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Special Reports
Fraud Detection
AmNet Exec Testifies About Effect of Mortgage Fraud
By Brad Finkelstein
SAN DIEGO -- To fight mortgage fraud, there needs to be stronger enforcement,
better communication and increased innovation in terms of technology to identify and prosecute those who commit
fraud against mortgage lenders. That was the message Marta McCall, senior vice president of risk management for
American Mortgage Network Inc. here, brought on behalf of the Mortgage Bankers Association at a House Financial
Services Subcommittee on Housing and Community Opportunity hearing held in October.
Right now, enforcement of laws on mortgage fraud is not consistent state-to-state,
she said. Secondly, prosecutors have limited resources and are not able to pursue all of the matters they come
across and effectively prosecute.
Ms. McCall noted that because of the size that the mortgage market has grown to,
"the FBI indicates there has been a fivefold increase (in instances of mortgage fraud) from 2001 through this
year. And that is only based on what they investigate" and not information being reported to databases.
Another issue is that in the last few years, lenders have been able to do the
higher-quality loans and not the bottom-of-the-barrel deals, she said. "There are a lot of things that I think
are going to impact the incidence of fraud this year and then moving into next year."
While there are some software solutions available, the best defense is continued
due diligence by lenders, especially when it comes to verifying information. Ms. McCall compared the situation
with the success of automated underwriting systems. That success is because of the quality of information fed into
the system.
"I think fraud (prevention) is a lot like that, too. You get the documentation
and you, one, have to make sure that the information correlates throughout the file, and, two, you need to do independent
validation of certain aspects of the information."
Ms. McCall added that most of the fraud she has seen has been readily detectable.
A keys fighting fraud going forward is that information needs to be shared in the industry in a better fashion.
While there are repositories for potential mortgage fraud data, the lack of a
"safe harbor" has made some lenders concerned about how they use information and what information do
they share. "What that enables, obviously, is the bad guy can burn me and go down the street and burn 10 more
people because we are not effectively sharing information," she declared. "Or it could be somebody the
FBI knows about and that they are getting ready to investigate" but lenders do not find out about the fraud
until they have been burned.
She added that the FBI confirmed at the hearing that it only goes after larger
frauds. The agency said it has to be economical for it to invest the resources. Therefore they tend to go after
people that commit fraud for profit. But, lenders lose a lot of money because of fraud for housing. While it is
not as much as the fraud for profit, lenders absorb costs for litigation and foreclosure in fraud for housing.
When asked if she thinks MBA was able to get its message across to the subcommittee,
she said the group was looking to show how much fraud costs the industry and ultimately the borrower. The committee
was more concerned about the effects on the consumer only.
"I didn't feel completely comfortable that we had really gotten our message
across, which is we need to protect the lenders against mortgage fraud, because ultimately that drives the price
that is going to benefit, or not, the consumer," Ms. McCall said.
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