Mortgage fraud grows increasingly more sophisticated -- are you prepared?

by 02 Oct 2014
So, you’ve come across the perfect borrower. He has a FICO score in the upper 700s, a high income and owns a few rental properties. However, he’s self-employed and plans to purchase a home well-above market price.  Have you struck gold, or is he too good to be true?

“If it’s too good to be true, it probably is,” says Freddie Mac director of financial instrument fraud investigation Robb Hagberg, who has worked in the mortgage fraud industry for more than 16 years.

Welcome to today’s world of mortgage fraud. A world with more sophisticated borrowers who have access to every document they would ever need to commit the crime via the Internet. “At one time we as an industry saw borrowers as innocent, but the access of information is so easy today,” says Hagberg.

He says borrowers now go to websites that will generate fake W2s and paystubs that originators will accept. “Today’s borrowers have a much clearer understanding of how a mortgage is underwritten than we’ve ever seen before. The misrepresentations of the borrower are far more sophisticated.”

A recent report from Interthinx, a provider of risk-mitigation solutions for the financial services industry, shows the national mortgage fraud risk index value remained unchanged from the first quarter of 2014 to the second and is down 4% from the second quarter of 2013.

Yet, identity fraud risk has increased 9% during the second quarter of 2014, according to Interthinx. The increase is due to a higher frequency of name and social security inconsistencies detected by the SSN trace and by comparisons with previously submitted applications.

The national property valuation fraud risk index is also up, too. The index increased by 1% during the second quarter of 2014 and is up 23 percent from a year ago, according to Interthinx.

Another type of identity fraud emerging is fake identity fraud. Hagberg says recently he has noticed borrowers attempting to extinguish debt through false identity.

During the scheme, the borrower reaches out to a servicer and says they are a victim of identity theft and that they didn’t apply for a certain mortgage. From there, the borrower will provide a falsified affidavit of identity theft and a police report.

Hagberg says police reports are a matter of public record and lenders can verify the authenticity of one by simply calling the police station where it was filed.
Click here to view other common mortgage fraud schemes and Freddie Mac’s tips for preventing them.

To avoid mortgage fraud, servicers and originators need to look at the big picture, says Hagberg. “We used to look for whiteout on documents, but with more sophisticated borrowers, you have to look at it broadly,” he adds. “Each document is a piece to a puzzle, and you need to see if all the pieces fit.”


Should CFPB have more supervision over credit agencies?