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The Fight Against Mortgage Fraud

Empower your borrowers with the correct resources for better compliance

Mary Kay Scully headshot
Mary Kay Scully
Mortgage Fraud

Did you know that three out of five loans will have a critical error that jeopardizes the chance of referral, according to data from STRATMOR Group? You may be thinking, three out of five doesn’t sound that high, but that’s 60% of your loans. When you put it in perspective of the nearly one million mortgages originated in Q3 of 2022, per ATTOM data, that’s hundreds of thousands of errors.

While it may be easier up front, incomplete or inaccurate applications can lead to big setbacks down the road. Let’s talk about audit tips, best practices, and why they are so important.

Gathering Correct Data

You’ve probably heard it before, but let me say it again: take a complete application. Make sure you’re getting all the info you need — and that it’s as accurate as possible.

Getting a complete and accurate application often comes down to empowering your borrowers with the resources they need:

Hand out checklists to make it easier for borrowers to gather all of their documents. Having a simple and clear list of what they need can help them provide the right documents in a timely manner.

Be available for questions. Whether you make yourself available outside of regular business hours or you reach out to see if they have questions, make sure your borrowers know you are there for them. Not everyone will reach out themselves, even if they do have questions, but if you make the first move, they are much more likely to talk things out with you.

Educate your borrowers where they need it. It’s easy to think that education is only necessary for first-time homebuyers, but that’s not always the case. While you may have a borrower that has purchased a home before, they may still have questions or need help through the application process. Our industry is always changing, but the rapid changes over the past few years may leave even experienced buyers guessing. Just because your borrower has done this before doesn’t mean they know it all.

Proactively communicate with your borrowers frequently during the application process. Beyond being available for questions, reach out to your borrowers and keep them informed with projected timelines, helpful resources, and anything else that you feel would be useful for them to know and keep them engaged.

It is ultimately up to you to guide your borrowers through this process. You can’t assume they know everything or even that they’ll ask questions when they need help. Staying proactive, available, and connected is the best way to ensure their success and yours.

Why It’s Important

Rather than harping on you to take complete applications, let’s talk about why you should.

Incomplete or inaccurate applications do not have all of the information required to make an accurate credit decision. They also can lead to an increase of declinations, create more work for your underwriter, slow down the process for your borrower, and open the door for misrepresentation and fraud.

Being vigilant and taking some extra steps up-front will reduce a lot of headache down the road — not just for you, but for your underwriters and borrowers as well.

Fraud Tips

Beware of misrepresentation. CoreLogic reports that purchase transactions are more susceptible to fraudulent activity than refinances. With this, and current interest rates, in mind, be extra cognizant of any red flags, such as a sudden or drastic change in employment or income. It’s not common that a borrower suddenly goes from making $40k to $80k per year. Drastic changes like this should set off alarm bells. On the other hand, with so many industries experiencing layoffs right now, your borrower may not have that high-paying job with which they started the application. Whatever the case, reverify as close to closing as possible to ensure their income is solid.

Another type of misrepresentation to keep an eye out for is occupancy fraud. With higher down payments, reserve requirements, and financing costs, it’s much easier and more cost effective to buy a primary residence than it is to buy a vacation home or rental property. To avoid occupancy misrepresentation, pay attention to any red flags such as a significant or unrealistic commute distance, or a rental policy listed on the declarations page.

This by no means is a comprehensive list of all the misrepresentations that can show up in files, so leverage the many industry resources that are available to help you understand and identify fraud. In addition to the mortgage fraud prevention resources available from Fannie Mae and Freddie Mac, other mortgage partners often have their own resources that lenders can leverage.

Ultimately, it is your responsibility to make sure your borrowers are accurately represented. Be vigilant in spotting any potential roadblocks or red flags that could cause issues for them or your business down the road.

As author and scientist John Andreas Widtsoe once said, “Fraud and deceit are anxious for your money. Be informed and prudent.”

This article was originally published in the NMP Magazine February 2023 issue.
Mary Kay Scully headshot
Mary Kay Scully

Mary Kay Scully is the Director of Customer Education at Enact, leading the development of the company’s customer education curriculum. The statements in this article are solely her opinions and do not necessarily reflect the views of Enact or its management. 

Published on
Jan 30, 2023
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