Thank you for following our coverage of the Mortgage Bankers Association's 2009 Fraud Issues Conference. We hope it contributes to your continued success and look forward to providing this service to you again at a future conference.

Integrating automated fraud screen tools requires active participation of the lender’s IT department, experts at the Fraud Issues Conference said today. The lender’s IT department must understand the results the lender is seeking so it can create the systems to deliver them from the vendor. IT must know the results and the reports required in advance. Increasingly, lenders are being urged to go paperless because the risk of fraud is reduced when all documents and verifications are provided electronically. Paper provides for little control over people, process, or legal compliance at the same time it opens doors for fraudsters who can create fake documents and forge signatures. Paperless mortgages are harder to manipulate, they provide information that is manageable, archivable, retrievable, and transferable. More to follow…

Technology must be employed to stop rising incidents of mortgage fraud, according to experts here. Third party verifications, especially when they employ technological automation, are superior in most cases to manual verification of documents. First, employees have not been trained to spot forgeries. Secondly, technology for the verification of employment and income are now inexpensive and provide a high return on investment. Thirdly, technology will always provide the same workflow, whereas manual workflows vary by department, training level and oversight. Human resources are better utilized investigating red flags that technology returns. More to follow…

Attendees at the MBA’s Fraud Issues Conference seemed very interested in understanding why mortgage fraud was on the rise and what, specifically, was causing it. Experts agreed that some of the fraud being perpetrated today was designed to ensure continued business income streams, which is expected to continue. Realtors, brokers, builders and others trying to shore up falling business volume are turning to fraudulent transactions to maintain a standard of living that is no longer possible in many cases. Other reasons include the fact that the shift from subprime, no-doc loans to full-doc loans has left lenders unprepared to deal with new work flows. Underwriters have not been adequately trained to verify the information now being presented on the application. Desperate borrowers and overloaded REO departments are two more causes of increased fraud. More to follow…

Technology is a great boon to mortgage fraudsters, experts at the Fraud Issues Conference said today. Digital manipulation is making is easy to create W-2s, pay stubs, verifications of deposit, canceled checks and fake IDs that look real. Computers are allowing criminals to forge appraisal licenses and identification documents. They then purchase form-filling software to complete their appraisals and start creating falsified documents. A red flag is raised when application is made to cover several investment properties under a single mortgage where all are appraised by the same appraiser. More to follow…

A federal bill now making its way through Congress calls for a federal mortgage fraud task force after 2009. The bill, if signed into law, would set up task forces for the identification and prosecution of mortgage fraud. Responsibility for enforcement would fall to the Department of Justice, which would then provide training to other law enforcement agencies. The new law would help to encourage states to set up their own mortgage fraud task forces. Originally, the bill was part of the stimulus package, but was recently pulled out of that legislation and made part of the bankruptcy mortgage cram down bill as an amendment. That bill is expected to pass. For up-to-date information on all pending industry legislation, visit the MBA’s website at http://www.mortgagebankers.org.

Florida is taking an interesting approach to fraud deterrence that is fostering some support from homeowners. Fraud often inflates the value of properties, which can then affect the assessed values of other homes in the neighborhood and lead to higher property taxes. In Florida, if fraud is detected, the other homes in that neighborhood are re-assessed, which can lead to lower property taxes. That is often enough to get a neighbor to blow the whistle on a fraudster. More to come…

According to some experts who spoke at the MBA’s Fraud Issues Conference, some lenders are not paying enough attention to settlement services agents who warn them that something at the closing table doesn’t seem right. There is a communication problem between some closing agents and some lenders, they said, which is leading to increased risk of fraud. When these business partners inform lenders that there are issues on the HUD-1 or on other documents in the closing package, lenders need to pay more attention they said. More to follow…

In Florida, state statute section 817.545 deals with mortgage fraud. It was passed in 2007 but because it created a new third degree felony, sentences often defaulted to the lowest permissible level, a non-prison sanction under the states sentencing guidelines. Consequently, results were mixed. Last December, the state changed the law such that convictions would require a jail sentence of up to 18 years. Speakers at the Fraud Issues Conference report that the law in Florida is already working much better as a fraud deterrent. More to follow…

When states consider writing their own mortgage fraud legislation, it’s important to build in some mechanism for funding training and enforcement. Georgia passed the nation’s first mortgage fraud specific state law. They did a good job of working with local law enforcement and the lending community to draft the well-though-out law, but failed to provide funding for training or enforcement. Results have been mixed. More to follow…

