Recognizing fraud is the first step in stopping it. According to the Mortgage Bankers Association of America, the U.S. Attorney and others have suggested that as much as 70-80% of mortgage fraud can be avoided through aggressive fraud awareness and detection efforts.
Although most people can rise above the temptation of ill-gained profit, our responsibility does not end there. As individuals and as an industry, we need to play an active part in fighting fraud. The days of being able to rely only upon the protection of the federal government are over. To believe in the goodwill of fraudulent practitioners and expect them to police themselves is pure folly.
Until we stop fraud on a case-by-case basis, establishing significant penalties and erecting sobering preventative measures, fraud will continue to reach epidemic proportions in our industry. We must be vigilant against fraud, recognizing its signs and taking proactive, definitive and realistic steps not only to prevent it, but also to punish it.
Recognition of fraud is the first step in prevention and control of the mortgage fraud epidemic. What does it take to recognize fraud?
Mindset. We must all adopt a mindset that, while not suspicious of every borrower and every person in the industry, is aware that fraud can occur in any transaction we process.
Knowledge. We need to know the most prevalent fraud schemes that are being used. We need to know the red flags that should signal us that something is awry in a loan application. We need to know the people we are working with in processing a transaction.
Attentiveness. We need to be attentive to details. We need to pay enough attention to what people are saying so that we hear the buzz words. We need to pay enough attention to the details in the documents we review to notice that something is not right. We need to be attentive to normal property values in the regions we service.
Thoroughness. We need to be completely thorough in our review of every statement and every document that passes through our hands. We need to be thorough in checking each document against the other documents in the loan package. We need to ask incisive questions. We need to investigate and confirm every detail.
The red flag lists provided in this will help you learn to recognize fraud. To be sure, in time you will become accustomed to checking applications and documents against the lists, and the actual lists may no longer be necessary. You will not only learn the red flags, you will develop a sense when something is not right. You will also learn to trust your instincts when something looks false or seems too good to be true.
The Warning Signs or Indicators of Fraud
Part of the reason fraud goes undetected in so many cases is that we fail to recognize the warning signs of fraud. It is to be hoped that the main reason we don't spot fraud is ignorance, not negligence.
In his cautionary article entitled, How to Commit Loan Fraud, Jonathan A Goodman explains: Lenders tend not to notice loan fraud unless the loan goes into default. Over the last decade or so we have had a strong real estate economy.
Appreciation tends to cover up loan fraud. But declining property values have begun to reveal problems. People in the real estate industry should be especially vigilant to avoid misleading mortgage investors about the true price when the buyer pays for the property."
REMEMBER: Loan fraud is typically committed with intent; it is not normally requested by the home buyer, but by the originator or real estate professional, or both in partnership, in order to close the loan so the originator and the real estate agent make a profit.
Key warning signs of fraud:
- Information that looks false, inflated, or too good to be true (that usually means that it is).
- Variations in a person's signature on the same application (or other possible signs of forgery).
- Missing information that is promised at a later date, like forgetting the proper IDs for the Patriot Act.
- Exclusive use of one appraiser.
- Fees that is higher than customary.
- Bonuses paid (outside or at settlement) for fee-based services.
- Use of multiple Holding Companies used to increase property values.
- Purchase loans that are disguised as refinances (which require less documentation and less lender scrutiny).
VanEd offers mortgage fraud education designed for real estate professionals. Select your state and program on the top of this page to learn more.
Written and Published by: VanEd