Fraud In The News

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Hello again everyone! I really hate being redundant but I feel a compelling need to discuss the whole fraud issue again this week due to some disturbing statistics regarding the subject. After reading this new information I have come to the conclusion that the issue is far worse than ever before and given the changing DNA of mortgage lending, I really think it is important for underwriters that are trying to embrace the old new mentality of underwriting to understand exactly what they are dealing with.

It is enough to try to embrace underwriting beyond AUS for underwriters who have grown up using a documentation checklist let alone complicating it further with documentation which is anything but legitimate. Assessing financial behavior and cumulative risk is a job in itself given the short period of time an underwriter actually has with a particular borrowers file and adding the possibility of material misrepresentation of documentation makes it that much more complicated so I though I would share a few tools that might make the process a little easier for everyone.

First, I think it is important for everyone to know what we are dealing with. Fraud is a growing problem in the mortgage industry and it is getting worse, not better. Instances of fraud are up by about 400% since 2007 with 63, 173 Suspicious Activity Reports (SAR’s) filed in 2008 which led to 560 indictments compared to 734 SAR’s in 2007. Data for 2009 indicates over 2000 SAR’s filed through February, 2009 alone. In general, instances of mortgage fraud resulted in losses of 1.5 billion in 2008. That’s a lot SRP. Based on statistical data, the states with the largest problems are *Florida, Nevada, Michigan, California, Utah, Georgia, Virginia, Illinois, New York and Minnesota so for those of you underwriting properties in these states, pay attention.

We all understand that any misrepresentation or omission of documentation or information needed by an underwriter to render a loan decision, fund or purchase a loan or insure a loan is considered fraud. This means even the little white lies. Material misrepresentation where fraud for home is concerned seems to be the biggest culprit so review your loan documentation carefully. Falsifying employment documentation or even gift documentation where the true intent of the gift is donor repayment constitutes fraud. Interested third party contributions to down payment is another big one so verify sufficient funds to close and address any issues that appear out of the ordinary. Request whatever documentation you need to determine that the funds for closing are coming from an acceptable source.

Occupancy fraud is also a big one, particularly where FHA insured mortgages are concerned. Think about the streamlines alone. A borrower who has previously vacated their premises in favor for a new home which they financed using conventional financing could easily misrepresent their primary residence as an investment property in order to benefit from the higher loan amount they would be allowed on a streamline refinance if the property were owner occupied. Given the limited documentation requirements in this program it would be impossible to determine without requiring a full credit report on all streamline transactions.

Finally, I suggest that every underwriter out there do some research. Look into the “Red Flags” that might indicate fraud and how to identify them. There are lots of tools available on the web to assist you. Some fraud training is not a bad idea. Remember, if you determine that you have a fraudulent case it is your responsibility to report it. The FBI monitors this type of activity and if your case is an FHA loan you must report it to HUD in Neighborhood watch. As always, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)