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The appraiser's perspective: Too much of a good house

National Mortgage Professional
Sep 17, 2006

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].
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