Written By: Bonnie Wilt-Hild, Op-Ed Writer
Very recently I have seen the resurgence of the government insured loan. FHA and VA purchase and refinance transactions have been more prevalent over the past few months than their conventional counterparts and as a professed government underwriter, I am very pleased. Never mind actually having the ability to underwrite loans again, the programs in themselves do a great service to American homebuyers who are deserving of a mortgage but might not fit into traditional programs due to credit scoring and other automated mechanisms.
But as with all things that are good, there is always an element of wrongdoing and if you have not guessed, I am talking about fraud. Over the past five years we have seen fraud at a minimal extent due to the availability of sub-prime money not to mention products designed to allow stated income and assets as well as No Documentation loans. As borrowers were not required to verify their income, there was no point in lying about it. Most fraud cases had to do with appraisals and inflated value but even this in the appreciating market of the past occurred only occasionally. Barring major fraud schemes such as property flipping or a larger scale, fraud cases seemed more the exception then the reality.
Welcome back to full documentation standards and yes mortgage fraud. As we embark on processing and underwriting mortgages in the full documentation world of government and agency lending, fraud cases have become more prevalent. Forget income fraud, which has quickly become a standard, but appraisal fraud as well. In the current market of declining values, property valuation and analyzing the appraisal has become a challenge. The prevalence of internet tools such as payroll and income tax calculators and also graphic software and tools sometimes make it hard for even the most seasoned underwriters and processors to tell if the documentation they have is legitimate. Property valuation tools such as AVM’s help on the appraisal side but being aware of the fact that most of these tools are based on methodical mathematical equations considering recent sales data make us leery as to the accuracy of the data. They do not take into consideration property condition or certain amenities that might make it more desirable in the market place. Additionally, data analyzed by these tools are six to twelve months old and in a declining market, often AVM value far exceeds fair market value. So where do mortgage professionals go for help?
As for the number of tools available to the individual who would like to commit fraud, there are equal numbers of tools if not more, available to the mortgage professional. Mortgage Fraud and Awareness courses are available, not to mention an enormous number of Internet sites that can help Originators, Processors, and Underwriters. FNMA and FHLMC have information on their web sites regarding how to combat mortgage fraud. Using the FHLMC Exclusionary list for conventional loans as a regular course of business is as sound of practice as is checking FHA’s LDP and GSA list. Using AVM models and even desk reviews help with the appraisal piece but so does checking local government real property tax assessment web sites. Local governments nationwide maintain this information and most of the databases are accessible to the general public. Not only do they disclose tax assessment information, but they provide ownership information as well as current and previous transfer information, which when used with the information provided by the appraiser, will determine the accuracy of the data within the appraisal but also if the property has been flipped several times in the most recent few years.
Several tax assessment sites allow an individual to search recent sales on a particular street or subdivision, allowing an underwriter to determine for his or herself what properties in that area are selling for. Some actually provide very inclusive information including property owners, which would allow an underwriter to determine if an individual owns more then one property on a given street, which might not have been disclosed in the REO section of the appraisal.
Being aware of the Internet tools help. I, myself, have found fraudulent paystubs created on calculators I have search on the Internet when trying to determine what was available. Comparing bank statements to a paystub for which the borrower’s salary is direct deposited is another way to determine that the income is accurate. Tools such as Salaries.com help, if the income and assets of the borrower appear to be unreasonable based on overall credit or employment type, start looking hard at everything else.
It is also important to note that most fraud cases are individual in nature and in this are not generally well thought out. If all documentation in the file is carefully reviewed, the inaccuracies are usually found. Misspelled words on bank statements, deductions that don’t make sense and corporations that cannot be located on the Internet or in the yellow pages are usually a clear indication of fraud. Doing reverse look ups using Anywho.com will tell you if an employers phone number is valid.
In short, as long as there are full documentation loans, there will be mortgage fraud and the instances in which it occurs is rising. Use the tools available to you as processors and underwriters and also instinct. It has been said before, “If it looks like a duck and walks like a duck then it probably is.” The same applies to mortgage fraud so be diligent and keep it honest.
About The Author
Bonnie Wilt-Hild - As an op-ed writer, Bonnie has held many mortgage underwriting positions, including Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".
