Fraud risk has diminished as a result of widespread changes that lenders have made to their origination practices, according to a Fitch Ratings research report.
Regulatory mandates and investor demands forced originators to
Legislative changes also prompted some of the upgrades. National standards for nondepository loan officer licenses were required for the first time in 2008. The ability-to-repay rule went into effect in 2014. Most lenders now require applicants to sign Form 4506-T, which verifies income with the Internal Revenue Service.
Additionally, lenders now have the ability to claw back pay from loan officers to compensate for poorly performing loans that they originated. Quality control reviews are also now used to determine compensation for both loan officers and underwriters.
Originators have also separated loan production and underwriting departments, to allow for more independence.
Technology upgrades, including fraud risk tools, are now widely used and help assess misrepresentations of identity, occupancy, employment, income and other fraud types.
