The mortgage industry has been the focus of a lot of media attention in the last several years, and mortgage fraud has been one of the issues attracting that attention. Lenders, brokers, and loan officers can play a big role in preventing mortgage fraud. Unfortunately, a variety of mortgage fraud types are proliferating the market, making it all the more important for involved professionals to catch the warning signs early on.
Detecting Fraud Before It Happens
Thankfully, there are best practices out there about how to prevent mortgage fraud before you’re knee deep in a legal quagmire. Start off by reviewing all the licensing and regulation requirements in your own state.
Make a brief checklist of applicable state regulations and post it in your office as a reminder.
Only Use Qualified Appraisers
Another way to reduce the chances of fraudulent behavior is to vet the appraisers before you work directly with them. Only work with licensed appraisers who have up to date continuing education. It’s not worth risking working with another provider when there are likely several highly qualified appraisers in your area.
Ask for the credentials and paperwork for each appraiser you work with.
Beware of Third Party Sources
Never accept any loan packages from a third party source. A critical best practice for loan brokers and officers is to verify that every piece of documentation used has been authenticated. Never rely on the word of third parties in determining the authenticity.
Recall that from start to finish, you are responsible for the full contents of the loan file. Put procedures in place for proper filing and verification from the outset, so that you can flag issues immediately.
Likewise, beware situations where there’s an intermediary attempting to go between you and the borrower. Although there are some scenarios in which a power of attorney or hardship might apply, make sure you’ve verified details before working directly with other individuals. Doing so could get you involved in a fraud scheme without your even realizing it.
Closing agents can play a role in this step, too. Ensure that all title records are completely researched and verified for the owner of record. Make sure that all the paperwork is in line with the actual transaction goal. If a property is listed as a refinance, for example, but the title to the house is not in that individual’s name, investigate further. It might help to have an extra pair of eyes review documents for any issues.
Another red flag might include closings back to back with dramatic value increases. Anything out of the ordinary should warrant some investigative digging.
Report Fraud When It Occurs
If you notice some form of fraud or have evidence that something illegal may be brewing, contact the authorities immediately. Reporting incidents of fraud can go a long way towards cluing law enforcement into the latest trends and giving them time to act quickly.
When in doubt, contact authorities to open an official investigation.