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FDIC reports that housing slowdown poses challenge to bank loan growth

Apr 25, 2007

Study finds fraud linked to up to 70 percent of defaultsMortgagepress.comBasePoint Analytics, early payment defaults, misrepresentations BasePoint Analytics, a provider of scientific fraud analytics and consulting services, announced the results of a new scientific study which found that up to 70 percent of mortgage early payment defaults can be linked to a significant misrepresentation on the original loan application. The purpose of the BasePoint study was to investigate the link between fraud and payment trends during the early life of the loan. The result of the study concluded that loans that contained egregious misrepresentations were up to five times more likely to default in the first six months than loans that did not. More importantly, the study concluded that predictive models could be deployed early in the loan process to help lenders predict which loans were likely to default within the first six months, enabling the loans to be rejected pre-funding. In fact, predictive models such as BasePoint's FraudMark for Origination correctly identify approximately 40 percent of a lender's loans pre-funding that, if booked, would stop paying within the first six months. "Many lenders are facing increases in repurchase requests and early payment defaults [EPDs]. In an effort to help lenders deal with these challenges, BasePoint has rigorously studied the issue and found a direct correlation between EPDs and mortgage fraud," said Tim Grace, president and CEO of BasePoint. "We can demonstrate for lenders and investment banks how they can substantially reduce their EPD losses, and often within a short period of time. The cost of mortgage fraud is borne by every person or family who buys or sells a home. That's why BasePoint continues to focus on developing advanced software solutions to put a stop to mortgage fraud before it happens." BasePoint analyzed more than 16,000 loans that were confirmed to contain egregious misrepresentations in the loan file that later led to a default. These misrepresentations included fraud such as: income inflated by as much as 500 percent, appraisals that overvalued the property by 50 percent or more, fictitious employers and falsified tax returns. The study concluded that misrepresentations can grossly affect the risk of a loan. For more information, visit
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