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Mortgage Payoff Statements Becoming Gateways To Fraud

Fraud perpetrators are increasingly initiating wire fraud scams by targeting the industry practice of emailing or faxing payoff requests to title and escrow companies, according to a new white paper from CertifID.  As a result, the company is observing a breathtaking increase in the use of “spoofed” mortgage payoffs and fraudulent payoff statements to pull off wire fraud schemes.


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This disturbing trend is analyzed in Mortgage Payoffs Under Siege, a free, online white paper published by CertifID CEO/Co-Founder Thomas Cronkright, author of multiple reports on the burgeoning wire fraud trend. According to the white paper, over $1 trillion in mortgages are paid off each year; with most done so by wire. Traditional mortgage wire fraud scams usually began with a fraudster deceiving a buyer or key party to the transaction into believing that imposter was a key party to the transaction (such as the seller); then changing already established wiring instructions (with the funds then being diverted to the scammer).  Now, fraudsters are deceiving title companies by issuing counterfeit mortgage payoffs and wire instructions from the start.


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“Fraudsters now understand that it’s not that hard to ‘spoof’ or imitate an authentic payoff statement—and that statement is the ultimate authority for title or escrow companies awaiting official wire instructions,” said Cronkright.  “As a result, the agent’s guard is down and, once the fraudulent payoff statements are received by fax or email, the funds are quickly and mistakenly wired directly to the criminals.”


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Cronkright notes that this new wrinkle directly attacks the conventional best practice which marks any change to wiring instructions as a red flag. “Now, the fraudulent directions are often the first instructions the escrow or title agent even sees.”

The white paper describes five emerging examples of payoff fraud, including how the schemes work and what title and lending professionals can do to identify and prevent them.

The white paper can be downloaded at no cost at https://certifid.com/white-paper-payoff-fraud/.

About The Author

Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

New Integration Seeks To Stop Fraud And Enhance Risk Mitigation

PathSoftware, a loan origination software (LOS) from CalyxSoftware, has integrated with First American Mortgage Solutions’ FraudGuard, a data-driven decision-support tool that increases the speed and accuracy of application reviews to help mitigate risk and improve loan quality. The tool leverages advanced analytics, reporting, defect trending and audit trails, drawing on public, private and proprietary data sources garnered from over 28 million reviewed loans.

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The DirectConnect integration enables PathSoftware users to seamlessly access FraudGuard without having to leave the LOS and run automated decision support services that provide critical data insights. This helps residential lenders, including credit unions, streamline operations and become more efficient through process and workflow automation, data aggregation and risk analysis. In addition, it gives lenders the confidence that they are originating compliant loans, which in turn allows them to provide homebuyers with a quicker loan approval and a better consumer experience.

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“We’re thrilled to be the first risk mitigation provider to integrate with the PathSoftware LOS,” said Kevin Wall, President of First American Mortgage Solutions. “FraudGuard is designed to improve loan quality, and the more we can do to give lenders the convenience and confidence to quickly produce higher quality loans, the better the experience and outcome for everyone, including consumers.”

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“In today’s highly regulated mortgage environment, lenders need to prove they’re originating loans to the highest quality standards,” said Bob Dougherty, Vice President of Business Development at PathSoftware. “Our integration with First American Mortgage Solutions’ FraudGuard will help lenders identify potential fraud risk in mortgage applications, giving them the confidence that they’re complying with regulations.”

Integration Seeks To Increase Loan Quality

First American Mortgage Solutions, LLC, a subsidiary of First American Financial Corporation (FAF) and provider of lender and servicer solutions that cover the entire loan spectrum, completed its integration with LoanLogics, a provider of loan quality management and performance analytics. The integration provides users of LoanLogics’ LoanHD platform with streamlined access to FraudGuard, First American’s data-driven decision-support tool that helps lenders comply with regulations, improve the speed and efficiency of application reviews, and increase loan quality.

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The LoanHD platform, LoanLogics’ flagship loan quality management technology, offers real-time loan quality reporting and best practice audit workflows. From within the LoanHD platform, users can now order FraudGuard services directly from the AppQ Network vendor management portal, which provides lenders with easy access to an entire ecosystem of third-party services that create efficiency and reduce errors in the audit lifecycle.

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“LoanLogics is committed to ensuring our clients have the tools they need, when they need them,” said Craig Riddell, senior vice president and chief business officer for LoanLogics. “By continually expanding our LoanHD network with the addition of best-of-breed solutions like FraudGuard, we’re helping our clients drive toward zero defects, improve their loan manufacturing process and reduce cost, while increasing the efficiency of audit reviews through technology and automation.

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FraudGuard is First American’s comprehensive decision-support tool that helps lenders originate compliant, defect-free loans using a combination of superior data, pattern-matching analytics and industry experience garnered from over 28 million reviewed loans. The next-generation data validation tool draws on public, private and proprietary data sources to deliver analytics that help lenders mitigate risk and accelerate the loan application review process.

