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Brokers Drive Early Defaults

CoreLogic says 70% of EPD's broker originated

October 26, 2006

By MortgageDaily.com staff


A recent analysis revealed that just a few brokers are responsible for a big share of early payment defaults.

CoreLogic announced that it found seven percent of brokers account for 63 percent of early payment defaults, with the riskiest 0.05 percent of brokers accounting for 70 percent of all losses.

"These figures are based on predicted first year loss concentrations," said Mark Fleming, CoreLogic chief economist, in the written statement. "While the first year is generally characterized by low rates of default and in most cases little loss, when losses do happen, they are big."

The statistics from CoreLogic's broker management database, which tracks more than 38 million loans and 190,000 brokers, illustrates the key link brokers play in the risk management chain and why broker monitoring and management tools are critical to the financial prospects of wholesale originators, according to the announcement.

BasePoint Analytics recently reported that its study of more than 3 million loans revealed that "the most serious mortgage fraud risk is broker-facilitated fraud." In response, it came up with BrokerWatch, a tool that "provides detailed performance reporting and pattern recognition scoring to predict which brokers are most likely to submit loans that will result in fraud, repurchase, early payment default and discount sales."

Fraud detection software developer Interthinx, noting that 80 percent or more of fraud is caused by insiders, has previously said that "one of the most critical aspects of any fraud detection program is a review of 100% of the applications on a pre-funding basis."

CoreLogic said it helps lenders evaluate and manage the risk associated with their broker network through ThirdParty Scorecard. The online software has the "unique" ability to accurately identify loss-related risk and provide comparative industry and geographically based benchmarks and trending. The scorecard reviews a broker's history and loan submission behavior and provides a summary report based on that information.

"The use of ThirdParty Scorecard helps lenders reduce overall loan default exposure by detecting higher risk agents at the front end of the loan process," CoreLogic added. "This proactive approach increases efficiency by accelerating agent approvals, while isolating a limited number of candidates for further investigation."


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