A complex problem necessitates comprehensive solutions.
Real risk management is a complex business. Manual verification of loan application data to detect fraud is inefficient and regressive. While many automated fraud-detection systems can check misrepresentations and return results in seconds, some within the financial community are content to rely on collateral value only, assuming that if the collateral value is there, they will not suffer a loss.
This one-dimensional approach to risk management is dangerous for several reasons. First, in a declining market, today’s value--even if verified--may be even less tomorrow. Second, while inflated collateral values are indicative of a number of fraud-for-profit schemes, they are of no use whatsoever in identifying falsified income/employment, straw borrowers, identity theft, occupancy fraud or silent seconds, nor in identifying the parameters of, and participants in, an organized fraud-for-profit ring.
It’s clear that the three dimensional problem of mortgage fraud requires a three dimensional approach to fight it. Truly comprehensive risk management allows lenders to avoid all the potential pitfalls on the road to making quality loans. The best-of-breed detection and prevention systems rely on statistically validated scoring systems, expert validated systems, leverage large volumes of shared application data and have proven valuation models that utilize private closed-sales data.
A new wave of insidious mortgage fraud awaits us. As lending requirements change, fraudsters change their methods to evade new loan guidelines. With many lenders now requiring a 20 percent down payment and W-2s to prove income, Interthinx investigators and experts are seeing an increase in silent-second mortgages and “self-employed” borrowers. We’re also seeing an increase in family members and straw buyers “rescuing” borrowers facing foreclosure, builder bail-outs and severe fallout from fraudulent condo conversions.
The mortgage application is, and always will be, the starting or ending point for fraud. The catastrophic collapse of the subprime market demonstrates a need for all lenders and investors to seriously re-evaluate their current approach to risk management.
By applying more comprehensive and progressive tools to every loan at every possible checkpoint, lenders will reap the benefits of Interthinx technology with systems that can leverage data from millions of transactions while providing the agility to adapt detection algorithms quickly to capture emerging schemes. Add to this technology the good old-fashioned skills of Interthinx fraud and compliance experts, and you may just have the answer to what it will take for the mortgage industry to go beyond the present crisis and enthusiastically embrace the future.