Combatting the Changing Nature of Real Estate Fraud
Real estate fraud has evolved since the mortgage crisis and lenders must put proper safeguards, data analysis, and risk assessment processes in place to protect borrowers, investors, and businesses
Fraud, just like fashion, has changed a lot in 10 years. Between 2008 and 2018, income, occupancy, and asset fraud has increased significantly while property, credit, and liability fraud has decreased. Lenders need to keep up with current trends and not rely on out-of-style solutions.
But whether a borrower neglects to disclose alimony payments, forgets to list a vacation home on an application, or falsifies deposits, the result of mortgage fraud is the same; lenders suffer. To successfully mitigate fraud and risk, you need access to dependable data delivered in a way is easy to interpret and process.
Percentage of Loans with mortgage fraud in 2008 and 2018
And since the borrower likely misrepresented information in several areas, you need data that addresses the full spectrum of mortgage fraud.
Here is what you need to verify and understand when looking for fraud.
1. Quick Marketplace Adaptability: No one wants lag time between when a new fraud scheme is identified and the corresponding solution. Look for a responsive platform that can easily adapt to sudden changes in the industry with real time solutions.
2. Verify Income and Assets: Access multiple independent data sources for income verification and analysis to be sure you are getting a full picture. Here are some sources to check in the verifying process: the IRS, the applicant’s on-line banking information, automated self-employed borrower analysis, and comparative income analysis.
3. Verify Occupancy: Review multiple property and consumer related data sources to verify the borrower’s intent to occupy the property during the application process and following closing.
4. Confirm the Borrower is Who They Say They Are: Determine if there is a discrepancy in the Social Security number used to qualify the borrower. By identifying a discrepancy as the first step in the mortgage approval process, you can address the issue immediately before wasting additional time or money on the application.
5. Verify Non-Identity Information: Use a vendor that verifies a wide variety of non-identity data including income, employment, phone number, previous foreclosures, undisclosed debt, and real estate owned (REO) properties.
6. Ongoing Verification: In an analysis of more than 300,000 loan applications, DataVerify found an average of 2.85 data changes per loan file. It’s important to monitor for loan file changes in real-time during the loan lifecycle to minimize risk and/or delays in closing. Look for a solution that alerts you to changes such as a borrower applying for new credit or missing a payment on existing credit, property affected by a natural disaster, or a borrower losing his job.
7. Monitor Watch Lists: It’s time-consuming to check borrowers against all the watch lists. Instead, pick a single vendor that automatically looks for credit report name variations, checks borrowers against OFAC and the Red Flags Rules and other industry watch lists, and allows you to import your own customized list.
8. Analysis of Data for Risk Management: Analysis can be stressful and complicated. However, platforms are available that don’t just pull the data and then dump it on your computer. A dynamic report that highlights the risks important to you and guides you through a process to resolve the condition can provide insights that reduce risk and improve loan performance.
9. Learning from Analytics: Be on the lookout for tools that can learn from data and uncover patterns that affect loans and build alerts based on those findings. When the system identifies a pattern, it should create a new condition or alert, in real-time, to indicate a high likelihood of additional risk.
10. Go Beyond Credit Reports to Identify Foreclosures: Credit reports can miss foreclosures due to discrepancies between the way the national consumer credit repositories, states, and counties calculate the foreclosure timeline. In addition, limited borrower data can result in mismatches and false positives. Good data will alert you to the needle in the haystack.
Unfortunately, misrepresentation and fraud will probably always be a part of the mortgage industry. It’s important that you remain nimble, flexible, and able to adjust to new and emerging fraud schemes while continuing to focus on workflow automation, strong data analysis, and cost containment. With the right tools, you can remain ahead of the curve and identify potential risk before it’s too late..
For More Information
To learn how DataVerify can streamline processes, improve efficiency, and improve customer satisfaction across the consumer and real estate lending spectrum, contact us at 866.895.3282 (option 5) or
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