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Proactive Steps to Fight Fraud with Training

Increasing foreclosures, short sales and bankruptcies continue to plague the industry, presenting new opportunities to fraudsters.

As lenders move closer to 2011, the biggest challenge today is making sure staff at all levels of the organization can identify the good guys from the bad.

"You can't wait until you get a repurchase or an early payment default," said Lee Ann Butts, senior vice president of quality control at Fairway Independent Mortgage Corp.

The mortgage banker, headquartered in Sun Prairie, Wis., is taking a proactive stance to combat the problem by developing monthly fraud training for all levels of its internal staff. Specific training modules are tailored to processors, underwriters and loan officers, as well as in closing and post-funding.

"We have to work to educate our entire corporate network on fraudsters and their schemes. We need the correct training on foreclosures, flip sales, short sales, REOs and what these individuals are doing in the industry," she told Managing REO.

"We are working with our MI partners, the GSEs and our investors, saying, 'Tell us what you are using as training in your organizations.' If Fairway is going to originate, process, underwrite and close good mortgages, let's work together so the loans that we are putting on our books, and eventually you are insuring and we are selling to you, are good quality loans."

The interactive training seeks to go deeper than every day due diligence on purchase transactions. Lender staff must do more than check for values that are deteriorating in certain geographical areas.

"It's important to get prior title work. We must dig deeper, look further than 'it's just a foreclosure or just a short sale.' It's in an area where the values have completely deteriorated. Who owned the short sale? That short sale could be a brother or sister bailing out a relative," she said.

It's difficult for the originators "out on the streets" who do business in the current market, adds Butts. They hear about increased price risk, the high volume of foreclosures and the latest "headlines" about short sales.

"They are scared to death. They are seeing the tightening in the industry from the investors and the GSEs. They don't understand. What we are doing is bringing it right back to the forefront," she said.

"If we can bring not only the concerns and the training...we can bring the monetary, whether it's a buyback or not to them, we are being proactive in what we are doing."

In certain states where foreclosure sales are the biggest population, lenders can't say no to completing a short sale. "That means not doing business. Lenders are forced into these transactions," she said. "That is why we have to make sure we are educated and our staff is educated to know the good players from the bad players."

The industry is saturated with defaults. "Lenders are in a position where they never would have accepted a short sale before and taken a $100,000 hit on a property. But now they have so many in their inventory."

Butts, who has been in the industry for 32 years, believes the biggest focus is awareness.

"Everything is about prior sales, prior sales price, who the parties to the transaction are, is the Realtor's name associated to the seller's name, to your buyer's name," she said.

Everything comes back to the lender's responsibility. Even your lowest LTV loan-if your value isn't there, you always have the risk."

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