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First American To Acquire Interthinx

We knew the consolidation was going to continue. That means more big mergers and acquisitions. To this end, Bloomberg is reporting that First American Financial Corp., the second-largest U.S. title insurer, agreed to buy Interthinx Inc. from Verisk Analytics Inc. for $155 million to add data that serves the mortgage industry.

The sale will increase 2014 earnings and is expected to be completed by March 31, Santa Ana, California-based First American said today in a statement.

Title insurers, which use their records and public documents to verify a seller is a property’s true owner and that it’s free from liens, have been expanding business with mortgage companies. Fidelity National Financial Inc., the No. 1 title insurer, last month completed the acquisition of Lender Processing Services Inc. for more than $3 billion.

Interthinx will help First American offer real estate customers “further assurances in areas that present risk, including fraud, identity and income validation, collateral adequacy and compliance,” Dennis Gilmore, chief executive officer of the insurer, said in the statement.

Verisk, the supplier of actuarial data to insurers, has been making acquisitions to expand relationships with the health-care and credit-card industries. Exiting Interthinx “will allow us to focus on businesses most closely aligned with our strategy,” Scott Stephenson, CEO of Jersey City, New Jersey-based Verisk, said in a separate statement.

Bank of America Corp. is assisting First American, which got legal advice from McGuireWoods LLP. Verisk is using Morgan Stanley and McCarter & English LLP.

Verisk has rallied 14 percent in the past year through yesterday, while First American has advanced 2.6 percent.

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To Detect Fraud, Go To The Source

*To Detect Fraud, Go To The Source*
**By George Yacik**

NEW-GeorgeY***Think origination fraud has gone away just because the mortgage bubble has burst and loan volume has dropped sharply? Think again. According to Interthinx, the National Mortgage Fraud Risk Index rose to 159 in the fourth quarter of 2012. That’s up 16% from just the previous quarter and 9% from a year earlier.

****“The index has been trending up since the beginning of 2012, and is now at the highest level observed since the inception of this report in Q2 2009,” Interthinx says. The latest jump was primarily driven by a 25% increase in property valuation fraud risk. But employment and income fraud was up 7%, reversing declines over the past two quarters and pushing it to its highest level in a year.

****“You have to ask yourself, how is this possible?” says Brent Chandler, founder & chief executive officer of FormFree Holdings Corp. in Johns Creek, GA. He says there’s a larger number of fraud cases today relative to the size of the market than there was during the bubble years, when mortgage fraud was rampant. “Fraud is actually on the rise.”

****A big part of the reason, Chandler says, is that despite all the talk about mortgage automation and new technology tools, a good part of the mortgage origination process is still paper-based, which makes it a lot easier to commit fraud.

****To a large degree, lenders still rely on paper bank and wage statements supplied by loan applicants, and there’s a lot of fraud that gets through the process that isn’t checked until closing or even post-closing, when it’s too late.

****The fraudster’s main tools? Everything from WiteOut to Photoshop, which can be used to doctor income and asset reports and bank statements.

****The internet has also made it much easier to commit income and asset fraud. “There’s so much access to applications on the internet that allow you to create false information. You can get online and create your own W2,” says Becky Walzak, president of Walzak Consulting in Deerfield Beach, FL. The “old-fashioned kind of fraud where you forge origination documents, income and assets” are still very common, she says.

****The fix, Chandler says, is not to rely on borrower-or lender-supplied information at all but to get it directly from the source, meaning employers and financial institutions who hold the applicant’s deposits and assets.

****Chandler’s firm does automated verification of deposit reports. FormFree confirms with the depository institution itself whether the borrower really does have the amount of money he or she says she does, and when and how it got there. It is 100% digital and real-time.

****“Verified digital data directly from the source is the best defense against fraud,” Chandler says. “If you can get data direct from the source, such as an employer or a bank, you can virtually disintermediate fraud from both the borrower and an insider.”

