Lenders sniffing out dishonest applicants
By Lew Sichelman, United Feature Syndicate
4:17 p.m. CDT, May 17, 2012
Thinking about fudging on your application for a mortgage?
Maybe inflating your income a tad? Checking the box to indicate you’re going to live there when you’re really not? Exaggerating your job description? Don’t.
Not long ago, people could get away with little white lies like these to obtain financing. But not anymore.
Nowadays, the tools are in place to nab fibbers who just want to buy a house, as well as out-and-out perjurers looking to bilk lenders out of hundreds of thousands of dollars.
There are “more fraud checks than ever, and it’s on every loan, not just a sample,” says David Kittle, a former lender from Kentucky who chaired the Mortgage Bankers Association in 2009.
More important, perhaps, the focus now is on preventing fraud rather than dealing with it after the fact. “The responsibility for catching fraud is definitely moving up the loan production chain,” says Bruce Backer, president of Loan Sifter, a pricing engine that lenders use to make sure they comply with federal regulations.
“If we let the money go out the door,” adds David Montoya, inspector general at the U.S. Department of Housing and Urban Development, “we’re pretty much chasing the wind.”
Sometimes the fraud check is as simple as a quick call to the customer right before the loan is closed to verify information supplied on the loan application. Such a call to an otherwise unsuspecting borrower can sometimes uncover a lie perpetrated by a corrupt loan officer who’s in it for the commission — or more.
“Nobody wants anyone else to talk to their customers, but we do it in a conversational, nonconfrontational way,” says Kittle, who now works for IMARC, a firm based in Santa Ana, Calif., that provides post-funding quality control audit services.
If the chat goes something like this: “Are you borrowing $500,000?” “No, I want to borrow only $300,000,” or “Do you earn $200,000?” “No, I make only $100,000” the auditor can stop the process in its tracks. You don’t get tagged as a con artist, the dishonest loan originator and his cohorts don’t fatten their wallets and the lender doesn’t lose any money.
In other cases, lenders are using sophisticated databanks to spot the crooks. “There’s a tremendous wealth of data being deployed,” says Becky Walzak, a quality assurance consultant based in Deerfield Beach, Fla. “There are tons of databases available to validate the information you give us.”
For example, one website provides salary data on the type of work you do so the lender can determine if you are overstating your income.
Another site provides historical wage data, and yet another checks the information supplied by self-employed borrowers, including whether the borrower’s company exists, who the principals are, the number of employees and the annual revenues.
“You can’t lie about income anymore,” says Walzak. “There are too many ways we can find out whether or not you are telling the truth.”
There also are sites that will tell lenders whether there are judgments against you or liens against other properties you own, while others reveal the number of properties you own, when you bought them and for how much. And there are systems available to review appraisals to spot inflated valuations.
Platinum Data Solutions in Aliso Viejo, Calif., offers lenders a comprehensive review and valuation system that, among other things, looks for hidden relationships between the buyer and seller. CEO Phil Huff says he’s working on a program that will search out collusion between real estate agents, loan officers, appraisers, title attorneys and others in the lending food chain.
In addition, Fred Melgaard, executive vice president of DRI Management Systems in Newport Beach, Calif., says his firm has plans to offer scorecards on all vendors and service providers, including individual appraisers and real estate agents. And that’s on top of real-time — less than 60 seconds — credit reports, automated bankruptcy notices and up-to-the minute lien watch services that let lenders know what you may be doing with other lenders.
“If you shine enough light in the little dark corners, the cockroaches will run,” Melgaard says.
Even the Internal Revenue Service is getting into the act. The IRS already electronically delivers copies of would-be borrowers’ tax returns to lenders so they can verify incomes. Soon the agency will be speeding up the process — and making it more secure — by switching to e-signatures and eliminating the paper version of the form borrowers sign that allows lenders access to their records.
None of this is to say that mortgage fraud is being eradicated. Hardly. The FBI pegs the cost of mortgage fraud at roughly $3 billion a year. And that’s a “very conservative” figure of the losses to lenders and investors, concedes Christa Greco, a senior intelligence analyst at the agency.
At the same time, though, the most recent figures from the Financial Crimes Enforcement Network indicate lenders are becoming more adept at uncovering fraudulent loans before putting them on their books. Indeed, in 40 percent of the suspicious activity reports submitted to the network in fiscal 2011, the lender turned down the applicant — whether it was for a new mortgage, a refinancing or a short sale — because it smelled fraud.
So again, a word to the wise: Don’t lie, even a little. Lenders don’t catch everybody, but they are getting better at sniffing out fraud. And the next one they nab could be you.
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