More states are creating their own mortgage fraud legislation and that’s a good thing, according to speakers at the Fraud Issues Conference. In 2005, only Georgia had a mortgage fraud law. By the end of 2008, 15 states had such laws. States that don’t have laws specific to mortgage fraud may find it more difficult to prosecute these crimes. To get around the lack of specific legislation, Texas, for instance, prosecutes mortgage fraud under its theft, money laundering, organized crime, bribery and credit abuse laws. More to follow…

What should go into a lender’s Identity Theft Crisis Plan? First make sure you have a senior member of management in charge of coordinating the response. The plan should include reasonable policies for identifying red flags and categorizing the type of identity fraud found: purchase money theft, equity stripping theft or account theft. Keep the plan updated and create policies to respond to schemes perpetrated against other banks you hear about in the news. Start with your existing policies and continuously make them stronger. Identity theft carries with it significant potential losses for the institution and many responsibilities for making the consumer victim whole after the fact. More to follow…

When it comes to identity theft, lenders must have a plan. That’s the consensus of a panel of speakers at the Fraud Issues Conference. Identity theft is the No. 1 consumer complaint and that makes it high priority to legislators and the FBI. Lenders are required to know what information is in their databases, their cellular phones and personal digital assistants (PDAs). They must also have policies in place for disposing of this information. In the case of a security breach, lenders should have a crisis plan in writing that provides for mitigating financial, operational, compliance, and reputation risks. More to follow…

Some experts are suggesting that lenders make it a policy to review the disbursement ledgers for settlement services partners with whom they work. Too much fraud is currently being perpetrated in the form of payments to third parties that don’t show up on the HUD-1. Seller concessions are also being hidden and handled as off the closing table transactions. Builders are using these tactics to flip homes through third parties in order to hide concessions that would otherwise reduce the value of the property. More to follow…

Secondary market investors are not feeling particularly good about investing in mortgages, according to speakers at a session at the Fraud Issues Conference in Las Vegas. Volumes are down but fraud is up. Add that to a generally depressed real estate market and a rise in institutional mortgage fraud and you’ve got a riskier than normal marketplace. Institutional fraud is fraud perpetrated against a lender and it can lead to very high losses. Hot spots now include air loans, mortgages on undeveloped land that a fraudster claims is developed, and double-sold notes, mortgages sold to more than one institution. Much of this fraud is related to builder bailouts. More to follow…

Loan servicers face increasing risks, according to speakers at the Fraud Issues Conference. Loan modifications are risky business. The government is pushing for more modifications, but if servicers don’t take care to protect the interests of secondary market investors, they could be subject to litigation. The chatter in the hallways after this session suggests that many believe it is only a matter of time before a servicer ends up in court. Short sales that are the result of property flipping, identity theft and modifying loans originally made based on fraudulent or misrepresented information are all danger zones for servicers. More to follow…

Jim Ronan, Interthinx Vice President of industry relations is on hand at the MBA’s Fraud Issues Conference in Las Vegas. Speakers on the panel he moderated agreed that while fewer applications are being funded, the overall amount of fraud is increasing. Primary hot spots: income and employment fraud and identity theft. Expert forgers are working hard here. One tool lenders can use to beat them is a guidebook available from Drivers License Guide Company. It can help lenders determine if these documents are valid. Write to: Department OF09 PO Box 5305, Redwood City, Calif. 94063 or call 800-227-8827. More to follow:

More information from lenders from the Appraisal Fraud session: lenders must take care to ensure that the values returned on appraisal reports are adequately supported. It’s fine for appraisers to use automated appraisal review tools to provide data on market trends, other neighborhood sales and the history of the subject property. But having the data is only part of the service. Appraisers must also provide their analysis of that data. Speakers also pointed out that there is a tremendous demand right now for professionals capable of providing good post-funding appraisal reviews. More to follow…

Stay tuned. There is one more day of the MBA’s Fraud Issues Conference and Interthinx executives will be on hand to bring you the news. Watch for more posts tomorrow.

