As published in Scotsman Guide's Residential Edition, June 2006.
The process of catching fraud in the mortgage industry is similar to that used by the detectives on any number of television crime dramas. When you think about it, we also catch bad guys.
This is looking like a banner year to highlight our daily grind in prime time. A record $3.29 trillion in home loans funded in 2005, according to media reports. Perhaps even more remarkable is that almost 25 percent of that was in nonprime, indicating a more mainstream trend for what historically have been labeled more-risky loans.
By some estimates, loan originations are expected to decrease by as much as 20 percent this year. Therefore, the pie will be much smaller for brokers to meet the level of income they enjoyed in 2005. As such, there is a growing temptation to "fudge" the numbers or exploit some of the growing nonprime borrowers. Borrowers also see temptation with home prices and interest rates increasing. All these factors combined lead me to think this is the year we'll find a TV-worthy fraud bust.
To combat the threat, fraud departments are finding a friend in technology -- the same technology that was developed for the purpose of approving more loans and that led to the phenomenal growth in loan originations. These engines include the latest compliance and regulatory codes and are efficient.
That efficiency often removes the source for a high percentage of fraud -- a lender's employees. Technology also helps thwart fraud on the broker end, with tools such as pipeline-management systems allowing key administrators to access loans with the click of a button.
Just as TV police officers depend on various gadgets and technology to catch their bad guys, so too do the folks in fraud and loss prevention. Tomorrow's successful fraud prevention combines trained employees, vendor-partners and ongoing tech development.
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