Mortgage fraud costs billions every year and despite law enforcement efforts to curb it, the number of cases continues to increase. Various software products help lenders review loan files, monitor borrower trends and track potential problems and now the federal government will begin using some of that same technology in its own mortgage fraud investigations.
Fraud technology provider Interthinx recently finalized a contract with the General Services
Administration to provide its fraud and compliance technology to federal agencies at pre-negotiated prices. This arrangement lets agencies purchase Interthinx software without each entity conducting its own due diligence review and procurement negotiation.
Even before this new business relationship, Interthinx was providing training to federal authorities to help them identify, predict and root out potential fraud cases.
“Residential mortgage finance is technical and a machine with a lot of moving parts,” said Ann Fulmer, Interthinx vice president of industry relations, who’s been working with federal agencies such as the FBI,
Secret Service, federal prosecutors and the Department of Housing and Urban Development since 2005.
“We give them assistance on how it’s supposed to work so they can recognize it when it’s not going right,” she added.
Fulmer conducts training sessions with federal agents on the entire mortgage process, “starting with Joe
Six-Pack deciding he wants to sell his house, followed by the origination process, up to and through sale on the secondary market,” Fulmer said.
Her job is to show the feds what red flags in mortgage files are, and how to spot them. For example, during a fraud investigation, agents have to know how much weight to give different pieces of information they uncover. By understanding what the process is and how it’s supposed to work, officials can more accurately evaluate the information they receive during an investigation.
“With the FBI—and to some extent this is true with all the agencies—if you’re not involved in the residential mortgage process, all you saw is what you saw when you got your own mortgage,” Fulmer said. She added the most widely publicized cases of mortgage fraud are those perpetrated by lenders, predatory lending where borrowers were taken advantage of by fraudsters.
“What most people know about fraud and the industry is what they read in the papers,” she said. “They don’t understand what fraud is from a bank’s perspective.”
According the FBI’s latest annual report, mortgage fraud continued to increase in 2009, with the FBI and HUD Office of Inspector General pending investigations increasing 71% and 31%, respectively, from fiscal year 2009 to FY 2008. The FBI cited data from fraud technology and analytics firm CoreLogic that said $14 billion in fraudulent mortgages were originated in 2009.
Mortgage fraud isn’t contained to one particular scheme or ploy. Authorities investigated scams where loan origination, foreclosure rescue, builder bailout, equity skimming, short sale, home equity line of credit, illegal property flipping and other fraud was attempted or perpetrated.
The FBI said 66% of its pending mortgage fraud investigations involved dollar losses totaling more than $1 million. With cases and investigations that big, technology is a key component to effectively conducting investigations.
“Its very intimidating,” Fulmer said. “The federal agencies don’t take onesie, twosie cases. They take cases involving hundreds of properties.” With the Interthinx technology, Fulmer said authorities can triage a batch of loan files and root out the cases with the most egregious questionable data for further investigation.
The software runs checks against fraud databases and rules engines on purchase contract, application, settlement statement, appraisal and title documents. “That gives you all the information you need to follow the money,” said Fulmer.
The combined training and technology equips authorities to connect the dots in fraud cases and more effectively process investigations.
“With the contract, we’re going beyond the government training,” Fulmer said. “It expands our horizons and enable various agencies to find and prevent fraud, and not just try to clean up afterwards
