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Generating small-commercial leads: The (tenaciously) personal touch

Mar 10, 2008

Dealing with mortgage fraud starts at the topRalph LoVuolo Jr.delinquencies, foreclosure, lender guidelines, code of ethics If there is anything we have learned from the Enron scandal, which resulted in Kenneth Lay, chief executive officer, being sentenced to 25 years in prison, it is that the culture of an organization comes from the behavior of its leaders. It is also true that the leaders ultimately bear responsibility for their associates' actions. Mortgage fraud is not a victimless crime, nor does it only affect lenders with deep pockets. Industry experts affirm that there is a correlation between mortgage fraud and the current record of high mortgage payment delinquencies and foreclosures. As we have seen in the past year, these delinquencies have lead to a reduction in mortgage products and tightening in lenders guidelines, which have affected the entire industry and spilled over into the housing market. With such powerful changes occurring in the industry, there is a fret of pressure to make deals happen. Additional pressure comes from those that have seen their income drastically reduced. This mix of pressure is a recipe for fraud, and it could be going on inside the walls of your own organization without you realizing it. For some people, this pressure can gray the line between right and wrong in committing fraud, but that line is solid black and it should not be crossed. It is often too late when an owner receives a call from a lender stating that he is cutting the owner off because he found fraud in a loan submitted from the owner's shop during a due-diligence check of his pipeline. Worse, it is far too late when the FBI goes knocking on an owner's door with a warrant for his arrest. Since mortgage fraud has such a strong impact on the mortgage and real estate industries, it is everyone's responsibility to fight it. Owners need to ask themselves, 'What kind of culture does my company have when it comes to loan quality?' Ignorance is not bliss when it comes to fighting mortgage fraud. Like high blood pressure, it can be the silent killer of a company's overall stability and financial health. Here are five tips that will help build a strong foundation to fight off mortgage fraud in an organization: 1. Create a company code of ethics It is important to define a company's expectations when it comes to ethical behavior and honesty in the workplace. Don't just post the code of ethics in the lunchroom or share it with associates by e-mail, have a meeting with the staff, as a group or individually to go over the reasons for implementing the code and discuss the consequences. It is important to make sure that each manager within an organization understands the code of ethics and reviews it with his respective team during department meetings. 2. Inspect expectations It is important for a manager to make sure that his associates are aware of his expectations. He must also have a method to monitor what his associates are doing. He cannot trust that every associate will adhere to the code of ethics and never falter. Inspections should be conducted pre-funding as well as post-funding. A manager should also include loans that never close to learn more about how his associates conduct business. 3. Create an integrity tip line An anonymous tip line is a valuable tool for employees to report unethical or illegal behavior in the workplace. Tip lines should be available 24 hours a day, seven days a week, because most employees will choose not to call during business hours to avoid the possibility of someone over-hearing them. Also, because anyone in an organization is capable of committing fraud, using a third-party provider to handle these calls would be beneficial. 4. Know your employees It is more important than ever before for an owner to know who he is doing business with. It is important to pre-screen new employees and conduct background checks on them. References and resumes cannot always be relied upon. No candidate would provide the name of a person who would give them a bad reference on a resume or application. It is just as important to pre-screen other businesses as well. An owner should find out which closing agents and appraisers his associates are using. Failure to pre-screen these outside individuals could give them the opportunity to abuse their business' relationships and harm a company's reputation. 5. Training and education It is important for an owner to educate his team on the importance of building a good foundation to fight off fraud. Frequent training sessions with process and origination teams are important. An owner should discuss how to detect red flags and what to do if there is a suspicion of misrepresentation. Employees must know how to use the tip line. Associates should be tested on the company's fraud policies and procedures to understand how important they are. This will also help an owner gauge his team's understanding of what fraud is and how to guard against it. Now that the five steps are understood, they can be used to prevent mortgage fraud in an organization. Here is one last tip: Always take fraud found in an organization seriously. Enforce fraud policy. Associates follow the actions of their leader and will not take fraud seriously when their leader does not. Remember, it starts at the top! Fight mortgage fraud every day. Ralph LoVuolo Jr. is founder and president of Fraudmit LLC. He may be reached by e-mail at [email protected] or through his companys Web site at
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