Perhaps the most famous bit from the late comedian George Carlin was “The Seven Words You Cannot Say On Television.” If you are familiar with the routine, you already know the seven words; if not, I invite you to go to your nearest search engine. Suffice it to say, the seven words are completely inappropriate in a professional work environment, and should be used, at best, when you hit yourself on the thumb with a hammer.
However, there are two other words that appear to be even more verboten in the mortgage industry than the seven aforementioned words. Lean forward and I will whisper the words that you apparently cannot say (but should). The words are fraud prevention. There. I said it. And guess what, the sky did not fall, the mountains did not tumble into the seas and swarms of locusts have not descended upon the earth.
Fraud Prevention. They are such small words, it is difficult to believe they apparently have such huge ramifications and implications that they have almost disappeared from the mortgage banking lexicon of approved words.
Why are we so afraid of such seemingly innocuous words? My best estimate after years of experience is that organizations are or were afraid of lawsuits. And, to be sure, to implicate someone of mortgage fraud, given its nebulousness, is dangerous and should not be taken lightly. But to refuse to acknowledge fraud or fraud prevention or even to utter the words is best described by a term I invented called “ostrichsized.” The term means to put your head in the sand and ignore the signs of pending calamity around you.
All of us on the risk side of the aisle that had front row seats to the most recent economic tsunami have stories of “ostrichization.” During the height of the stated income craze, I executed the 4506’T’s through
Based upon these findings, I proposed mandating the 4506-T on all stated products. I had also conducted a study of the percentage of stated loans by broker and overlaid these figures with performance indicators. I proposed driving these findings to a higher level of pre-funding review for outliers. My requests were denied. The reason? Because the lender/borrower had paid for a stated income loan, it could not be called fraud, and the lender would lose market share. In the past year, the name of the unit I managed was changed from Fraud Investigation Unit to Mortgage Investigative Services Group, as though the word fraud itself was some evil talisman.
The sooner we acknowledge that mortgage fraud, while perhaps mean, is real, and that fraud prevention, (though not sexy) is a vital component in mortgage lending, the sooner we can work towards recovery. Today, I can tell you at Interthinx we are seeing old school fraud, particularly with misrepresentation of income and employment on refinances (all those stated income loans have to qualify with full docs) and with assets on purchases. We are also seeing inter-family straw buyers where family members are purchasing relative’s properties that are in default, or where they are upside down on the value. However, with tools such as FraudGuard, 4506T verification, identity verification tools and more, we can identify fraud, prevent fraudulent loans from funding, and help mitigate reputational, financial and operational risk. With acknowledgement, awareness, diligence and technology, the mortgage industry can again be a beacon of light for American homeowners.
So, say it loud and say it proud. Shout it from the rooftops! Fraud prevention! Uh-oh, sorry, gotta go! The politically correct cops are coming!
Gary W. Carr is a forensic underwriter at Interthinx.