****“Unless you can go direct to the source, to the financial institution, and verify and certify the ownership of that account, I think you’re always going to have fraud,” he says.

****“I don’t think fraud is ever going to go away,” adds Walzer. “There’s too much money to be made in the mortgage area.”

****But that doesn’t mean you can’t do something about it to protect yourself.

High-Powered Executive Switches Companies

*High-Powered Executive Switches Companies*
**Coop Joins ServiceLink**

***We see a lot of executives coming back to the space and changing companies all the time. We at PROGRESS in Lending try to keep you in the know. Today we learned that the former head of Interthinx, Kevin Coop has joined ServiceLink as Executive Vice President of Enterprise Strategy. Here’s the story:

****In his role, Coop coordinates overall business development for ServiceLink’s originations and default sales teams, marketing group and product development strategy team. He also manages the continued development and execution of the enterprise growth strategy for ServiceLink’s top accounts, while growing the emerging market segment and strategy. Additionally, Coop oversees the strategic marketing vision, including profit center messaging and the integration of all solutions and branding, and will be working closely on inorganic strategic growth opportunities.

****“Having watched the growth and strategy of ServiceLink for many years it has become apparent that they are positioned for hyper-growth under the leadership of Chris Azur,” said Coop. “As I came to know Chris on a personal level it was even more compelling that I join his team in this endeavor and I look forward to assisting in this effort. He has built a tremendous team that I am proud to join.”

****An expert on business technology, Coop has more than two decades of operational and sales experience, and has produced growth across the financial services, real estate, mortgage, health care and predictive data analytic industries. Most recently, Coop served as President and CEO of Interthinx, where he was responsible for the entire general operational management and sales and the identification of strategy, acquisitions and integrations. Prior to Interthinx, Coop was President and CEO at Sysdome, a leading provider of fraud-management technology, where he coordinated the merger with AppIntelligence.

National Fraud Levels Decline, But Not In Florida

*National Fraud Level Declines, But Not In Florida*
**Interthinx Releases Report**

***Interthinx has released its quarterly Mortgage Fraud Risk Report covering data collected in the third quarter of 2012. According to the most recent analysis, overall risk nationwide has decreased by nearly 8 percent to the lowest value observed in the past two years. However, significantly increased levels of fraud risk in Florida pushed it past Nevada and into the top spot for overall fraud risk.

****Florida also appears on three of the four type-specific top 10 riskiest lists this quarter. Of particular concern is the finding that in Florida, investment purchases have more than three times the level of employment/income fraud risk than purchases for primary residences.

****Other notable findings include:

****>> Florida and Nevada are the two riskiest states with Interthinx Mortgage Fraud Risk Index values of 206 and 205, respectively. Currently, Florida has 17 metropolitan statistical areas (MSAs) classified as “very high risk.”

****>> Arizona is the third riskiest state for mortgage fraud, with a risk index value of 191.

****>> California, which is the fifth riskiest state in the country, has six of the top 10 riskiest metros, including Merced — the riskiest metro in the nation. California also has one of the 10 riskiest MSAs for identity fraud, three of the 10 riskiest MSAs for occupancy fraud, five of the 10 riskiest MSAs for property valuation fraud, and eight of the 10 riskiest MSAs for employment/income fraud.

****>> Iowa City, Iowa, leads the nation in identity fraud risk with an identity fraud risk index of 325, a 118.4 percent increase from the second quarter of 2012.

****>> Miami-Fort Lauderdale-Pompano Beach, Florida, appears on all of the type-specific top 10 riskiest lists except employment/income.

****“The report shows that even when overall fraud risk is decreasing nationwide, there are still areas of concern, as we see with this quarter’s findings in Florida,” stated Mike Zwerner, senior vice president of Interthinx. “The report’s actionable intelligence helps lenders pinpoint where additional due diligence may be needed, improves loan quality, reduces repurchase risk, and ultimately helps the economy recover.”