“FraudGuard’s unparalleled data assets make it a stand-out among loan quality management tools,” said Kevin Wall, president of First American Mortgage Solutions. “We’re pleased to bring LoanLogics users on-demand access to the critical data insights and automated decision-support services they need to originate high-quality loans with confidence.”

Mortgage Fraud Trends

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CoreLogic released its latest Mortgage Fraud Report. As of the end of the second quarter of 2016, the report shows a 3.9 percent year-over-year increase in fraud risk, as measured by the CoreLogic Mortgage Application Fraud Risk Index.

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The analysis found that during the second quarter of 2016, an estimated 12,718 mortgage applications, or 0.70 percent of all mortgage applications, contained indications of fraud, as compared with the reported 12,814, or 0.67 percent in the second quarter of 2015.

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The CoreLogic Mortgage Fraud Report analyzes the collective level of loan application fraud risk the mortgage industry is experiencing each quarter. CoreLogic develops the index based on residential mortgage loan applications processed by CoreLogic LoanSafe Fraud Manager, a predictive scoring technology. The report includes detailed data for six fraud type indicators that complement the national index: identity, income, occupancy, property, transaction, and undisclosed real estate debt.

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“Mortgage application fraud risk will likely rise over the next few years if current trends of higher LTV purchases and increased credit availability continue,” said Bridget Berg, senior director, Fraud Solutions Strategy for CoreLogic. “Because post-fund quality control findings are biased to specific types of fraud that are easy to detect shortly after closing, lenders should not rely only on those results to measure fraud risk.”

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CoreLogic: Fraud Risk Is Rising

Data from CoreLogic shows a 3.9 percent year-over-year increase in fraud risk, as measured by the CoreLogic Mortgage Application Fraud Risk Index.

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The analysis found that during the second quarter of 2016, an estimated 12,718 mortgage applications, or 0.70 percent of all mortgage applications, contained indications of fraud, as compared with the reported 12,814, or 0.67 percent in the second quarter of 2015.

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The CoreLogic Mortgage Fraud Report analyzes the collective level of loan application fraud risk the mortgage industry is experiencing each quarter. CoreLogic develops the index based on residential mortgage loan applications processed by CoreLogic LoanSafe Fraud Manager, a predictive scoring technology. The report includes detailed data for six fraud type indicators that complement the national index: identity, income, occupancy, property, transaction, and undisclosed real estate debt.

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“Mortgage application fraud risk will likely rise over the next few years if current trends of higher LTV purchases and increased credit availability continue,” said Bridget Berg, senior director, Fraud Solutions Strategy for CoreLogic. “Because post-fund quality control findings are biased to specific types of fraud that are easy to detect shortly after closing, lenders should not rely only on those results to measure fraud risk.”

About The Author

Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Fraud Is On The Rise

According to the Mortgage Fraud Report put out by CoreLogic, as of the end of the second quarter of 2014, the report shows a 3.2 percent year-over-year increase in fraud risk, as measured by the Mortgage Application Fraud Risk Index, and estimates that applications representing approximately $3.3 billion in mortgage debt contained elements of fraud or serious misrepresentations in the second quarter of 2014. For the twelve months ending the second quarter 2014, the report estimates the total value of applications with fraud or serious misrepresentations at $19.8 billion.

The analysis found that during the second quarter of 2014, approximately 11,100 mortgage applications, or 0.69 percent of all mortgage applications, contained elements of fraud, as compared with 19,700 or 0.67 percent in the second quarter of 2013, when the total application volume was substantially higher.

The CoreLogic Mortgage Fraud Report analyzes the collective level of loan application fraud risk throughout the mortgage industry. The CoreLogic Mortgage Application Fraud Risk Index is based on residential mortgage loan applications processed by CoreLogic LoanSafe Fraud Manager which includes a predictive fraud scoring technology. The report includes detailed data for six application fraud type indices that complement the national index: employment, identity, income, occupancy, property and undisclosed debt.

Among the highlights of the report:

>> Nationally, Florida experienced the highest year-over-year growth in mortgage application fraud risk; Arizona experienced the largest decline.

>> Of the six components in the CoreLogic Mortgage Application Fraud Type Indexes, property fraud risk had the largest year-over-year percentage increase at 3.3 percent; undisclosed debt risk showed the largest year-over-year decline at 22.7 percent.

>> As has been the case for the past four years, jumbo mortgages have exhibited the highest fraud risk, followed by low-down payment mortgages.

The year over year differences are likely driven to some extent by changes to market conditions including:

>> New government programs—notably the “ability to repay” rules that went into effect last January—that have placed additional scrutiny on debt and irregular income such as bonuses and rental payments;

>> Over 3.2 million additional single-family properties added to the rental market since 2006, increasing both the potential for occupancy fraud as well as the number of consumers showing rental income and multiple mortgages.

>> Deferred maintenance for some properties and rapid appreciation for others leading to large discrepancies in value among nearby properties, increasing opportunities for incorrect valuation and fraud-for-profit schemes. This was most often the case in judicial foreclosure states and high vacancy areas.

