New Tools Aimed at Curbing Mortgage Fraud; Housing Appreciation Gives Fraudsters More Angles to Play

WEST PALM BEACH, Fla. – The Mortgage Bankers Association projects $2.5 trillion in mortgage loans will be written this year – and the bad guys want a hunk of that money. Just as housing prices have risen, so have cases of mortgage fraud. In 2004, according to FBI statistics, the number of mortgage fraud complaints almost. The latest FBI report on financial crimes also indicates about 80% of all reported mortgage fraud losses involve industry insiders: brokers, title company agents, appraisers and, yes, even lenders. At the same time, vendors have been working on tools to help curb fraud. Two examples are the Data Risk Intelligent Verification Engine, or DRIVE, from DataVerify and Geographic Information Systems, offered by C&S Marketing. Steve Halper, CEO and founder of DataVerify in Chesterfield, Mo., notes ID theft, employment fraud and income fraud are just a few of the 25 or 30 different mortgage fraud categories that have been growing over the past few years. Crooks are constantly developing new gimmicks. “The loss on one of these schemes can be hundreds of thousands of dollars,” he says. “The latest scam is stealing appraisal identification. We have seen that over the last three or four months. There are certain Web sites the mortgage industry has established listing appraisers names and license numbers. It allows lenders to verify a particular person is licensed. “Unfortunately, fraudsters have figured out where these sites are and steal names and license numbers. They’re entering these names and numbers into appraisal software and forging signatures on inflated appraisals.” Basically, DataVerify’s DRIVE system pulls data from dozens of exterior sources such as credit repositories and tax assessor data, compares it to the mortgage application, then flags and scores the variations. For example, if the appraiser’s estimate of what the property is worth comes in 10 or 15% higher than the assessment shown on the tax records, that would trigger a minor score. But if the appraiser values the house at 50 or 100% more, it is scored severely to indicate there may be appraisal fraud. If it sounds as though technology is a mixed blessing that benefits crooks as well as consumers, you’re probably right. “As we’ve evolved into a paperless environment – and we’re not there yet – we’ve moved away from hard copy documents where underwriters could see Whiteout or compare signatures. So you need new tools to verify data within seconds,” Halper says. “There has been a bit of a fear (among mortgage staffs) that this may take away jobs. Our experience is it allows you to focus on real variances.” Geographical Information Systems are being introduced as another barrier against mortgage fraud. Steve Schroeder, co-founder and CEO of C&S Marketing in Sacramento, reports he’s seeing “a confused marketplace” when it comes to answering questions aimed at evaluating a mortgage application. “In 1995 or 1996, if a consumer walked in the door and said, `Last year my house appreciated 35 percent,’ you would have laughed. In today’s world, if they walk in and say their house has appreciated 35 percent, what do you say? It’s feasible. “What’s happening now is a number of investors are taking advantage of what appears to be a real appreciation rate. In some cases it’s reality, in some cases it’s not.” GIS is designed to tell a lender whether a certain rate of appreciation is actually happening in a particular neighborhood. If it isn’t, it can alert the lender there may be widespread fraud problems in that specific area. The system works to analyze how real the monetary information is on that property. Has anybody else had any difficulty with 40 percent appreciation in that neighborhood? No? It’s probably not a problem for you, either. It’s a property-centric approach, not a borrower-centric one, so a lender still has to verify employment, income and other information. The lender also has to determine what to do next when GIS spots a problem. For example, maybe a secondary appraisal is needed. But doesn’t this slow down the application process? Not really, Schroeder says. Once you quarantine problems, the rest of your loans can be handled even more quickly. If you can’t separate the problems, you must treat all loans as though there could be issues. -