****The Mortgage Fraud Risk Report is an Interthinx information product created by an internal team of fraud experts. This is the fourteenth time Interthinx has released its quarterly report. The report provides deeper insight into current fraud trends through the analysis of more than 12 million loan applications amassed from the industry’s use of the Interthinx FraudGUARD loan-level fraud detection tool.

A New Take On Servicing QC

*A New Take On Servicing QC*
**By Tony Garritano**

***Let’s face it, servicers are under the microscope. They need to be very careful. Quality control isn’t just a function of originating a loan anymore. To this end Interthinx and DecisionReady have formed an alliance to offer comprehensive quality control and quality assurance programs to the servicing industry. Here’s how it all works:

****With mortgage servicers facing increasing scrutiny of their default management procedures and the upcoming Consumer Financial Protection Bureau (CFPB) enforcement, servicers will need to increase their diligence in assessing and monitoring policy and regulatory compliance.

****Interthinx and Decision Ready Solutions have joined forces to bring a comprehensive quality control and forensic loan review program to the market. The collaboration will offer a compliance oversight program framework that will help servicers monitor process execution and compliance along the complete end-to-end default timeline.

****This latest addition to the Interthinx product suite addresses the need for more stringent default servicing and foreclosure process governance, a weakness cited by federal regulators in the Interagency Review of Foreclosure Policies and Practices, the multistate settlement, and the upcoming CFPB enforcement.

****“Prior to Decision Ready, the emphasis in default servicing had been on document and timeline-based compliance. There was no systematic way of ensuring that servicing associates had followed the right procedures and policies,” says Claudia Sanchez, chief information officer for Decision Ready. Ravi Ramanathan, chief executive officer for Decision Ready, adds, “Our focus on assisting servicers over the past couple of years to better manage enterprise risk aligns well with the Interthinx vision and track record in creating innovative risk management solutions by leveraging their data, analytics, and seasoned review team.”

****“Today’s mortgage servicers are required to conduct ongoing evaluations of internal processes using objective process review and quantify results via score cards. The newly launched Servicing QC offering allows servicers to review operational activity and objectively score the process on accuracy and policy conformance,” says Kevin Coop, president of Interthinx. “It also helps servicers make process adjustments based on real findings rather than relying on a subjective process.”

You Have To Be Prepared To Comply

*You Have To Be Prepared To Comply*
**By Tony Garritano**

***Preparation is everything. Obviously this was lost on our President last night as he just seemed out of place in his first debate in four years. Oh well, we’ve got two more debates to go for him to bone up on his facts and retorts. Similarly, lenders have to bone up on compliance. To this end, companies like Interthinx are trying to support lenders by joining forces with MRG Document Technologies group at Middleberg Riddle & Gianna, one of America’s preeminent mortgage banking law firms, to offer an attorney-backed compliance service aimed at helping financial institutions meet new legal and regulatory compliance requirements. Here’s what they’re up to:

****“In this new environment, lenders are faced with increased compliance demands with less margin for error. Most originators do not have sufficient in-house staff or expertise to address these issues,” noted Roger Fendelman, vice president of compliance for Interthinx.

****Attorney-backed compliance provides independent file reviews and expert loan file analysis to help protect mortgage lenders from common compliance mistakes. This service combines technology with expert reviews performed by Interthinx mortgage compliance specialists and the experts at MRG Document Technologies. Interthinx offers a nationally recognized staff that includes compliance attorneys, certified fraud examiners, certified mortgage bankers, and certified review appraisers. Middleberg Riddle & Gianna and its practice group, MRG Document Technologies, combine a single collaborative unit of top-flight attorneys with extensive experience focused on delivering document solutions that represent best practices for mortgage document preparation. Together, the two firms can provide detailed compliance reviews without the need for system integration.

