The road less traveledKirk Reesefraud, outsource, automation advantage, technology Outsource for income without risking fraud When business is down, brokers want to concentrate on customer service and recruitment and not time- and labor-consuming administrative and back-office work. Moreover, in this declining market, the risk for fraudulent behavior increases. For example, in a healthy market, brokers can afford to turn away loans that are sub-par. However, when the market is in a decline, brokers will loosen loan criteria to keep their pipelines full. In other words, in a profitable market, the broker can take the risk of losing clientele, whereas in a declining market, the broker has fewer loans to choose from, thereby increasing his chances of accepting a fraudulent application in an attempt to augment business. The dilemma is determining how to shift to more imaginative ways of generating new business without unwittingly engaging in fraudulent behavior. A safe answer to this dilemma is to outsource functions, like initial disclosures, to all-in-one fulfillment services that receive and authenticate disclosures and then print and mail them within government-mandated timelines. Such companies do initial fraud checks on the information that brokers submit. Not only is that a pre-emptive action against fraud, but it is also a way to save many staff hours. The automation advantage Detecting fraud after it occurs is too late, potentially costing the company and consumer millions of dollars, so it only makes sense to select a vendor with an automated fraud check solution. Not only does that provide front-end fraud protection, but it also enables ongoing verification of additional data as it becomes available on the loan. Brokers who opt for this approach will receive the gratitude of the lenders who do not have to worry about recouping money after it has been lent out on a fraudulent loan, thus creating a win-win situation. The best bet for brokers thinking of outsourcing their initial disclosures is a fulfillment service that provides documents that are guaranteed to be compliant with municipal, state and federal regulations, taking the burden from the broker to oversee compliance. In declining markets, as we unfortunately see today, it literally pays for brokerages to give more and more of their documentation work to an outsourced partner. There is less expense, less overhead cost and less liability for the broker and more time to focus on the customer. This literally pays for itself through customer satisfaction, which generates the best kind of marketing of allword-of-mouth. Technology options coming to market There is technology available now that can detect fraud so lenders are alerted, but little is being done to prevent fraud. Stopping fraud before it occurs really saves thousands of dollars that otherwise are difficult or impossible to retrieve once the crime has been committed. New technologies, however, are starting to surface that can carefully scan loan files against a wide variety of data sources to head off fraud, such as price inflation, identity theft, equity skimming, property flips, broker or appraiser fraud, straw buying and employment misrepresentation. These solutions can spot fraud by borrowers, company officials or properties and can access large and growing databases of previously inspected files as well. Mortgage fraud has spiked in recent years, even before housing sales dropped, primarily because of the tremendous increase in transaction volume and the fragmentation of the mortgage origination process. Independent brokers, who now initiate more than two-thirds of all home loans and represent another step in the transaction where fraud occurs, have gained prominence. The FBI reported last fall that bank-reported incidents of suspected fraud soared by a factor of five since 2000 and such banks had lost an estimated $2 billion to fraud. A service-oriented architecture-unified point of sale (POS) approach, which allows every participant in the mortgage process across multiple channels to interact, share and access information, systems and services on-demand at their POS, is not a cure-all. But it does enable lenders to quickly insert fraud detection software into their workflow. In that regard, it is a big improvement over standard loan origination system technology in keeping up with the accelerated learning curve of savvy fraudsters. From a business growth standpoint, the beauty of a unified POS is that it dramatically improves the efficiency of processing a loan. Lenders can expedite the flow of information with a solution that detects fraud at the point of sale and keep tabs on loans and broker activities. The Web service-oriented solution gives lenders centralized control of the complete range of back-end business processes across the enterprise, so mortgage professionals can see everywhere that fraud could crop up. Best practices against fraud In addressing this declining market, many companies have to conserve costs. Many are turning to outsourcing their document and compliance needs because it is less expensive for them; there is less overhead and less liability. This is a growing trend, as the technology to fulfill businesses' document needs increases in its capabilities. When establishing best practices for a company concerned about fraud, it is sound advice to check it early and often. Check it early, because no one wants to pay for a crime already committed and money already funded. Check it often, because as more data for a loan becomes available, the fraud check will become more complete, thus ensuring a more effective fraud check. Additionally, brokers can find new business through reputable lead companies, but there is a track record of fraud in mortgage leads, so brokers should do their due diligence before working with a lead company. Ask them: -Their official business name; -How long they have been in business; -In what state they are incorporated; and -If they have ever been sued. If yes, ask why. The major search engines can also be solid sources of information on the lead companies that approach mortgage brokers. In an effort to attract new business, the present declining market can feed fraudulent behavior. However, proactive and preventive measures such as outsourcing initial disclosures can help minimize the risk for fraudulent loans and alleviate the burden of the hundreds and thousands of employee hours/labor costs associated with initial disclosures. Back to basics By outsourcing initial disclosure needs to a competent company, more time and care can be focused on the customer which, when done effectively, increases customer satisfaction and word-of-mouth advertising and, as a result, increases company revenue. By outsourcing, a company can go back to the basics and focus on the people who keep them in business. After all, this is what it's all about. Kirk Reese is president and chief operating officer for DocuTech Corporation, a provider of compliance services and documentation technology for the mortgage industry. He may be reached at (800) 497-3584.
About the author