Digital Risk In The News

VOICE OF THE INDUSTRY - Enough Blame To Go Around

March 17, 2007
National Mortgage News
Mark Fogarty

I took time out from chairing SourceMedia's first Mortgage Fraud Conference in Las Vegas (watch for the next one later this year) to do a roundtable on fraud issues with several of the participants and my colleague, Brad Finkelstein of Broker magazine. Although brokers have gotten the brunt of the blame for industry-generated fraud, our participants think there's plenty of blame that can be spread around. Look for the second part of our discussion in next week's newsletter!

PARTICIPANTS: Cheryl Howe, senior vice president, quality control, Aurora Loan Services; Dan Thoms, senior vice president, strategic initiatives, AllRegs; Harry Dinham, president, National Association of Mortgage Brokers; and Jeff Taylor, managing partner, Digital Risk.

MODERATORS: Brad Finkelstein, editor, Broker magazine; Mark Fogarty, editor, Fraud and Compliance Report.

BRAD: With decreasing volume, tightening margins, everybody is looking to make a buck in order to survive. A lot of blame for fraud is being laid at the foot of the wholesale industry. But can the broker be held solely accountable for the rise in mortgage fraud?

CHERYL: No, it can't all be blamed on the broker industry. There are other places. One typical scam in the mortgage industry is the double sale of notes, and you have to be a correspondent and lend in your own name to sell notes twice to two different investors.

DAN: I think the broker is still facing a perception crisis. The perception crisis is that they are a bad actor because they are a broker and I think this is a thing that all who are the good actors in the industry -- and brokers fit into this category, too -- have got to do a better job fixing this perception. It hurts the entire industry and it hurts the consumer in the end when that perception continues.

HARRY: From my perspective, the people that have been troubling go beyond brokers and I don't think you can label brokers with the problem of fraud. I have been around for quite a while. There are a lot more schemes out there than there used to be. It takes a lot of players, not just the loan originator, to do some of the fancy schemes we see out there today. I would say it is an industrywide problem, not a broker problem.

JEFF: I would agree with that and want to add one additional problem. Look at the use of technology today, and if you are smart enough, you can plan a scheme and hustle mortgage lenders. It is not broker-specific at all. The controls need to be in place across all channels, not just one specific channel.

BRAD: The CSBS/AARMR proposal seems to be aimed at a particular segment of the business, while NAMB has long advocated anyone who touches the file should be licensed.

HARRY: Let me clarify that. If it is going to be good for the consumer, that it has to be all originators involved in the process. We're not saying everybody has to be licensed, but we would like to see everybody have education and at least be registered. It does give the consumer a tool to work with. If you just put the ones who are already licensed at this point, they can go to any state and they can do just as much as they can do on a national basis. The cost of this is going to have to be borne by somebody and we figure it is going to be the participants. We don't see there is a necessity to have two licensing deals.

DAN: I just left the Mortgage Bankers Association, where I managed their education and licensing unit. There is a great double standard currently with the difference between broker licensing and originator licensing and it is wrong. If you touch a consumer, you should be under the same rules and guidelines, regardless of your title, regardless of who your work for.

BRAD: There is actually a triple standard, because if you work for a federally chartered thrift or a national bank, there is another set of exemptions. And that may be the toughest to change because the courts have ruled the OCC or OTS pre-emptions trump everybody. Changing the topic, one speaker at the show, Ann Fulmer, who works for Interthinx, spoke eloquently on the situation in her suburban Atlanta neighborhood. Mortgage fraud is thought of as a victimless crime. Her presentation showed otherwise. How do you get the point across to law enforcement that neighborhoods are destroyed by mortgage fraud?

HARRY: You are going to have to start to hammer it home. You were talking about wholesalers and lenders in the beginning. I've been in the industry for a long time. I was on the mortgage banker side for the first 20 years of my career and for the last 20 I've been a broker. I'm really concerned about the wholesalers. They could really help themselves if they would actually turn these people in. But instead of doing that, what they do is they don't make any more loans to them, but they don't tell anybody else. One of the things that could be done amongst the industry would be to make their own registry of bad players. Maybe CSBS could help them with that.

BRAD: The argument has been made that you can't turn someone's bad actor to the next person because privacy laws prevent it.

HARRY: But they are going to have to do something at this point. During a panel session, Robert Binnie made the point that privacy doesn't hold under Gramm-Leach-Bliley if it's got to do with (fraud).

JEFF: His legal counsel sent me the report. It is OK to share information and has guidelines under which it is OK to share information. But to the bigger point about sharing information, that is the general theme of this whole conference. It is common sense, we are all saying it. We've just got to start doing it. It is not that difficult. Robert Binnie's point on the (the conference's opening) panel, (his company's) general counsel sent back information, where we can share information from brokers if we feel we are risk. Why aren't we doing something about it? Why hasn't some sort of informational conduit been put into place?

CHERYL: There have been some attempts at that. Unfortunately what happened is that there is no consistency to the type of reporting that is done. If someone is rude to someone on the phone they might register them in a database and it is really not a legitimate reason to register them. Even if you looked at people's exclusionary lists, there is technology today that allows you to leverage other companies' exclusionary lists when you register loans with them. But even that, because there is no consistent standards to what put someone on an exclusionary list. If someone turned their license in and they weren't licensed in a state, they might go on a list as opposed to someone who perpetrated fraud. It makes it difficult to use.

HARRY: What I'm talking about is if it doesn't meet your standard, then you put him in that database. I'm not talking about another broker calling and saying, "I don't like this guy." From the investor standpoint, from the wholesaler standpoint, it would make sense to me to get a database together of the people I have turned in and share that with other industry players.

CHERYL: Jeff and I just had this conversation earlier.

DAN: We have to have agreed-upon standards on how you get on that list.

CHERYL: That's right.

DAN: If you have agreed-upon standards how to get on that list, then it makes sense. But if CSBS can put up their list and MBA can put up their list and NAMB put up their list, then you have a problem. But to get back to Brad's question, we just heard a session talk about consequences. When you start getting some real consequences out there and there is pain point for people to be committing fraud, then you can have some change happen. One of the best education sessions I have ever had was where we put up a fraudster. The fraudster needed to give education session after being convicted of a flipping scheme with a lender. One of his public service times was to stand in front of a group of mortgage bankers in a training session and say, "I did it and I got caught." He had to go through every single consumer's name that he hurt in with his fraud was a big deal.

MARK: Someone in the Florida show had to do that.

DAN: It is a fantastic thing. I had a lawyer do a one-on-one. They sat in a chair and the lawyer made him cry about how bad it was and how much he hurt consumers and about their families and their houses. It brings it home.

MARK: There was a woman (who spoke at a number of industry shows), what she did was she fudged income by a few thousand dollars, thinking, "I am going to really help this borrower" and she ended up wearing an ankle bracelet.