****“We understand the increased pressure on lenders to be fully compliant with the ever-changing legal and regulatory requirements,” said Michael L. Riddle, managing partner of Middleberg Riddle & Gianna. “That’s why we established this service with Interthinx to provide content analysis for lenders.”

Stay Ahead Of The Fraud Curve

*Stay Ahead Of The Fraud Curve*
**By Tony Garritano**

***Mortgage fraudsters are always evolving. As a result, lenders need to stay on their toes. To this end, Interthinx has announced October 8, 2012, as the “go live” date for FraudGUARD Evolution, advanced technology enhancements to FraudGUARD designed to increase operational speed, further workflow efficiency, and improve usability for mortgage lenders and investors. Here’s why this matters to lenders:

****With FraudGUARD Evolution, customers have access to the new dashboard and an enhanced alert model that categorizes and consolidates variances, allowing clients to identify the primary risk of a mortgage loan quickly and accurately. The new technology, which significantly affects user-experience by vastly improving review times, is now available for demonstration. Interthinx is taking appointments for the Mortgage Bankers Association’s 99th Annual Convention & Expo scheduled for October 21 through October 24 at the Hyatt Regency in Chicago, Illinois.

****“Lenders today feel a pressing need not only to integrate automated risk management systems but also to ensure that the systems prove to be robust, efficient, and easily navigable for the end user,” said Jim Portner, vice president of product for origination solutions at Interthinx. “A deficiency in any of these components can leave lenders and investors nonproficient and, worse yet, vulnerable. The FraudGUARD Evolution release complements the comprehensive Interthinx system by delivering features designed to eliminate redundancy; reduce loan underwriting time; and recognize borrower, participant, and property valuation risk swiftly.”

****FraudGUARD is a customizable, automated web-based tool that identifies risk and potential fraud in mortgage loans by using public, private, and proprietary data sources. It enables prefunding file review of borrower, collateral, and third-party information to help lenders clearly identify problematic loans and remain compliant. Emulating the most current fraud tactics based on massive Interthinx investigations and quality control reviews, specific models and search algorithms are quickly deployed to identify patterns and commonalities across extensive data sets to fill information gaps and update FraudGUARD scoring systems. Guidance and direct input from mortgage fraud experts with more than 350 years of combined experience are woven into the learned-behavior technology. FraudGUARD increases operational efficiencies and time savings through process and workflow automation, data aggregation, and risk analysis.

Loss Forecasting

*Loss Forecasting*
**By Tony Garritano**

***Looking to meet tighter loss forecasting and stress testing requirements with a sound, transparent, and proven methodology? One vendor is making this easier. Interthinx has launched TrueOutlook, a portfolio forecasting and stress testing tool that enables financial institutions to predict to what extent the quality of underwriting, age of loans, and economic impacts will affect future losses. Here’s how it works:

****TrueOutlook allows for the forecasting and stress testing of portfolios against different originations strategies and economic factors to show lenders what percentage of risk is within their control and what is not. With TrueOutlook, small to midtier banks and credit unions can leverage technology previously available only to large global financial entities. TrueOutlook uses Dual-time Dynamics, the patented forecasting technology of the Interthinx LookAhead and TrueCapital products, which has proven accurate through more than 15 years of global economic change.

****“TrueOutlook makes sophisticated scenario-based forecasting and stress testing available to a much larger group of lenders across the United States,” stated Michael Smith, chief technology officer and chief architect at Interthinx. “It’s a comprehensive, cost-effective service that can be used for all U.S. consumer retail portfolios, such as auto loans, credit cards, home equity loans, and personal or small business loans. TrueOutlook is designed to meet the needs of organizations with limited internal resources and staffing. The tool enables customers to benefit from industry benchmarking and more accurate forecasting models that stress-test portfolios under different economic scenarios in line with regulatory guidance from the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).”

