Technologies help to protect the American dreamThomas Brownfraud, technology, security
Homeownership is one of the great American dreams. It provides a
sense of accomplishment, safety and family pride. And in most
cases, it is also a good financial investment. In fact, in certain
markets throughout the country, many homeowners have realized
healthy returns on their investment as a result of a sizzling real
estate cycle. Unfortunately, this has not gone unnoticed by
fraudsters who thrive on bilking lending institutions out of
billions.
Mortgage fraud can be as simple as a loan applicant lying about
income or employment and as complex as a ring of conspirators using
identity theft, fake appraisals and straw buyers to manipulate
lenders into approving false mortgages. Additionally, the highly
competitive mortgage environment has placed significant pressure on
underwriting practices fueling explosive home values, making it an
even more lucrative opportunity for fraudsters. This process forces
lenders to drive up rates to cover additional costs, increasingly
threatening the ability of homeowners to receive available mortgage
funding for the American dream.
According to the FBI, mortgage fraud is steadily rising, and
brokers and lending institutions are all at risk of losing
substantial amounts of money. These statistics show that reports of
mortgage fraud have tripled to 21,994 in the last two years; and
the dollar value of these alleged crimes has quadrupled to $1.01
billion.
Naturally, this amount of fraud costs both businesses and
consumers alike. Fraud increases the price of mortgages for all
buyers, as lenders pass on their higher costs. Even worse, the FBI
indicates that the amount of deceit is undoubtedly much greater
than the reports state.
So what exactly has caused a spike in fraudulent activity? The
plunge in interest rates caused an increase in mortgage volume
beginning in the mid-1990s and again in 2002, when the federal
government provided incentives to borrowing. To handle this demand,
lenders quickly beefed up staff, which often included hiring
inexperienced people who cut corners on the due diligence that
could have prevented much of the fraud. What's more, the
willingness of buyers to pay ever-increasing prices, often on an
accelerated timeframe, contributed to the amount of volume in the
market, making fraud even more difficult to detect.
The growing problem many banks and other lenders face is that
fraudulent people and entities are increasingly finding new ways to
mask themselves as creditworthy mortgage customers. And the problem
could get worse for many lenders. Before many real estate markets
began to cool, banks could often curb their losses by reselling
defaulted properties back into the rising market. This window of
opportunity for banks will shut as the real estate market slows
down.
Fortunately, there are technologies available to financial
institutions to help reduce the risks associated with fraudulent
mortgage applications.
Over the years, fraudsters have become more sophisticated in
their tactics by preying on a less-stringent application process or
through the use of identity theft. Some have taken advantage of
overburdened county deed offices, meaning that con artists can take
advantage of overworked lenders who may be confused about true
ownership titles. Others simply mask their identity by pretending
to be a more creditworthy applicant before closing on the deal and
fading away with the loan - leaving the real owner or bank left
holding the tab.
In both cases, new technologies can allow lenders to identify
con artists trying to trick the system. One application searches
multiple public information databases - containing four billion
consumer and 300 million business records - for information that
can verify and validate a person's or business' identity. This
technology even contains a reference library of sample photo IDs
for every state supporting required documentary identity
verification.
Fraudsters thrive on their ability to leverage speed and
efficiency in their efforts. As a result, another leading
technology available to lenders allows instantaneous identity
authentication at the customer contact point for financial
institutions and commercial customers. The application generates
immediate authentication questions, like length of residence in a
municipality, purchases of real estate property, type of car owned
and even names of distant family members associated with the
applicant.
In our continued fight against mortgage fraud, we must display a
concerted effort and leverage every resource available to thwart
these thieves' illegal activities. Growing trust in the process
will help reduce unwanted cost increases to both banks and their
customers, ultimately helping to pave the way to a healthier
national economy and a safer identity environmentas well as the
continued reality of the true American dream.
Thomas Brown is vice president of Dayton-based LexisNexis
Risk Management Banking Products, a provider of legal, news and
business information, as well as risk management services. He can
be reached at (800) 227-4908 or visit www.lexisnexis.com.
