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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. That is why there needs to be correct training on these topics and what certain individuals are doing to commit fraud with REO properties.

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.

At the recent Mortgage Bankers Association’s National Fraud Issues Conference in Chicago, Lee Ann Butts, senior vice president of quality control at Fairway Independent Mortgage Corp., told Managing REO that the cases are rising where individuals purchase foreclosed homes, put no rehab into them and turn around and flip the real estate-owned assets.

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. “You can’t wait until you get a repurchase or an early payment default,” said Butts. “We have to work to educate our entire corporate network on fraudsters and their schemes.”

Fairway is teaming up with its MI partners, the GSEs and its investors to collaborate on fraud training. “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 regions.

“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 in the current market, adds Butts. They hear about increased price risk, the high volume of foreclosures and the latest talk 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 today. “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," she said.

“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 they have so many in their inventory.

Butts believes collaboration is key to finding success. 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. Everything comes back to the lender’s responsibility. Even your lowest LTV loan—if your value isn’t there, you always have the risk,” said Butts. “There are really no cookie-cutter loans anymore.”