Fight fraud up frontDave Blackmortgage fraud
As many homeowners with adjustable-rate mortgages brace for
further interest-rate hikes and refinancing, the mortgage industry
is likely to see fraud, the fastest growing white collar crime in
the United States, pick up some speed. The booming housing market
of the past, aggressive marketing of credit services and increasing
ease of identity theft have all played a role in more than $1
billion lost to mortgage fraud in 2005, according to Suspicious
Activity Reports filed with the FBI. With more than $1.5 trillion
in adjustable-rate mortgages expected to be refinanced in the next
two years, mortgage professionals will have to combat all kinds of
fraud ranging from misrepresentation on mortgage applications to
inflated property appraisals and insider collusion.
More specifically, mortgage professionals face two types of
increasing fraudfraud for property and for profit. Fraud for
property typically involves an individual making
misrepresentations, usually regarding income, personal debt or
property value, to secure a loan. Fraud for profit involves
industry insiders that conspire through multiple loan transactions
and grossly misrepresent critical information to generate cash
benefits. This vicious cycle is responsible for 80 percent of all
fraud cases and impacts all sectors of the mortgage industry,
including the secondary market, where fraud is widely underreported
to suppress investors' fears of mortgage-backed securities.
An ounce of prevention ...
Automated tools and advanced technology platforms are viewed
optimistically as the solution for early detection of fraud, before
it jeopardizes business, ruins reputations or puts mortgage
professionals in financial or regulatory trouble. However, taking
into account the pervasiveness of these crimes, the most effective
resolution lies in prevention. Security breaches, intentional or
otherwise, are far too easy to commit and virtually undetectable
through the traditional processes of loan origination. Technology
applications that limit a third-party vendor's access and an
insider's ability to corrupt sensitive information are the prelude
to arresting origination fraud.
A tool that was not originally intended to fight fraud has
emerged as the potential answer. Bundled services platforms were
created to offer lenders access to all of the vendors involved in
assembling a loan package and to deliver a one-stop shopping
experience. Consolidating the process of assembling a loan by
uniting disparate systems through a single point of entry was the
initial inspiration behind bundled services platforms. While
streamlining and automating the loan process is a primary benefit,
inherent features that prevent fraud have been revealed as the
impact of fraud echoes throughout the mortgage industry. Bundled
service platforms are quickly gaining popularity among mortgage
professionals as the highly secured exchanges of information
between lenders, vendors, borrowers and other third parties is seen
as one of the best solutions against identity theft and fraud.
Elements of a secure platform
Before bundled services platforms, the ancillary services that are
critical to origination were handled manually and were vulnerable
to human error and corruption. Sensitive information is directly at
risk when shared over the phone with an appraisal company or faxed
to order title and flood reports and especially when physical paper
documents are required to order and receive the essential services
to originate a loan. This process increases the opportunities for
confusion and misunderstandings between lenders, vendors and
borrowers and significantly slows the closing and funding of
loans.
In response to the scattered elements and unregulated approach,
the industry has recognized the need for originating loans through
a secure platform to unify the communication process. Security is
the central component in ensuring the borrower's loan information
is protected from identity theft and circumventing fraud.
Understanding the elements of a bundled services platform can
explain how its features assist in deterring fraudulent activity.
The best bundled services platforms have user-friendly features,
including an intuitive interface that lenders can easily navigate.
Lenders should not be expected to maneuver comprehensive technology
that ends up being unproductive or disruptive. Platforms that allow
lenders to stay focused on originations and use straightforward
technology will improve efficiencies and result in a seamless loan
process.
Contrary to popular belief, a bundled services platform is not
simply a portal. A portal is typically an unsecured Internet
gateway that facilitates connection and drop information directly
onto a desktop computer. A truly secured bundled services platform
does not allow access to the lenders' resources and stores personal
information in a protected environment. It also processes returned
information, driving workflow and automatically routing documents
to the users responsible for working on them.
Secure Web-based platforms store credit information and loan
data in a secure environment, utilizing a virtual loan folder - an
electronic file, in which all documentation, data and communication
related to a loan are assembled at a single location and moved with
its history between involved parties. Serving as a middleman, the
platform allows the originator to have control of the service
provider, which prevents insiders from cheating the system by
reporting altered values. Also, virtual loan folders never allow
credit data to advance to a desktop or carelessly traverse the
Internet as e-mail. Instead, lenders communicate through the
platform to pass an invitation to the processor to reference the
loan information, avoiding potential interception of pertinent
borrower information through unsecured e-mail accounts.
Industry demands evolution
While security risks are characteristic of today's mortgage
environment, professionals are realizing the benefits of mitigating
fraud risks and preventing conspiracies and accidental disclosures
through bundled services platforms. Bundled services do not claim
to be a comprehensive fraud solution or suggest they can be
instituted as the sole fraud technology for a company. However,
bundled services platforms' unique features can support fraud
prevention and interception before irreparable consequences arise.
Opponents may argue that bundled services cannot replace fraud
technology, but the most effective approach in preventing mortgage
fraud is to employ the strengths of automated solutions. Fraud's
far-reaching impact demands a secure lending process throughout the
industry, to protect borrowers, lenders and investors.
Dave Black is president and CEO of Spokane, Wash.-based SharperLending LLC, a
provider of a secure Web-based platform for the mortgage industry.
He can be reached at (800) 452-1174 or e-mail
[email protected].
