away from, noting the cliché, perception is reality.
The mortgage broker is not going away, he said, but instead, many - including those who pushed subprime loans - are getting their approval as FHA correspondents.
Ann Fulmer, vice president of industry relations at Interthinx, noted that once a property has been involved in a fraud scheme, it will be recycled in fraud. Appraisers have a problem finding what the real collateral value is, especially in areas that have concentrations of fraud.
She said lenders need to have processes in place to make certain someone who is getting income in the transaction does not select the appraiser.
Fraud in modifications "concerns me a lot," Ms. Fulmer said, because the servicer is not trained in fraud. In many cases, the modification is giving the fraudster "a second bite at the apple."
Scammers are now fraudulently decreasing the value of the property in order to get a reduction in their debt, and they are also faking their income and employment status to get a reduction, she said during the conference.
SunTrust Mortgage, said Linda Roddenberry, group vice president, loan risk and recovery department, not only has a zero tolerance policy but it has "declared war on fraud."
Besides the use of front-end risk prevention tools, a training program needs to be conducted throughout the organization.
Communication is key. Alerts need to be given throughout the organization when a new scheme is found. Newsletters need to be created to report fraud-related stories and activities to the mortgage staff, Ms. Roddenberry said.