When it comes to comparable properties for collateral valuation, nothing is more important than location, according to speakers at the Fraud Issues Conference. Price and date of sale are also important, but experts here suggest that it’s better to use an older sale in the same neighborhood and make time adjustments than to go to a different neighborhood to get a more recent sale. In any event, the quality of the comparable sales is important and it depends, in part, upon the subject property’s history. Appraisers are required to report and analyze both the subject and the comps. More to follow…

There are a number of red flags that lenders can watch for in regard to collateral valuation, according to speakers at today’s MBA Fraud Issues Conference in Las Vegas. If a historical listing price for a property is lower than today’s listing price for the same property, there could be a problem. Sales concessions are a huge issue today because they tend to create a result that overstates the actual value of the property. Market information regarding the neighborhood is very important today. Appraisers who go outside the neighborhood to a competing development for comparable sales should make certain that the neighborhoods truly compete with one another. Supply and demand is critical. If demand is low but the valuations are increasing, the lender may have a problem. More to follow…

In a session entitled “Appraisal Fraud Prevention” speakers Steven Albert, MAI, SRA, Partner/Executive V.P., Allstate Appraisal, L.P. and Kathy Coon, CRU, SRA, Chief Appraiser-Director at FNC, Inc. shared some information lenders should know about the appraisal process. Under USPAP, the appraised value must be more than just an opinion of value. An appraisal must be credible, include all relevant information, it must support your value and provide sufficient information. It must not be misleading. This is a problem for lenders today because there is a concern not just about over valuation but also about under valuation. More to follow…

William Stern, Supervisory Special Agent of the Federal Bureau of Investigation working out of the West Palm Beach office, told attendees of the MBA Fraud Issues Conference today that the FBI’s case load has risen dramatically. Whereas the agency was dealing with 1,644 cases just 2 months ago, it’s now working on over 2,000 cases. Stern said that the task force approach works to turn cases into specific projects with a systematic flow of information. When Suspicious Activity Reports or other lender fraud reports surface, the task force look back in time to help build the case. He said that undercover operations and stings are an incredibly efficient at stopping mortgage fraud and getting convictions. He said “getting a perpetrator on tape is worth 30 boxes of documents.” He added that the lending industry was in a unique position to identify potential fraud and get cases started. More to follow…

There are plenty of benefits for lenders who get involved with mortgage fraud task forces, according to Jenny Nunn Brawley, Mortgage Fraud Investigations Manager for Freddie Mac. Speaking in a session today, she said that lenders are in a unique position to help identify fraud victims (mortgage loan owners and investors) as well as in calculating loss amounts, which is critical for getting prosecutions. She also said that lenders can be very effective when they perform some of the preliminary investigative work. Often, those involved in the fraudulent transaction will open up and talk to lenders whereas they would be unwilling to talk to law enforcement. If you can get to the criminals early enough, their self preservation instinct often leads them to provide evidence against their co-conspirators. More to follow…

In a session on mortgage fraud task forces, HUD assistant special agent in charge Lisa R. Gore told attendees that investigators are dealing with a significant up tick in zero payment default. In response, HUD, FBI and other agencies had formed a special mortgage fraud team, on which she serves. The purpose, she said, was to combine and leverage resources so that they can identify the most egregious cases and coordinate a multi-agency response. She encouraged lenders to support law enforcement efforts and to develop relationships with local task forces and working groups. A call to the lender’s local agency office would get them the right contact information. More to follow…

In a session today entitled “Effectiveness of the Mortgage Fraud Task Force Approach,” Lisa R. Gore, Assistant Special Agent in Charge, Criminal Investigation Division, Office of Inspector General of the U.S. Department of Housing and Urban Development and HUD-OIG Representative on the FBI National Mortgage Fraud Task Force, told lenders that mortgage fraud is rising right along with the originations that are being insured through FHA. Furthermore, she says that the number of loans involved in any given fraud case increased dramatically. One investigation can easily involve between 300 and 1000 loans. More to follow…

During “Anatomy of a Sting” Craig Weitzel, CFE, Fraud Department Manager for Taylor, Bean & Whitaker Mortgage Corp., urged lenders to work closely with law enforcement officials when setting up a fraud sting. These arrests are important for the industry, not just because they take one more criminal out of the game, but because the publicity they get can deter others from committing mortgage fraud. In addition, stings prevent the financial loss that would otherwise accompany a fraudulent closing and deprive criminals of their profit, which is frequently used as "seed" money for the next fraud. Weitzel urged lenders to have an excuse ready for delaying the closing a day or two to allow law enforcement officers to be prepared. It’s important to coordinate the sting without raising suspicion. More to follow…

How fraudsters get caught was the subject of a session entitled “Anatomy of a Sting.” Speakers offered attendees some advice on helping law enforcement create cases that would put these criminals behind bars. It starts with seeing the red flags and pulling the file out of automation. According to Allison F. Rabin, Esq. Vice President, SW Metro Loop Manager for Chicago Title Insurance Company, inflated values, quit claims in the chain of title and urgency on the part of the transaction parties to get the deal closed quickly are all red flags lenders should watch for. More to follow…

Stay tuned for more coverage of the MBA's Fraud Issues Conference coming tomorrow.

