Mortgage Fraud Prevention Secrets

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LAS VEGAS — A panel at this week’s Global Technology Summit tackled mortgage fraud and talked about practical ways to prevent mortgage fraud at lending institutions.

The panel, entitled Global Though Leader Panel: Mortgage Fraud Prevention, was moderated by Founder and Publisher Sam Garcia.

Panelists included Jay Meadows, founder of Rapid Reporting; JJ Neilson from SunTrust Bank’s fraud and collateral risk department; Michael Richardson, who authored a book on mortgage fraud prevention and is president of; and Neal Umphress with the Federal Bureau of Investigation.

Many of the comments from the panelists emphasized the use of mortgage fraud prevention services.

Meadows, who previously sold Rapid Reporting to Equifax, said that criminals know the weak spots of each lender. They are aware of which companies don’t utilize services to verify identity or income. He pointed out how that despite the expense of third-party services, it is much less costly than a repurchase.

“They actually know better than we do,” Meadows stated. “You’re going to be adversely associated with not running these checks.”

SunTrust’s Neilson encouraged lenders to ensure that their employees are well-trained on how to utilize fraud-prevention services and data. He said many of these services help identify players who have a hidden interest in closing the transaction.

Meadows explained that implementation plans need to ensure that the services work.

Meadows highlighted a trend where lenders are approving loan modifications based on the application information that was submitted at origination — even though some of that information might have been fraudulent. He noted that this bad information is contributing to modifications that are re-defaulting an average of three months after being completed.

Umphress, who specializes in white-collar crimes at the FBI, said that most fraud isn’t reported until there is an actual loss, and then it’s still as much as a year before the report is filed.

BrokerPriceOpinion’s Richardson said that mortgage fraud can’t really occur unless there is an inflated value, and lenders who do a better job with due diligence in this area have a much better chance of preventing fraud.

“Without an inflated value, the fraud scheme doesn’t work. Period,” Richardson explained.

Appraisal fraud comes in more than one form. In addition to legitimate appraisers who succumb to pressure (or monetary incentives) to inflate the fair market value, there are also players who steal the identification of a legitimate appraiser and prepare fraudulent reports.

The FBI’s Umphress said appraiser ID fraud has been around for years.

Meadows, from RapidReporting, said much of this type of fraud can be prevented by knowing the people in the process.

“It goes back to the old brokerage thing ‘know your client,'” Meadows said. “You got to know your appraiser. You gotta know who you’re doing business with.”

Richardson said that if a bad appraisal can be spotted up front, then it’s likely that digging through the file can turn up even more fraudulent activity or a fraud ring. He indicated that the ringleaders in many cases do a good job of not letting players in the schemes learn the identities of other players.

An audience member who works for a non-profit organization, Michael Blackburn, brought up a new kind of fraud that involves people filing fraudulent documents with county recorders to steal the property title from the current owners. The lenders usually aren’t made aware of the crime until the losses have already occurred.

Although Blackburn said these are primarily handled through civil court, Umphress said that the FBI also prosecutes such cases in criminal court. Richardson said some counties have been successful in preventing this kind of fraud by sending out certified letters to the owners of record and holding off on title transfer until after the letters are mailed.


Mortgage Daily Staff


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