MARI has released their quarterly report on mortgage fraud. Scan the PDF here.
What systems did your company have in place to detect mortgage fraud during the bubble run-up of the past several years?
What systems does your company have in place today?
If a loan processor spots potential fraud taking place by an LO at your company, what can he/she do to report the fraud in a way that limits possible retaliation?
There are only two people who do loans in my office. So it is up to us check out eachothers work and go over each others file. The company has other checks as well to make sure that all the federal and state laws are being adhered to. We have fraud disclosure forms and fee disclosur forms that outlines exactly the charges to our clients.
Being a 1 person shop there is no system in place other than common sense and integrity. If I suspected some fradulent activity I would just tell the borrower to go away. Regarding California & Florida, identifying and analyzing the 1003 early on in the transaction could help reduce potential fradulent activity.
My company has quite a bit in place to protect me, them and the consumer. We first have to use an in house processor. As of lately, that processor will have to verify the VOE to make sure that is accurate.
We also have a compliance department. Once credit is pulled for a borrower, we by law have 3 days to get disclosures out. The compliance department makes sure we do this or are subject to not getting compensated for the loan. They also review the app, GFE & TIL. If they see any discrepancies by borrower or LO, we are contacted and it has to be fixed to proceed.
I hear alot of grumbling about how strict our compliance department is, but personally I have praised their efforts. I am confident in what I do as a profession and feel the compliance department protects everyone. I would not work anywhere else.
As an outside contract processor I am pleased that the brokers I processor for have compliance departments that scrutinize the files. I also go out of my way to verify everything in the loans I process and bring it directly to the LO’s attention if I feel that there is any indication of fraudulent activity. I refuse to be a part of anything shady.
Since I do process loans, Our small office has loan originators that are very honest. I examine all the documentation generally without question. I also so the compliance on the files to make sure they are in order. If there was ever anything in question I would ask for better docementation.
Ours is a small company with an ethos to always act in the client’s best interest, not our own. We believe if we do this, we will prosper. You don’t get in the door without having a conversation about this philosophy and we live it in our business dealings.
In a small business like ours, everything is viewed through this filter. If we were to discover that someone working for us had broken from this way of thinking about clients, they would be gone. We’re not going to risk the success of our business.
We have a compliance officer and a 2nd recheck of compliance
before a file can be closed. All of our LO’s must attend
compliance training provided by our broker.
Identifying poor quality at the very beginning is the best way to save a lot of trouble down the road no doubt about that.So those who have excellent documentation and compliance checkers where VOE and compliance is rigorously checked are in good shape. OK In house processors who are thorough and experienced plus a sense of purpose to do a good job for the borrower means a gret deal.
That MARI shows a significant increase in misreps. in 08 compared with 07 is worth noting given the present housing situation dosent look like things are getting better.
Not to toot my own horn, but I have always talked about the bottom feeders in this industry. They were so easy to spot. I hold a high standard for myself. I believe what goes around comes around. There for, I have always worked in the best interest of my clients. In our office we were required to attend a compliance class. Which was very helpful for those who were not sure of all the regulations.
I’m pretty sure that in the past, my company did not have the tools in place to protect against fraud other than loan officer training. I could be wrong about this…. There are now several checks in place once a file is submitted to corporate, but they are mostly to check for basic compliance. Are all the required documents in the file? Are they signed and dated within the alloted time frame? I have heard that they are going to start random file checks where they call the borrower to verify information. All of these things take place after the loan has funded (but before the LO is paid)…so how would this protect against fraud??? Personally, I don’t think it does…
My “branch” now consists of just me. I originate and process my own files and I like it that way. I am accountable for my actions, and I have the ability to tell a client no – and walk away from the deal – if I feel they are being fraudulant. It’s not easy to do this sometimes, but in the long run, I know that it is the best solution for myself AND my client – even if they don’t agree.
Our ‘in place’ systems to prevent fraud were mostly the honor system I guess. CCMC has one of the better records out there with the state and I know my broker, a guy I respect a lot, is fair and selective about whom he lets work under his license. What else can you do? Background checks are about it.
One intervention might be to interview a handful of past clients and gauge their experience with that LO however, how would you know that your not getting a culpable borrower? Obviously we have the full YSP disclosure statement from ‘in house’ as well as the lender form for the same.- That looks at one aspect.
As for a processor avoiding retaliation I guess they could complain directly to the NMLS – but that practice doesn’t really work for the NWMLS…- or take it to MARI.
