Digital Risk In The News

Mortgage Companies Take Closer Look at Fraud Prevention

Volume 5, Issue 177
September 13, 2006
Jeff Taylor
DigitalRisk, LLC

Traditionally, lenders have buried their heads in the sand when it came to fraud. Lenders are fighting fraud today like the proverbial boxer with one hand tied behind his back. It’s not a fair fight.

Each month brings frightening stories about “fraudsters” becoming more sinister in plying their illicit craft: faking identities, bloating property values, providing false data on loan applications.

Earlier this year in Atlanta, a federal grand jury indicted 15 individuals for using straw borrowers to purchase homes owned in two area subdivisions. The properties were sold at inflated values using falsified credit statements and down payment verifications, and the borrowers were compensated for allowing their names and credit reports to be used to secure the loans.

FBI statistics point to a ballooning fraud problem. The federal law enforcement agency pegs lender loss from fraud at $1 billion, more than double a year earlier and five times what was reported in 2000. And, that’s only based on data from one in three lenders reporting such information.

Identity theft alone is affecting millions of American households each year and costing an estimated $6.4 billion annually.

Especially as homes sales decline through this year and put pressure on both buyers and sellers, it is becoming more important for mortgage companies to step back and question whether existing risk mitigation systems and procedures implemented in the past are still up to shifting challenges.

Existing, stand-alone products such as income verification that is embedded in the lending workflow may no longer deliver satisfactory levels of productivity, under current threats and conditions. And, relying on credit bureau information as the principal risk mitigation tool is simply insufficient against today’s fraudsters, who are getting too sophisticated for that solitary defense.

Lenders will be looking for a one-piece risk mitigation platform that also has the open architecture flexibility to allow other services to be integrated, as they become available. They also want a low operational cost.