TheMReport — News and strategies for the evolving mortgage marketplace.
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FEATURE The New Face of Fraud behind fraudulent mortgage-related activity are adapting easily to the current marketplace, but lenders are staying one step ahead with evolving tools and strategies. By Phil Britt Using contemporary methods as well as old tricks, the criminals N W otorious bank robber Willie Sutton was noted for saying he robbed banks because "that's where the money is." ing to the bank itself and robbing it. A lender's assets are no longer in a bank or tucked away in a vault, but instead are in the mort- gages themselves. Lenders and lawmakers have always sought to protect those assets, but have stepped up their efforts as they have achieved a better focus on the extent of the problem. In Sutton's day, that meant go- Historical Perspective there was an increase in the amount of reported mortgage fraud, in part due to increased reporting standards that uncov- ered fraud that previously had ith the implementation of the Patriot Act in 2003, gone unreported. As a result, lawmakers and lenders stepped up some of their fraud-fighting efforts. But fraud became less of a priority in the boom years in the middle of the decade as lenders instead concentrated on revenues and profitability. Some in the industry even contributed to the fraud, overlooking or even encouraging "liar loans, lawmakers and the industry to once again turn their attention to fraud, with new rules adopted by Fannie Mae, Freddie Mac, and others to validate income and oth- er borrower information as well as new tools designed to monitor and report suspicious activity. income was not verified or was outright falsified. Countrywide, for example, has faced several lawsuits regarding these loans. The industry downturn led " in which a borrower's cates an increase in fraud itself or just hints at better detection of fraud attempts is a question of some debate, experts say. Better reporting means more fraud is recognized, whether or not the actual attempts are increasing. At least one report says mort- gage fraud is declining. In late May, Agoura Hills, California- based Interthinx reported that its national Mortgage Fraud Risk Index decreased by 4.3 percent from the fourth quarter of 2011 and 3.1 percent from the previous-year period. themselves have continued to grow, based on mortgage loan fraud suspicious activity report filings reported by the Financial Crimes Enforcement Network. These reports grew nearly 31 percent in 2011. The report cited mortgage repurchase demands and special filings as among the reasons for the increase. The re- port also noted that mortgage loan fraud is the only FinCen category to increase every year since 1996. Whether that actually indi- Reported incidents of fraud line, the problem is significant in terms of cost, so regulators, lend- ers, and their industry partners continue to boost their efforts to fight fraud. "Mortgage fraud always has Regardless of the actual trend- been a significant problem. It's a fallacy that No Doc (the lending program requiring less docu- mentation) led to the problem," says Becky Walzak, president of Looking Glass Group, an Indianapolis-based strategic con- sulting firm. "If you want easy money, it's a great way to get it." Steve Meirink, leader of Equifax Mortgage Growth Initiatives, estimates the mort- gage fraud problem at "tens of billions of dollars." Government Intervention T mortgage fraud and to prosecute past fraudulent activity. he government is pursuing several actions to stem new THE M REPORT | 31