We have an inhouse auditor that reviews every file for compliance before it goes to docs. Once the file is sent to corporate it is reviewed again down there to ensure it was properly disclosed. As for the type of fraud that was taking place ie: forging documents and such, I can’t believe that people could live with themselves. The only way to prevent that in your firm is to keep your eyes and ears open. I think if someone was doing that in my office, I or someone else would eventually hear about it. The processors are a great gatekeeper and I believe that if our processors knew of something fraudulant taking place they could go to the partners and feel safe to do so.
The office has a NO Tolerance policy. No problem in firing any suspicious individuals. You know who is good or who is dishonest in just a short time of working with them. The WA state public court records is also a great place to check on somebodies records.
Reference checks and references in the industy is also a great place to check on people.
If the processer was suspecting something, she would bring the file into the broker or supervisor for an audit of the file.
Credit pulls always had the MARI on it.
I used to have a large Broker shop and I had the best group of loan officers and processors. Due to this market we are in, only the strong survive and they will meet up with the same great group of people that have been in the industry for years.
The scammers will have moved on and they should have been reported in some way to a list of suspicious individuals with the DFI?
The best fraud prevention is know who you are hiring. Do your home work on this person. Monitor the person and like someone else said
you will know this persons intenstion shortly. Our processors verify everything and I as the broker monitor my prosessors. I will
randomly full files and check for fraud and compliance issuses.
We maintain a monthly meeting that is required by all loan officers and processors. At these meeting we talk about files, client issuses, fraud & compliance etc.
I have never come accross any fradulent information or would I ever have my hand in something of this kind. Our office has a compliance checklist and it is cross referanced again after the loan has closed. Our processor is very thorough and if something was submitted in question she would ask for better documentation. We have zero tolerance for fraud. My clients are friends, family and referrals. So luckily I never have to question these issues of fraud.
Hi Marty,
“My clients are friends, family and referrals. So luckily I never have to question these issues of fraud.”
There are many stories out there where the loan originator was groomed by a “friend,” over time, until the LO realized what was happening just a little too late. Let me go find an example for you. Here it is. Ed Rybczynski owned an escrow company and was groomed by a “friend.”
http://www.rybconsulting.com/
Thank you for the example, very interesting, I would never go over the line for anyone. The outcome of greed is not for me, even for a friend.
My company has a strict compliance department that review almost everything we do. They review our compliance disclosures to locks and anything that changes. It would be pretty difficult to commit any fraud at our company because everything that we do has to be signed off by the borrower and then later reviewed by the compliance department. We also have in-house processors who make sure that nothing funny is going on.
At our office, we have an in house processor that helps thoroughly review for accuracy. We also have a quality control process in which our files are randomly reviewed by our broker to ensure consistency and accuracy with not only other LOs but processors as well. This has been a system utilized for quite some time now and has been effective in identifying errors whether intentional or not. To avoid retaliation, a processor could report it to NMLS or even the FBI if they wanted to.
An internal auditor and a compliance checker is essencial . This will assure that people involve develop ethicl traits and learn to have goog personal relationships
The mortgage asset Research institute seem to be a good tool to identify fraud trends that might help in the future .Ricard martin makes a good point that identifying poor quality work from the begining will avoid bad habits later.
In our company, the way to detect mortgage fraud was by closely work with the LO’s loan by loan. While training them, we were able to catch on any suspicious activity.
The company implemented the Audit department to oversee some of the files that randomly were chosen for a revision. The whole loan file will be revised from comliance to support documents.
Normally a processor who catched up in any potential fraud will communicate to the broker in charge who will take care of matters. If the potential fraud looked to be a more serious situation, the Auditor and the Designated broker will take care of the matter and in most cases fire the LO with the potential fraud. Retailiation was taken care by having a discret communication from the processor to the broker in any event that was necesary.
Our company does not allow loan officers/ originators to process their own files. This allows a second set of eyes by the processor to find any possible issues on the file. Additionally, we underwrite most of our own files for compliance issues in addition to standard underwriting practices, our undewriters being a 3rd set of eyes now, look for anything that is out of the ordinary. Finally, even after closing we have yet one more review done on the file for compliance, checking to see overall if there are any areas that are lacking, in need of additional training, etc…
Also, we do not hire anyone without a full background check. While this does not deter anyone from fraud in the present or future, it sure helps in knowing one’s criminal records, (Or hopefully lack of) credit records, etc.
I hired outside Loan Processor previously. With this new company I will be working with has their own Loan Processor. So, I submit all the paper that I gather to them. It’s the Loan Processor who check the compliance, so if we comply, I don’t think there’s a fraud.
