As the pandemic subsides, what does the fraud frontier look like?
Fraud didn’t really subside during the pandemic, although 2020 did see a drop tied to the lower risk refinance market. Fraud did however take on a different “pandemic” face, with scammers using scare tactics to gain information and access to data from unsuspecting borrowers seeking relief from delinquency. As the market begins to swing toward normalcy and purchase volume surpasses refinances, fraudsters, including borrowers, are back to their old tricks.
CoreLogic’s annual 2021 Mortgage Fraud Report highlights this rising trend in fraud risk. Comparing results to pre-pandemic levels, the most recent report on mortgage fraud highlighted a 37.2% year-over-year increase for the second quarter! Nearly one percent of all mortgage applications evidenced fraud for Q2, with transaction risk rising by 34.2 percent. The root cause is attributed to the changing mortgage market, with refinance volume easing, purchase originations and cash-out refinances are on the rise, both of which historically drive more fraud. Investment property transactions, both refinance and purchase, lead the way in highest proclivity for fraud, whereas Veterans Administration (VA) loans evidenced the least amount of fraud.
Knowing the Nuances.
As we look at areas of fraud that should command your attention, bear in mind that purchase volume has increased significantly, now representing 47 percent of mortgage originations. The highest concentration of fraud was found in investment purchase applications, where a whopping one out of every 23 applications contained evidence of fraud. In evaluating your approach to fraud risk prevention and the nuances that separate purchases and refinances, here are some noted differences:
Have you FACED off with the fraudsters?
It’s one thing to know the change is coming and another to know exactly where to look. At the top of your list, note that CoreLogic reported the greatest increase in fraud risk was transaction fraud, which is specific to purchase originations. More commonly occurring in wholesale channels, this type of risk is characterized by undisclosed agreements between third parties to the transaction, including falsified down payment funds, non-arm’s length transactions and straw buyers.
The various types of fraud risk, transaction, identity, occupancy, undisclosed real estate debt, income, and property fraud, are by nature more likely to be present in purchase transactions. In each of these areas, identifying inconsistences is often your best line of defense. Quality Mortgage Services understands the importance of looking where others may not have had the time. Additionally, by using a proven quality control partner in your efforts to combat fraud, you gain the ability to have objective oversight. QMS is extremely proficient in marrying sophisticated data analysis and human experience, which allows us to track and understand risk trends, identify defects early in the transaction, and discern the line between defects, misrepresentation and fraud.
As you coach and advise your operational team, here are five quick areas that we recommend for doublechecks to identify inconsistencies:
Fonts – Are the fonts on the bank statements or paystub consistent?
Amounts – Do the amounts of withholdings make sense?
Consecutive Numbers– Check the numbers on paystubs, are they consecutive?
Equal – Do the debits and credits add up on bank statements?
Dates – Check the dates on paystubs, do they make sense? Do the pay dates line up with pay frequency, and do pay dates fall no business days?
The industry has officially moved into the holiday season, and although COVID-19 cases will certainly ebb and flow, for all intents and purposes we are on the other side of the pandemic. These scenarios will invariably lead to volatility and distraction. So, as you and your team prepare for the new year, be sure to engage a trusted partner to help defend your organization against post-pandemic fraud. For more information on how QMS can identify and reduce your risk exposure, check out our specialized approach to QC partnership and connect with us at www.qcmorgage.com.