Interthinx vice president Ann Fulmer is on hand today at the MBA’s Fraud Issues Conference in Las Vegas. She moderated a panel session this morning entitled Fighting Fraud and Working with Law Enforcement. The panelists: Rosemary Canales,
Investigator for Wells Fargo Home Mortgage, Craig Weitzel, Fraud Investigator for Taylor Bean and Whitacker and Glenn TheoBald, Chief Counsel, Miami-Dade Police Department and Chairman, Mayor Alvarez Mortgage Fraud Task Force. Speakers emphasized the importance of forming strong relationships with local, state and federal law enforcement officials. They work on different types of cases so it’s important for lenders to know officials at all levels. Also, be sure to specify an estimated amount of loss on a Suspicious Activity Report (SAR), even if you’re not sure. SARs without an amount go to the bottom of the pile. More to follow…

The loan modification business is proving to be a hotbed for mortgage fraud. Speakers in a session entitled Maximizing Fraud Detection in Times of Economic Unrest are finding appraisal fraud in short sales. Values are being deflated and many of these transactions are occurring between parties that are not at arm’s length from one another. Lenders must have a method for determining the relationships between the parties involved in the transaction. In most cases, only technology can provide that objective overview as automated fraud screening tools can search for matches among many past and pending transactions. Lenders must always watch for occupancy fraud. This a red flag that is appearing often in loan modifications. More to follow…

Successful institutions are fighting fraud with solid policies and procedures, according to speakers at the Fraud Issues Show today. When fraud screening tools are employed—and they should be—it’s important that all personnel are trained to use them effectively. It’s also important that lenders have a way to track and monitor that people are following the company’s policies and procedures. Documenting exceptions returned by an automated fraud tool as they are cleared is also important. Speakers here agree that training must be offered on a near constant basis. More to follow…

How important is it to verify employment and income? Vitally important, according to speakers in an early session at the MBA’s Fraud Issues Conference in Las Vegas. A lender on a panel discussion this morning reported that as soon as a process had been set up to use 4506-T verification of income, the institution saw “an immediate decline in early payment defaults.” The key to success: training. Make sure all underwriters know how to employ the fraud mitigation processes you put into place. More to follow...

Interthinx VP Constance Wilson was on hand for a session called Maximizing Fraud Detection in Times of Economic Unrest at today’s MBA Fraud Issues Conference in Las Vegas. Speakers on the panel, representing experts from around the industry, all agreed that income fraud is at the top of the list this year. Having a solid 4506-T process in place to verify income is vitally important. Even more importantly, according to panelists, was making it clear to everyone that the lender has a process in place to mitigate fraud. Fraudsters are cherry picking and targeting institutions they feel are not screening adequately for fraud. More to follow...

Florida is no longer the leading U.S. state for mortgage fraud, according to Merle D. Sharick, CMB, Vice President, National Business Development Manager for Mortgage Asset Research Institute, LLC (MARI). The No. 1 state now is Rhode Island. The other 9 states in the top-10 for fraud (in order of MARI's fraud index): FL, IL, GA, MD, NY, MI, CA, MO, CO. MARI reports that fraud seems to be shifting to the eastern U.S. According to Sharick, FBI reports that up to 70 percent of the loans in foreclosure are fraudulent, mostly application fraud (employment, income, residency and identity theft). The consensus of panelists: We must stop fraud pre-funding. More to follow...

The MBA’s Fraud Issues Conference in Las Vegas opened this morning with a keynote address designed to provide an industry update on the fight against mortgage fraud. There were not many surprises offered to those working hard in this industry. The uninitiated learned that fraud is bad and getting worse. Especially in Las Vegas, which seems to be a testing ground for fraudsters. According to Jeffrey Klurfeld, Regional Director of the Western Region for the Federal Trade Commission, there has been an up tick in foreclosure rescue scams in his region. We’ll be reporting on the rest of the conference to give you information about how the industry is fighting all manner of mortgage fraud. More to follow...

Beginning today, Interthinx will bring you live coverage of the Fraud Issues Conference. The first session will begin shortly. Check back here or refresh your browser to see the updates.