I have tried to write loans for the past 10 + years with the attitude and internal ethics of “do unto others as you would do unto self”. My previous broker had a very hands off approach and had no regulation in place for his LO’s. Within that structure or lack there of many of the LO’s went over the line in my opinion. I in no way was ever perfect, but even in that did not have a problem denying a loan that looked “fishy”.
As a broker myself now, I have a quality control plan for our office. All my LO’s process their own files so they are responsible start to finish with each loan. Their files are monitored by me and audited before they are paid. In this day and age of stringent underwriting, much of the “full Doc” and all questions/conditions answered is running us ragged, but it also is creating an “on Purpose” atmosphere of loan origination and processing in my office.
I knew that Florida was the worst state for mortgage fraud but had no idea that it represents basically a quarter of all material misrepresentation nationally and that the greater Miami area represents basically one eighth of material misrepresentation nationwide. That is mind boggling to me…..what a mess down there.
I have only worked with one company and we are very tight knit. In the years I have been there anybody the couple of new LOs who have come aboard and shown any signs of conducting business in a less than professional manner haven’t lasted long at all.
In my office we have a processor that verifies all of the VOE’s and paper documentation that comes in. Our processor is very strict which is really good.
I believe that it’s very importan for us to make sure that we have another set of eyes reviewing with detailed every single file.
Like others were saying “zero tolerance” is the way to go.
Our office only has 2 of us in it and we process our own loans and review each others. If a loan does not make sense to either one of us we just pass on it. Many times I have told a person who wants to refinance or purchase a home that it does not make sense and I explain why so that they fully understand. I like to do loans, I like to make money and I like to help people but most of all I like to be able to sleep at night knowing that what I did was right.
I work for a small broker and everything is reviewed closely by our processor. If she were to suspect fraud she would verify everything. If she did find something fraudulent she would meet with the broker immediately. We also have zero tolerance.
I guess fraud is aways present, no matter if its a freind , refferal, or relative, or politician. Ask those dudes that ran fannie and freddie in to the ground….Bonus’, incentives, favors, its all part of the game. Were just a small office in a small town that I have worked and grown up in for many years,so it seems a little less risky. In addition, we have smart,savy, gracious and beatiful processor. [she’s reading this] She’s also blonde, how did that happen?
Our office has a full time compliance department, and a zero tolerance policy. All files are reviewed.
Our company has a strict compliance department that over sees everything. It also has a zero tolerance policy. It also has on going training to help new and old LO’s.
Our processor is a past underwriter. My assistant is a past compliance officer. Our funding department is totally separate and adheres to a very strict set of guidelines. Audits are performed regularly. We only hire good people.
Our broker is a man of integrity. It’s all trickle down management in my opinion and clear communication.
At it’s peak there were about 20 LOs in our company. If fraud was detected by our processor protocol went to our “trained” office mgr who then went to our broker. He then would, one, dismiss the LO and, second, alert MARI and/or DFI about the activity. He’s ultimately responsible for those he hires and takes great pride in our status with the BBB as well as the seriousness of the relationships we have with all of our clientele.
I am a one person office so I am the fraud detector single handedly. Prior to 2004, I did have a processor and an assistant all of which I trained the old fashioned way. Underwrite the file as if the money is your own! REview the 1003, review the paystubs, assets, gift letters etc. and see if it all makes sense. Ensure addresses match up with credit report that match up with bank statements that match up with W2’s! It’s really not that difficult as most people that commit fraud are really not that bright. I have seen fraudulent documents come across my desk and I cancel the file right then and there. My experience has been the crooks are sloppy and they do leave holes. I have been fortunate to not come across the real sophisticated crooks as my business is referral based. I have great referrals!
The brokerage company I work for has a full compliance department, as well as a full processing team. They provide regular compliance training seminars and encourage loan officers to take them at least every couple of months as updates come about so often. Last summer I processed a loan that I also originated and had a couple of compliance that held up my commission check at the end. I now have the processing team process all my files because it’s just not worth my time anymore.
Fortunately, I split the work between me and a co-worker. I make sure to go over every single piece of paper that is in every single file. These are the times where our files need to be tighter than they ever have. There is no room for fraud. If fraud is suspected, it is confronted right away. Fortunately this is something that I have not ran across recently, but my eyes are wide open on catching anything fishy before it starts.
We also have a compliance manager that makes sure all of our files are in compliance and aren’t in “fraud alert”. This is extremely important to protect the LO and company in case an auditor is going through your files. It is best to be proactive with all our clients instead of reactive.
I’m currently being sponsored by a new company so I cannot make any specific comments but I do have a general observation… the culture of the company has to be one that encourages its employees to report any suspicious activity to mgmt without fear of reprisal. This should include some sort of ongoing training, educating employees of the company policy towards fraud on a regular basis.
