CoreLogic’s new fraud detection software takes a page from the techniques credit card companies use to detect trends and stop fraud before it starts.
The new LoanSafe Fraud Manager platform is a complete redesign of the previous edition of the software. The “next generation” of the platform has customization features to allow lenders to set specific rules to check for fraud. Those rules can be changed on a daily basis to react quickly to new fraud threats, both geographically and by fraud type, Frank McKenna, CoreLogic vice president of fraud strategy, explained in an interview with National Mortgage News.
“If a lender sees they have a fraud problem in Miami, they can quickly adjust the loans they review on a daily basis to include more loans in Miami,” McKenna said. “If there’s a problem with flipping in Miami, they can write the rules so they can check for flipping.”
Those specific business rules set the backbone of the platform’s new feature, called interactive case management. Based on lender-specific rules for detecting fraud, certain loan files can be directed to fraud strategy teams at CoreLogic. These analysts review data, search for trends and alert CoreLogic customers of new threats. This strategy has been a staple of credit card fraud detection for 20 years but is just now getting its first application in the mortgage space. But it wasn’t a change in the types of mortgage fraud that led to the shift in strategy. Instead, McKenna said the idea to use interactive case management came from a number of CoreLogic fraud experts with extensive credit card industry experience.
“We’re adopting it now in mortgages because it is so effective,” he said. “It’s a new concept for the mortgage industry.”
In the previous version of LoanSafe Fraud Manager, a lender would send individual loan files to CoreLogic for review. The Santa Ana, Calif.-based company’s systems would run checks against a number of data points in the loan file and generate a 25- to 30-page automated report detailing potential fraud risks. Some of CoreLogic’s larger lender clients request thousands of these reports every day.
But the LoanSafe Fraud Manager reports aren’t the only way CoreLogic is helping clients detect fraud. Embracing an attitude of cooperation, CoreLogic brings lenders and law enforcement officials together at meetings of its “fraud consortium” twice every year to share experiences and teach the industry how to recognize fraud patterns.
In its annual mortgage fraud report, the Federal Bureau of Investigation reported a 71% annual increase in its pending mortgage fraud cases from fiscal year 2008 to FY 2009 and a 31% increase in Department of Housing and Urban Development Office of Inspector General pending cases during the same time. The financial impact of mortgage fraud is great—66% of pending cases in FY 2009 involved dollar losses totaling more than $1 million. In addition, the FBI annual report cites CoreLogic data that estimates $14 billion in fraudulent loans were originated in 2009.
California leads all states in mortgage fraud activity. Like CoreLogic’s efforts, the California Mortgage Bankers Association uses cooperative efforts among lenders to detect and fight fraud. The CMBA has a mortgage quality and compliance committee to address concerns and spread the word about new fraud schemes in the state. But recent budget woes have state regulators struggling to fight mortgage fraud, according to CMBA spokesperson Dustin Hobbs.
The Department of Real Estate has been a casualty of California’s budget situation and hasn’t been able to enforce their authority and prevent fraud,” Hobbs told National Mortgage News. “They’ve been stretched pretty thin.”
While national fraud was on the decline earlier in the year, McKenna said CoreLogic is currently tracking an uptick in activity. CoreLogic will release its comprehensive annual fraud report in January, but McKenna said in light of the recent increases, the company will release an interim report on current conditions within the next two months.
