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].