I found it interesting that Florida and California were at the top, guess criminals go after ocean view properties. I also found it interesting that MARI recommends making sure applications are correct at submittal, with criminals using rejections as a learning tool to circumvent the system.
There are only 3 people in our company. We have all worked together for over 10 years. Our broker has always been a big stickler on disclosure, doing make sense loans. We have said no to more than a few people over the past years. However, we are all in it for the long haul. With that said we check each other for mistakes and also review apprasials, P & S, and escrow workings as a regular proceedure. I have had a chance to work other places but choose to work for a my broker, a man with integrity.
I am a contract processor and I make sure the LOs that I work for has a compliance dept. I am very strict and I have a zero tolerance policy as well.
We use a compliance checklist during processing and another at the time of closing. Compliance training is mandatory. Hiring those with high integrity is imperative.
We are affilated as a branch office that has compliance officers to review all files. Also being a one person office we will be atending to all details in an honest fashion
I specialize in reverse mortgages. All our paper work is completely different. Before a person can apply for a reverse mortgage they have to go through counseling. The client can ask the counselor anything they want costs(which are set by FHA) timing process literally anything. The company I work with has a loan processor and a compliance department. All appraiser for reverse mortgages are FHA appraisers and the bank I use has an appraiser exclusionary list. Still if you are shady and can find a shady FHA appraiser it would be pretty easy to get an inflated appraisal.
I actually started working in this industry 6 yrs ago during the boom.I worked for a broker affiliated with a Bank so I was trained on compliance immediately. We also had in house processors as we were not allowed to process our own files. After each loan funded the entire file had to be examined by one of our brokers and signed off before we could submit it to payroll. It actually worked very well. I am sure that it prevented unintentional errors and ensured compliance however I do think that if someone was determined enough to change something that they could have.
I now work for a broker also affiliated with a Bank and they actually have a compliance department in place. They also require all processors, appraisers etc to be approved by them. It makes for a much tighter operation, which I am thankful for.
All of our loans must be processed by the “in house” processor or approved outside processing companies. All loans must be registered with corporate and files must be reviewed by the compliance department when registered and when closed. If there are any errors the compliance department notifies you and must make corrections, write letters to explain errors/changes, etc. Our compliance department is very extensive. I’m not sure if we ave a special hotline for suspect of fraud but I would inform DFI or my superior.
I have never been a part of or seen fraud in my office. We have pre, and post-close audits in place to make sure every loan is in compliance.
I belive that there should only be certain people seeing over things so they can pay attention to whats going on and see if fraud is being done. If there is to many its hard to keep track of what everyone is doing. Where i work we have certain people watch and take care of things so it doesn’t happen.
Our company does all the underwriting and verifying of income as the LO’s submit the information. There is no subprime lending, adjustable rates, interest only loans available through our company, only fixed rate loans. All LO’s are also checked out with a federal background check. All suspicious activity is to be immediately reported to our home office and disciplinary action or termination is required.
I am a one person office as some of the others on the post. I process my own files but I do not solicit for business. I only work with people that have been referred by others I have worked with or know personally. I tried to read the link http://www.rybconsulting.com/ but I was unable to pull it up. I know that even people you know are not honest.
I do not think anyone can really know someone for sure, but you think if you surround yourself with good people they surround themselves with good people.
Since, I am a broker and I am not a correspondent lender all of my files I submit to lenders also have strict compliant rules for files they will accept. They make sure that I am within the three days, they have a system in place for verification of all of the information that I submit and they will not fund files until they have verified with the borrowers employer that they are still employed on the day of funding. The company that I use also goes through Rapid Reporting that verifies their social security number.
Hopefully all these measures will work. I think the best crooks are not sloppy but rather good at what they do, they do get caught eventually but sometimes not before they get away with millions.
With regard to the internal mechanisms of the companies I’ve worked with recently the first thing that would be done is either to have a processor perform the duty of verifying employment, deposits, etc.. This was good for sake of integrity but not always good for timing. Often what I would do is perform the verifications of employment through mail/fax with the HR person providing contact information on my form to verify by a 2nd party if necessary.
Today the procedures are more stringent because they not do a post funding audit for state compliance, but the institutions also will randomly verify employment afterwards as well. Our company has an internal Wa. State Compliance procedure to meet documentation requirements as per DFI regulations. Failure in any of these results in having to buy back the loan or repay comission.
Answer to question number 3: I am not sure how this would be dealt with since I’ve never had to put my processor in a situation that would require this. But I would see very quickly this going straight to the top and having a manager/senior broker become immediately involved as these actions can affect them and their futures as well.