Fraud Risk In The U.S. Goes Up

*Fraud Risk In The U.S. Goes Up*
**New Research Released**

***Interthinx has released its quarterly Mortgage Fraud Risk Report covering data collected in the second quarter of 2012. According to the most recent analysis, overall risk resumed its upward climb after a one-quarter pause, with the Index value rising nearly 7 percent to 149 (n = 100). The change was primarily driven by the recent inclusion of 91 metropolitan statistical areas (MSAs) that moved into the “very high risk” category. That includes Chattanooga, Tennessee, which — with a quarter-on-quarter increase of more than 30 percent in its Index value — is currently the riskiest MSA in the country. In addition, Georgia has joined the top five states for overall mortgage fraud risk for the first time since the report started in second-quarter 2009. Other notable findings include:

****>> The New York City MSA continued its precipitous rise in the rankings, climbing to sixth place in the current quarter from seventeenth place just six months ago. In addition, five New York City area ZIP codes — including three in Brooklyn — are now among the top ten riskiest ZIPs in the nation.

****>> Nevada and Arizona remain the two riskiest states despite experiencing a small decrease in overall fraud risk over last quarter. Nevada’s Index value is currently 208, and Arizona’s is at 206. The MSAs for Las Vegas-Paradise, Nevada, and Phoenix-Mesa-Scottsdale, Arizona, are notably absent from the list for the first time since fourth-quarter 2009.

****>> Florida remained the third riskiest state, with a Fraud Risk Index value of 199. Contributing to Florida’s ranking is its dominance of the overall and type-specific top ten lists: Miami-Fort Lauderdale-Pompano Beach, Cape Coral-Fort Meyers, and Port St. Lucie for overall risk at the MSA level; two of the riskiest MSAs for Property Valuation and one for Occupancy Fraud; and four of the riskiest ZIP codes.

****>> For the first time since the inception of this report in second-quarter 2009, California is not in the top five and is replaced by Georgia. Despite California’s overall decline in fraud risk, its metros are well represented in all the top ten lists, taking nine of the top ten spots for Employment/Income Fraud Risk. The San Jose-Sunnyvale-Santa Clara MSA was the riskiest metro for Identity Fraud Risk with an Index value of 280 — 20 percent higher than its nearest rival.

****>> Fraud risk for condominiums differs from that of single-family homes. In particular, condos are more at risk for Employment/Income and Identity Fraud Risk but less at risk for Property Valuation Fraud Risk. Geographically, the difference in risk between census divisions varies as well, with condos presenting less risk in the East North Central, Middle Atlantic, and New England divisions and having more risk in the West North Central Division.

Fraud Detection Vendor Gets Security Seal

*Fraud Detection Vendor Gets Security Seal*
**By Tony Garritano**

***Do you want to end up in the papers having not secured your customer’s sensitive information? Of course not. That’s where technology comes in. For example, Interthinx has earned a National Institute of Standards and Technology (NIST) certification recommendation from SecureInfo for two of its automated products for the residential mortgage markets. Here’s what happened here:

****SecureInfo subjected both FraudGUARD and PredProtect to extensive review to determine that the products meet the stringent security requirements of the NIST. As part of its standard procedure, SecureInfo conducted interviews, examinations, tests, and vulnerability scan analyses to evaluate 115 NIST SP 800-53, Revision 3 controls and control enhancements.

****Mike Smith, chief technology officer and chief architect for Interthinx, stated, “We are particularly pleased that as an independent third party serving as an Agent of the Certification Authority, SecureInfo recommended that both FraudGUARD and PredProtect be issued an Authorization to Operate.”

****“Interthinx takes great pride in its security measures and stands ready to work with government agencies to help mitigate risks through improved data integrity and compliance,” said Kevin Coop, president of Interthinx.

****Interthinx, a Verisk Analytics subsidiary, is a national provider of risk mitigation solutions focusing on mortgage fraud, collateral risk and valuation, regulatory compliance, forensic loan audit services, loss mitigation, and loss forecasting. Interthinx offers predictive analytics to the residential mortgage industry.