2 comments

• Comment Link Friday, April 25 2008 06:27 posted by Jude Freeman

  We are seeing a proliferation of fraud, new and old schemes, but I have not heard much discussion about one of the underlying causes of fraud getting in to our shops that can make a difference.
  
  Perhaps I have missed the conversation, but poor to non-existent underwriting is a key root cause of some fraudulent loans getting through in the first place. Loan Officers, Realtors and Borrowers may conspire but good underwriting can save lenders from making at least some of the mistakes that have been made leading up to the current crisis.
  
  The reliance on AUS systems has created a generation of underwriters who can no longer underwrite. Because Fannie Mae and Freddie Mac will buy whatever an AUS system approves and because the systems perform analysis on what is sometimes pretty scant information and does not require a lot of "extra" verifications, garbage in equals garbage out.
  
  AUS systems are useful tools but should never have been substituted for a trained human reviewing loan information. How much fraud might be prevented if a person did more than just look at documents but actually read them? How many schemes might never have gotten off the ground if someone spent a little bit of time scrutinizing a transaction?
  
  If we're going to continue a practice of relying almost solely on decisions made by AUS systems, why not improve their programing such that they perform a more thorough analysis of the information showing up in a loan file?
  
  I am in quality control. I see files every week in which someone has missed or dismissed key information related to whether a borrower qualifies for a loan. A borrower who, I am certain, is not trying to fool the system. I also see files, less often but more serious, in which questionable information has been accepted without any follow up and it later became a fraud issue.
  
  We can not prevent cycles in the market. Cycles are natural. However, we can prevent some major meltdowns if seek balance between our "gotta have it now" world and really managing risk. Better underwriting is one step. More thorough quality assurance reviews on sample files both before and after loans close, would also make an impact on the proliferation of fraud in our shops.
  
  Underwriters must have some independence from the core production team with freedom to make tough decisions that are supported by their management. Reinvigorating underwriting and re-emphasizing QA will not completed stop the schemes like the one in this article. However, they will help.
  
  Thank you.
• Comment Link Thursday, April 24 2008 11:40 posted by Claire, ThinkGlink.com staff

  If you're worried about being a victim of mortgage fraud it helps to be familiar with closing documents. If you know what to look for on these documents you can avert mortgage fraud.