July 2012

TheMReport — News and strategies for the evolving mortgage marketplace.

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FEATURE address in January, President Barak Obama announced a mortgage fraud task force. Though there have been some complaints that the task force did little in its first few month of existence, in late May the president announced "substantial financial help" to whistleblowers who aid the task force in uncovering fraud. In late May, the U.S. Justice In his State of the Union Department announced that its Residential Mortgage-Backed Securities Working Group had launched a website (www. to report fraud and the creation of a coordination team to facilitate ongoing investigations. Matthew Stegman, a career white-collar crime prosecutor, heads the co- ordination team, which includes criminal prosecutors, civil attor- neys, analysts, and FBI investi- gators. The Justice Department had established the working group in January to fight fraud and abuse in the RMBS market. Several states have sought to with tax preparation software, an increasing number of lenders are requesting tax transcripts. The transcripts represent the Internal Revenue Service's copy of a processed tax return. Online bank statement verification enables Equifax to provide to lenders real-time verification of DDA accounts, 401(k)s, and other assets. "A significant challenge in fighting fraud had been lack of real-time information," Kuentz says. Using a service that provides real-time information rather than relying on monthly or quarterly statements helps protect a lender from relying on values from accounts temporarily inflated by borrowing, deferred bill payments, or a similar sleight of hand. So lenders can look at any significant changes in account values between the time of application and the time of closing. A related service, undisclosed prosecute individuals and lenders for mortgage fraud. One of the most recently announced cases was the charge of mortgage fraud against New York-based Abacus Federal Savings Bank and 19 individuals, who allegedly sold hundreds of millions of dollars in fraudulent loans to Fannie Mae. According to the indictment, senior employees at the bank trained others to falsify loan documents so unqualified borrowers could qualify for loans and the bank could earn fees, commissions, and other funds by selling the loans to Fannie Mae. "There's a new sheriff in town; there's much more focus on preventing fraud, Lykken, managing partner and owner of Dallas-based Mortgage Banking Solutions. "There are larger financial penalties, more people are being prosecuted. There is a trend of zero tolerance for fraud." In April, the U.S. Sentencing Commission amended and " says David 32 | THE M REPORT strengthened sentencing guidelines for mortgage fraud. New rules for determining fair market value of undisposed collateral are designed to minimize disparities in sentencing. Additionally, defendants will no longer be able to avoid increased penalties from causing specific types of financial harm, like jeopardizing the safety and soundness of a financial institution, if the financial harm is avoided only due to a government bailout. The proposals are to take effect Nov. 1. The more frequent and larger penalties are helping to heighten awareness that fraud won't be tolerated, which should convince at least some fraudsters that the penalties aren't worth the risk, according to Lykken. Newer Fraud- Fighting Tools B enhanced monitoring and other tools in an attempt to curtail fraud. Many lenders are taking eyond government interven- tion, the industry is using debt monitoring, helps lenders identify any new debt the borrower has acquired after loan approval and before closing. The monitoring service receives an automatic update from the credit bureaus. The update is not the same as a full credit report, so it doesn't affect a potential borrower's credit score like an additional full credit report could, Meirink says. Lenders are employing other advantage of enhanced verification services to confirm a mortgage applicant's identity and income, says Michael Kuentz, senior vice president for Equifax Verification Services. Employment may be veri- newer verification tools as well, Walzak says. "Lenders are no longer naive enough to accept written verification of employ- ment. There are numerous Internet sites to validate infor- mation. For example, salary. com provides income ranges for different types of jobs." So a claimed wage that looks fied at the time of application and again shortly before closing to guard against employment changes (e.g., layoff or termina- tion) that could result in a de- fault. Rather than a copy of a tax return, which is easy to falsify to be out of line with the range for a certain type of job war- rants further verification, even if paperwork seems to be in order. "Technology is on the forefront of the battle against fraud," says Sanjeev Dahiwadkar, president and CEO of Baltimore- based IndiSoft.

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