Recent mortgage fraud discussions have been centered on high-profile occupancy misrepresentation cases, but the bigger question is how these claims can be proven and what level of risk they pose to the industry.
For one, the allegations to date, such as
"The first hurdle is intent. Somebody has to intend to deceive you," said Bob Simpson, fraud and anti-money laundering expert at AML Daylight, in an interview confirming his statements about misrepresentations involving occupancy status in
How the determinations usually are made on occupancy fraud
Origination professionals often play a role in occupancy fraud determinations.
"In the case of occupancy misrepresentation, the loan officer is the one on the front line asking all the questions about the property," Simpson said. "To have a borrower intentionally deceive a loan officer, that's tough."
He added that he has not previously seen standalone criminal referrals, and while there are unusual cases when occupancy fraud signs link to activity ranging from illegal drug facilities to human trafficking, they more regularly show up in performing loans with no other concerns.
While Bill Pulte, the housing regulator that referred a Federal Reserve official to the Department of Justice for occupancy fraud, has said that the move was about a broader crackdown and not politically motivated, Simpson said the treatment is out-of-step with past actions he's seen.
Criminal prosecutors typically prioritize crimes like murders and money laundering, said Simpson, who said the reaction he'd expect from one on occupancy fraud claims would be. "I've got all kinds of things. You're coming to me with basically a contract dispute? Not doing it."
If occupancy fraud gets enforced or screened for more broadly as a result of the current attention to it and if so it could be a considerable operational responsibility for the mortgage industry.
"If you want to go find this occupancy fraud, I think a lot of it has been snuck past the goalies," Simpson said.
Mortgage companies that find suspected occupancy fraud would have a duty to research it, and either satisfy themselves that there's no misrepresentation, or potentially file a large number of suspicious activity reports, he said.
More fraud in the news: a Texas bill and its limits
The Lone Star State has a new bill focused on another type of fraud, home title theft, which has passed the state's senate. It aims to make the system less susceptible to the risk and likely will, but it won't be a cure-all, one expert warns.
"From what I've read, it's based on an occurrence where somebody did go into a county recorder's office and did an over-the-counter transfer or transaction in committing the fraud but it doesn't address the online transfers," said Jon Dovidio, a vice president at EquityProtect.
The bill aims to add a requirement to show identification when requesting a deed transfer at the county clerk but Dovidio, who works for a company supporting
"There are still areas we could find a better way to protect," he said.
How fraud is reaching lenders and what they're doing about it
The number of scam artists who infiltrate U.S. and Canadian lenders through the account or login access stage is creeping up, according to LexisNexis' latest survey.
Malicious bots are a growing concern for U.S. lenders in particular with 55% of survey respondents indicating that monthly attacks of this type increased in the past year. The same share of U.S. lenders reported increased mobile fraud.
U.S. firms overall are being aggressive in terms of the number of channels used to prevent fraud, the study finds, noting that the average is near three.
However, the report finds lenders don't tend to be as thorough about this as other institutions and they have been slow to adopt some of the latest anti-fraud technology.
"In recent years, the use of automation and artificial intelligence/machine learning to combat fraud has received a great deal of attention. However, the study found that relatively few North American institutions are taking full advantage of these tools," LexisNexis said in its study.
