Fraud has always been a problem for mortgage lenders, but now it’s starting to really get interesting, and expensive. With the home mortgage market turning from refi’s to purchases, rates rising and a housing shortage along comes an increase in loan defects, fraud, and misrepresentations.
In the past, instances of fraud mainly centered on the consumer trying to get away with providing misrepresented information to get approved for their loan. Some instances dealt with unscrupulous parties creating bogus loans based on fictitious information to reap some ill-gotten gains.
That’s small potatoes compared to what the industry now faces in the digital world of cyber transactions. Criminals are going to great lengths to hack into systems to gain more and more consumer and business information. Unfortunately, it’s all out there and easy to access.
The implications of a purchase market.
The increase in fraud and defects is attributable to the increase in purchase home loans, which are believed to carry a higher level of risk. Most economists agree (a rarity) that rates will continue to increase throughout 2018. MBA is predicting that rates may hit 5% by year-end. With this rise in rates, we’ll see fewer refi’s and more purchase business, which could lead to more defects, fraud, and misrepresentations.
Lenders need to be even more focused on quality and reducing the loan defect rates. This will require more diligence due to the increased risks associated with purchase loans. These loans have more moving parts than a refi, with more players involved, and more pressure to get them done. Nobody wants to see a signed purchase deal fall through. Nor do they want to approve a fraudulent loan.
It’s time to once again lock down the process and make sure fraud doesn’t sneak in through the back door. Lenders need to carefully analyze all parties to their transactions; verify the information and documentation provided; know from where and from whom it comes; and finally check, re-check and validate everything. Do not leave anything to chance.