Origination News Feature Story

Training Industry Eyes to Detect Fraud

By Brad Finkelstein

AGOURA HILLS, CA-Since the company was founded in 2005, Interthinx here has trained over 30,000 people in the art of combating mortgage fraud.

"One of the things we've always said is that because fraud is constantly morphing and shifting, it is important to understand the mechanics and what the different schemes are going to look like," said Ann Fulmer, vice president, industry relations, at Interthinx. The training program teaches participants to learn how to stop the schemes, but also gives them the context to understand the larger picture about how the whole scheme works. It also teaches them why a particular item is a red flag and why it needs to be paid attention to.

To train this many people in fraud prevention, she said, is a significant achievement and a good start. The more eyes focused on the problem, the easier it is to spot and stop.

Currently, one of its more popular programs involves document fraud, as the use of stated-income programs has disappeared and the industry has shifted back to heavy documentation of files.

"The fraudsters have morphed again and so now there is a huge uptick in the number of fraudulent documents that we're seeing," Ms. Fulmer said. Among specific schemes gaining popularity is one she has termed "the flop." This involves short sales, specifically the manipulation of prices of homes being sold through this loss mitigation effort.

Investment clubs are working with real estate industry participants and others to deflate - "that would be the flop side" - the short-sale price. The sale is steered to a confederate, who then sells it to a straw buyer (investor, family member or friend) and the property is flipped further.

Interthinx is also seeing growth in training around the Federal Housing Administration program, not just around mortgage fraud, but also in the area of compliance. The company is seeing requests for training in the FACT Act. Towards this end, Interthinx has free mini-FHA webisodes on such topics as fraud, program requirements and the tools that the company offers.

And because FHA is now a major share of the market, it is attracting schemers, Ms. Fulmer noted. However, she added, at a recent conference she attended, an FHA representative said that while the cases of reported frauds are up, the percentage share of fraud to the overall FHA program has remained steady.

During the boom times, a lot of the basics of underwriting went away as companies dealt with large volumes. As a result automated underwriting systems, she said, were used in a way they were not intended.

AU systems were designed to remove human prejudice from the origination process, but only in terms of whether or not a loan meets the qualifications for a specific program.

However, such systems don't give a three-dimensional look at the entire loan application. People stopped taking a robust look at the file to see if the loan made sense. Getting an accept-plus led many to believe the file was good to go without further examination.

This ties back into industry training, Ms. Fulmer said. Users need to understand what the tools do and don't do to take a critical look at an application.

Besides the webisodes, Interthinx also delivers training via DVDs, such as "FSI: Fraud Scheme Investigation" and "Fraud Angels."

Some large lenders have embedded these DVDs in their company's internal networks for access by their employees.