Increases in mortgage fraud drives need for better detectionSteve Grant and Allen Johnsonlitigation, white-collar crime, fraud for property, fraud for profit
Undertaking investigations has long been the forte of private
detectives. Searching for answers, looking for the truth and
uncovering illegal activity have always been their specialties. The
rest of us went about our jobs, happy to leave such activities to
the private eyes.
All of that is changing with the rise of mortgage fraud. Today,
mortgage professionals are finding that, in order to protect their
companies from litigation and loss, they must become diligent
private detectives. Every application must be scrutinized with a
figurative magnifying glass in order to make sure the information
is accurate and the applicant is not about to foist a scam upon the
unsuspecting broker or lender.
According to the FBI, mortgage
fraud is so pervasive that it is now one of the fastest growing
white-collar crimes. Since 2001, reports of mortgage fraud have
more than quadrupled, and last year, lenders lost an estimated $1
billion due to fraud--double the previous year's estimate.
The situation, as outlined in the most recent annual report from
the Mortgage Asset Research
Institute Inc. (MARI), a service to Mortgage Bankers Association
members, further illustrates the seriousness of the problem.
Suspicious activity reports related to mortgage fraud have risen
from more than 3,515 in fiscal year 2000, to more than 28,000 in
fiscal year 2006.
Even in today's slower housing market, mortgage fraud is on the
increase--and the techniques criminals are using to commit fraud
are becoming increasingly sophisticated. Fraud comes in two primary
types--fraud for property and fraud for profit. The first includes
buyers who lie on their application to get a loan for which they
might otherwise not have qualified. The second, on the other hand,
is more explicitly criminal. Fraud for profit often includes
professionals who conspire to inflate the price of a home,
defrauding banks, lenders and homeowners alike.
This means it is more important than ever for mortgage
professionals to protect themselves and their companies from
falling prey to a con. Like private investigators, they must search
out the facts for every applicant. Many are finding that new
products that quickly and easily detect various forms of identity
fraud are a key to putting the pieces together and cracking these
cases.
New products to uncover fraud
New fraud detection products on the market not only help banks and
mortgage professionals fight fraud, but are also useful for credit
card issuers, retailers, telecommunications companies and other
credit grantors.
These products perform a series of checks, searches and
counters, ultimately returning a set of indicators that provide
specific high-risk characteristic descriptions. Users have the
flexibility to receive only those indicators that are relevant to
their business requirements and market-risk profile. This
information allows mortgage professionals to immediately recognize
the warning signs of potential fraud. Key benefits include:
-Instantly recognizing addresses that have never been associated
with the consumer on the application;
-Screening for high-risk address profiles and providing a detailed
series of address checks;
-Automatically flagging phone numbers that don't correlate with the
listed address;
-Identifying the high probability that a Social Security number
belongs to another consumer;
-Instantly tracking the number of times a specific Social Security
number has been used on previous inquiries; and
-Automatically uncovering inconsistencies in an applicant's
identifying information, such as address and Social Security
mismatches.
With some programs, the user can opt to receive a score that
integrates both fraud and credit variables into a single, simple to
interpret value. By providing a full perspective on an account's
fraud and/or first payment default risk in a single score, mortgage
professionals are able to be more efficient in making credit
decisions.
Tax Return Verifications provide key
clues
Altered tax returns have become a growing source of mortgage fraud
as applicants provide false documentation in order to qualify for
mortgages and other types of loans. For mortgage professionals on a
case, Tax Return Verification reports can be extremely helpful in
their investigative process by verifying or disproving the
information provided by applicants.
Tax Return Verifications look at the income-related lines of the
tax return provided by the applicant and compare that information
with the same lines on file at the Internal Revenue Service. Any
discrepancies are then highlighted for the lender. In addition, a
Tax Return Verification Stated Income Report verifies that the
applicant's information matches data on file at the Social Security
Administration and the IRS.
Lenders and brokers can go directly to the IRS for such
information, or they can utilize the services of a credit reporting
company who is able to provide Tax Return Verification reports.
Some companies offer Tax Return Verifications in a fully electronic
format, saving the broker or lender valuable time by eliminating
the need to fax requests.
PRBC reports verify SS and ITIN numbers
Social Security numbers and Individual Taxpayer Identification
Numbers (ITIN) are used by the IRS for tax processing purposes.
Persons who are not eligible to obtain a Social Security number,
such as resident and non-resident aliens, are required to get an
ITIN. With the growing problem of identity theft in the United
States, and the authentic-looking counterfeit documents being
presented by some applicants, lenders know it is critically
important to verify an applicant's identity before a loan is
approved. Pay Rent Build Credit
(PRBC), an alternative credit bureau that provides credit reports
for people who have no-hit or thin credit files, is providing just
that service. By validating Social Security and ITIN numbers, the
use of PRBC reports can help expose criminal activity and mitigate
fraud.
Reducing loss and gaining control
With the U.S. Treasury
Department's Financial Crimes Enforcement Network reporting
that mortgage loan fraud in the United States rose 35 percent in
the last year, the need to take measures to protect one's company
is clear.
For mortgage professionals who have put on their private
investigator hats, high-tech fraud detection tools that uncover
clues, expose lies and illuminate the truth have replaced the
magnifying glass. By identifying potentially fraudulent
applications and high-risk inconsistencies or inquiry counts on a
consumer's credit report, as well as flagging consumer profiles
that warrant further review, they are able to take a giant step
toward combating the rapidly escalating problem of fraud in the
home buying industry.
Steve Grant is president and Allen Johnson is vice president
of sales and marketing of Credit Plus Inc., a credit
information services company. They can be reached at (800) 258-3488
or e-mail
[email protected].
