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.
