Chairman & Managing Director
Two of our Directors will be
attending the MBA’s “Risk Management, QA & Fraud Prevention Forum,” held in
Los Angeles, in September. Attending this venue will be Brandy George, who is
the Executive Director of LCG Quality Control and Michael Pfeifer, who is a
Director of Legal and Regulatory Compliance. I remember attending the first
forum many years ago. The attendance was modest. Although risk management was
strengthening, I felt the term risk management was much too broad, as it could
be (and was) applied to many industries. So, I coined the term “Mortgage Risk
Management” and it caught on! My view has been that mortgage banking poses a
unique set of risks that require significant knowledge, experience, and
expertise. Turns out, this insight has been reinforced over the years. Now,
this event is highly attended and is brimming with new ways to handle quality
assurance, mortgage fraud prevention, and risk management oversight.
As I contemplated this forthcoming
conference, I thought of the difficulties that mortgage originators have in
handling the challenges of mortgage fraud in particular. This is a nasty
business and not for the faint hearted! When my firm conducts audits of the
loan flow process, it is not unusual to find gaps – perhaps ‘chasms’ is a
better word! – in a company’s procedures for managing mortgage fraud risk. It
still surprises me, after so many decades in mortgage banking compliance and
financial institution management, that the fraudsters seem to have no limit to
their scheming, conniving, crafty, wily, and underhanded cunning. These guys
are as slippery as a darkly oleaginous grease slick.
Maybe I can’t stop these swindlers
and shysters from doing what they do, but I can let you know some of the
lessons my firm, Lenders Compliance Group®, has learned in knowing how to
identify and trap them. I may not have all the answers, but I sure do have a
lot of experience in hooking the crook. So, come with me on a brief walk
through the mortgage fraud maze, as I jot down some of my reflections, and
perhaps you should consider using some of my ideas to fine-tune your own
mortgage fraud prevention procedures.
Let’s start with a simple outline
of what fraudsters do!
During the mortgage lending
process, a fraudster is a person who knowingly does any of the following:
- Makes, uses, or facilitates any deliberate
misstatement, misrepresentation, or omission with the intention that it be
relied upon by a mortgage lender, borrower, or any other party to the
mortgage lending process;
- Receives any proceeds or any other funds in
connection with a closing involving mortgage fraud; or
- Files or causes to be filed with the county
recorder, any document that contains a deliberate misstatement,
misrepresentation, or omission.
In my view, there are two types of mortgage
fraud: the first is fraud for property, and the second is fraud for profit.
