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   ARTICLE   |   From Scotsman Guide Residential Edition   |   June 2010

Stopping Buybacks and Fraud Automatically

Technological solutions allow brokers to avoid missteps and prolonged scrutiny

Many lenders continue to try to insulate themselves from losses related to mortgage fraud and compliance failures. Often, lenders require mortgage brokers to sign contracts stating they'll buy back loans in the event of fraud discoveries.

These contracts, however, don't eliminate one problem: Many brokers don't have the capacity to buy back fraudulent loans, contract or not.

In order to avoid this dilemma and its detrimental effects, including possible business failure, brokers must find ways to increase their vigilance against fraud and ensure compliance across their organization. Technology can help.

Brokers must strive to implement the highest levels of quality control and to originate and close fraud-free loans. They also must ensure compliance with regulatory changes and licensing requirements. Brokers who proactively weed out fraud and potential compliance problems with software solutions and automated processes can sidestep lender and regulatory trouble and keep their businesses moving forward.

Buyback requests often come via loan audits by a state financial-regulatory office that manages broker licensing. These agencies may audit randomly or as the result of a fraud or red-flag report.

Much like tax-return audits, loan audits result in thorough inspections of financial records and often lead to enormous headaches for the audited. They also expose brokers to scrutiny by the regulatory office, which can conduct compliance reviews on current and past loans.

Regulators also can double-check that brokers have met their continuing-education requirements and other mandates related to licensing, bonding and insurance. Brokers, especially those with multiple office locations, may find it difficult to produce requested documents in a timely manner.

Electronic document storage can change that. It can allow brokers to access requested information easily and to ensure individual loan and overall business compliance in the first place. These systems also can enable brokers to prescreen loan files quickly and completely before they're submitted to lenders.

As brokers increase their efforts to stop fraud before it starts, many will seek technology solutions that allow automated real-time access to data. Document-management software should allow centralized and secure information storage and controlled access. Processors can more easily perform quality control, and closed files can be archived digitally.

Automated document-management software also can generate fraud alerts. For example, if the system detects a duplicate file or occupancy issues, it can alert the user. Customized systems also can prohibit loans to proceed beyond a certain point until quality-control checks occur. This allows internal processors to review files for completeness and compliance before submitting them to lenders.

Any automated document-management solution should allow brokers to review and manage their entire pipeline quickly, easily and securely at all times. This includes allowing brokers to:

  • Check the status of all active loan files;
  • View file conditions; and 
  • Assign permissions to others.

This technology should not only streamline daily workflow but also protect brokers from common fraud risks before loans close.


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