Fraud in the mortgage industry has been so egregious that the system breakdown was deemed worthy of depiction on the big screen. Presenting itself in many forms, fraud has confronted the industry with battle after battle, but the nature of the war is changing. While companies continue to make three big blunders in hiring and managing third-party vendors, there are reliable ways to avoid these mistakes altogether using existing technology.
The first blunder companies make is relying on a blind Internet search for finding contractors to carry out pieces of the mortgage process not handled in-house. The second is neglecting to solicit feedback on the contractors' performance from those who have engaged with them directly. And the last is allowing sensitive loan documents to be insecurely transferred online.
The good news is that mortgage fraud risk has seen an overall decrease. However, the bad news is that certain fraud types have become more serious. According to the Annual Mortgage Fraud Risk Index released by Interthinx last summer, there was a 4% drop in fraud risk in 2014 after three years of increases. However, identity is one of the four fraud risk indices Interthinx tracks, and it's one where many vulnerabilities persist.
Vendors are either friend or foe to the mortgage process. Criminals posing as third-party vendors, from appraisers to notary signing agents, are one of the biggest threats to security in the space. Outside the realm of lenders' and title companies' direct oversight, these contractors can infiltrate the process and engage in professional identity theft — and anyone involved in the process, from the mortgage broker to the borrower, can be the target.
Remote mortgage loan closings with mobile notary signing agents are on the rise in a big way. The process for these out-of-office closings illustrates inherent vulnerabilities, absent smartly designed tools. Before a reinvented mobile closing process was within reach, lenders and title companies would typically source notaries online — no reviews, no ratings, no guarantees — and hope for the best. It was about as reliable as thumbing through the Yellow Pages.
Review and Rank
However, lessons learned from consumer platforms like Yelp have revolutionized the search for vendors for hire by settlement services companies. Imagine selecting notaries according to rankings based on nearly a dozen factors, including user reviews and qualifications. Being able to identify the best-performing and most qualified notaries by location gives lenders and title companies the confidence that remote closings with borrowers — regardless of their locale — will be flawlessly executed.
Cull a Database
No matter the type of third-party vendor, a curated database that ranks potential for-hire candidates according to user reviews and qualifications can also root out fraud. In the travel space, for example, Expedia's database contains verified hotel reviews to give consumers confidence about the veracity of user reviews. Reports on real experiences provide the most reliable criteria upon which to make decisions about whom to trust with your business.
In the mortgage industry, all users who interact with the notary signing agent or another vendor — from the consumer to the real estate agent, lender and title company — should be asked to review their experiences. Taking it a step further, algorithms can factor in helpful information such as licenses, certificates, background check results and insurance policies to strengthen a modern database's rating system. An integrated query function can even cleanse the database of repeat entries, blacklisted vendors and those who farm out work to other people.
Protect Your Information
Allowing third-party vendors to send and receive sensitive information by email, rather than providing a platform that ensures safe document transfer and retention, is also a glaring fraud risk. Companies can limit their liability by ensuring that consumer data is secured and encrypted in a cloud-based technology platform.
New technology and processes can play a critical role in a pre-emptive action plan for fighting off third-party vendor fraud. Proactivity is a vital part of the mission to keep lenders, title companies and homebuyers protected. Mortgage fraud is ever-evolving and winning the war will require anticipatory counterstrategies that target specific threats.
Aaron King is the founder and chief executive officer of Snapdocs Inc.