The football season kicked off just weeks ago, and every good coach knows that a strong defense can be the key to a winning season. That philosophy also applies to today’s mortgage industry—utilizing the right technology-based systems can give brokers and lenders a significant defensive advantage in this highly competitive industry. More and more mortgage professionals are making Tax Return Verification (TRV) reports key players on their fraud-fighting teams.
Defensive coordinators can attest that a good defense is made up of more than just tackling or pass interceptions. It requires teamwork, savvy and plenty of strategy—the same skills necessary to succeed as a mortgage professional. The mortgage industry today is like a game with new rules and regulations, played on a field—the housing market—that is as unsteady as a new turf field. Pile on consumers desperate to get loans or people attempting to make money by dishonest means, and it’s easy to see why mortgage fraud is at an all-time high.
Fraud instances: Red Flags abound
The facts speak louder than a 0-12 coach after a blown play:
● Tax return and financial statement fraud rose 17 percent in 2007 and 28 percent in 2008, according to the Mortgage Asset Research Institute (MARI).
● The FBI reports Mortgage Fraud Suspicious Activity Reports (SARs) rose 36 percent in 2008 to 63,175. The amount of Mortgage SARs filed so far this year has reached 33,291.
● There has been a three-fold increase in actual mortgage fraud cases in the last three years, the FBI reports, with $1.5 billion in specific dollar losses in 2008.
Increasingly, TRV reports are being seen as a defense against these legal and ethical end-arounds by helping to erect a figurative “steel curtain” around brokers and lenders. TRV reports protect them from a range of scams and fraudulent practices perpetrated by buyers, sellers, mortgage brokers, real estate agents, appraisers and others in the field. These fouls fall into two main categories.
● Fraud for profit: This typically involves industry professionals who inflate home values, overstate income and assets, steal identities, and create fake properties and buyers to secure loans.
● Fraud for property: This illegal activity includes buyers who misrepresent themselves and their financial qualifications to get a loan for which they may not have otherwise qualified. Fraudulent income, credit, employment or appraisal documents are the tools used to commit the fraud.
Accessibility and ease of use are a winning combo
You don’t need to be a Bill Belichick, Dom Capers or other defensive mastermind to use TRV reports. The fact is that TRV reports are as straightforward as a safety blitz. Simply put, they compare income-related lines of a borrower’s tax return with the same lines on file at the Internal Revenue Service (IRS) and highlight any discrepancies. They also match information in Social Security Administration and IRS files with what is on the loan application and, using IRS-validated data, provide cash flow analysis that completes the underwriter’s calculations.
Some companies have added technology to the team and offer fully electronic order and delivery of TRV reports. That means if you’ve scanned or imaged the 4506-T, the IRS release form used to pull a taxpayer’s tax transcripts, you can upload the document to the order you’re placing online. You then receive the data back electronically within 24 to 48 hours.
Putting TRV reports on your defensive line does more than just assure lenders the original IRS figures haven’t been manipulated. They give lenders more confidence in making loans by providing accurate information. That’s absolutely vital, given the explosive growth in lender requests, not to mention increased regulations and a diminishing number of loan originators.
New rules help the anti-fraud squad
A couple of new players have appeared on the regulation side:
● The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act licensing of 2008): This act requires mortgage companies to screen loan officers before they handle sensitive customer information. The process involves entering fingerprints, criminal history, background checks, personal history and experience into a Nationwide Mortgage Licensing System and Registry (NMLSR) and makes use of the latest employment screening technology.
● The Mortgage Reform and Anti-Predatory Lending Act (HR 1728): This piece of legislation protects against fraud and was designed to amend the Truth-in-Lending Act (TILA) to help stabilize the mortgage market. An amendment to this bill requires mortgage lenders to verify the income history of each home loan applicant by obtaining an IRS tax return transcript from a third-party provider prior to closing a loan. The goal is to verify stated-income through IRS tax transcripts to protect taxpayers, investors and the mortgage market by discouraging fraud, reducing foreclosures and strengthening the market. The bill passed in the House and it’s now in the Senate and expected to be voted on soon.
The number of loan originators is becoming as scarce as players without six-figure salaries, so there is even more reason to be vigilant. Two to three years ago, for example, buyers had a wide choice of where to secure mortgage loans. Today, MARI reports that more than 300 companies that once originated loans have folded their franchises. This has caused some to speculate that fewer loan originations may be leading buyers desperate to purchase homes to commit mortgage fraud.
TRV reports make confidence a snap
It’s no wonder, then, that some lenders, tired of being thrown for financial losses by scammers and fraud artists, are asking that TRV reports be included with loan applications to confirm such things as employment and income. Some companies offering TRVs have seen orders increase six-fold since last year. My firm, Credit Plus Inc., has experienced a whopping 628 percent increase in the use of TRVs over the past year.
TRV reports, like a star rookie in training camp, are proving their worth in ensuring that more loans are being approved faster and with greater confidence.
David Wind, president of Guaranteed Home Mortgage Company Inc. in White Plains, N.Y., said, “Not only have TRVs enabled us to more fully verify our files, they have assisted us in expediting our underwriting processes as we are ordering them at initial application submission so that they are available for initial underwrite. This has the effect of reducing the need for supplemental verification or consumer explanation stipulations on our commitments.”
Technology makes defense the name of the game
Credit information companies are scoring big points with mortgage industry customers through the use of TRV reports and other technology-based systems that help them sideline mortgage fraud by gathering and validating information. Using technology this way levels the playing field for everyone in this new competitive environment, where the stakes keep getting higher all the time.
Taking a team approach and putting TRV reports in play is a win-win strategy that will lead to gains by mortgage brokers, lenders, consumers and other players in the fight against fraud. You may not earn a trophy, but you can feel good that you have gone the distance to make a difference in our industry.
Steve Grant is president of Credit Plus Inc., a credit information services provider since 1928. He may be reached by phone at (800) 258-3488.