“Increasing home values have improved home equity, enabling many homeowners with previously marginal equity to purchase a different property, refinance, or obtain a cash-out home equity loan or HELOC,” said Michael Bradley, Ph.D., senior vice president of Analytics at CoreLogic. “Also, job creation, as well as the aging of negative credit report records from the beginning of the recession, have increased the number of consumers able to qualify for mortgages. Finally, more institutions are beginning to rely on advanced analytics to relax credit overlays and expand the credit envelope. All of these trends have expanded access to mortgage credit modestly with only a slight increase in fraud risk, as the CoreLogic Mortgage Fraud Report indicates.”

The Drivers Of “E”

X + Y = ‘e’

The above equation can be confusing; I struggled with math. I attribute part of the problem to the guy who sat next to me in math class during high school. Had he applied himself more I would have done better. However this isn’t about math.

The audience is all ready engaged and will require the shortest learning curve, while being the  quickest to adapt. The X and Y generation are the people that will to force the ‘e’ solution. They are tech savay, multitask endlessly, pay their bills electronically, have documents stored in the cloud and don’t do paper. The current generation is of age and wants stuff pushed to their Smartphone or tablet. They will execute their loan documents at 11:30 pm on Sunday. ‘e’ –  Really.

Audience and Fraud are the two largest drivers that will compel the industry to move to ‘e’ quickly. The provider who implements smoothest ride to ‘e’ will win. Technology is the vehicle which enables lenders to remain competitive and differeniate from their peers. Lenders will naturally gravitate to the providers making it easiest to do business for them and their borrowers. Those providers who deliver the best solution; stable, secure and easy will be in a strong position when it comes to market share.

Technology

The mortgage and mortgage technology industry has never been willing to truly address the process and technology investment to fully move to ‘e’. There have been gallant attempts by various players to provide a solution, but when the rubber meets the road; roadblocks allowed for a minimalist solution. Counties won’t accept electronic documents, lack of an e-notary, non-acceptance by investors, HUD or the IRS, security; cost to implement, the list goes on. The roadblocks are down, all the reasons the industry has had about investing in ‘e’ are gone. E-Sign Act is law, 4506T has been accepted, lenders accept it, the GSE’s accept it, 1,096 counties currently accept ‘e’ representing over 65% of total transactions, e-notary is live and supported. Technology exists today to support all, but it is not convenient, efficient or friendly.

The pieces are in place for an end to end ‘e’ delivery. New solutions that tightly integrate process provides low hanging fruit for those companies that recognize opportunity. It is not inconceiveable those solutions can be delivered from technologists not in or fringe players in the industry today. These companies are not hampered with, ‘what is, or what was’, engrained process. They look through the glass with the design to introduce a totally new, comfortable, friendly experience. It is easy to imagine and not difficult to implement. Efficient data aggregators, outside of the traditional industry will recognize the opportunity and capitalize on it.

Nontraditional technology vendors have a clean slate on which to start. They are not saddled with legacy baggage. Regardless of the industry they invent, or recreate, they have the culture to obsolete existing ideas quickly. They have shown the willingness to spend big money to enhance earnings and market share. An ‘e’ document and digital signing offering, with high transaction volume and steady reoccurring revenue is attractive to any company that is willing to buy the ticket and take the ride.

The prospect of companies more effiecient in data aggregation, storage and mining, which already have tremendous stores of personal and property information moving into an ‘e’ vertical integrated with a lender shouldn’t be discounted. There isn’t any need to develop an application to manage loan origination. Data feeds throughout the process could interface with many existing origination systems real time. The complexity that state, federal and investor regulations bring as it applies to document availability, validating calculations, notification and presentment, can be solved easily with the acquisition of a document services company.

All of the roadblocks to a succesful ‘e’ process have been removed, with the exception of a well defined end to end solution. The solution needs to be a seamless; not cobbled together with disparate technologies, (loan origination system, document service, notary, title & closing agent system). It needs to be complete, functional, conveinent, user friendly.

Introduction of technology which provides a well choreagraphed, secure, easy to use solution for both the lender and borrower is the last barrier to gaining acceptance, thereby distinquishing lenders above others and establishing that competitive edge. When these standards are met acceptance is broader and confidence in the process is stronger. The question is will the road be paved by the existing mortgage technology providers or will they become speed bumps, as other non traditional providers develop a better solution.

About The Author

[author_bio]

Alan Harris is the founder of IRIS Corporation and is a designated Certified Mortgage Banker, (CMB), with 25+ years’ experience in the real estate finance industry. He started in loan origination, servicing operations and system administration. Subsequently moving to Change Management, Process Re-engineering, System Integration and ‘e’ Implementation. Alan has ‘backend’ and/or User Interface ‘hands-on’ experience with the many Loan Origination and leading Servicing systems, managing integration or implementation of those platforms.

An Innovator Stands Out

Innovation should be valued, recognized and encouraged. Our industry needs more innovation. So, when innovation does happen, we at PROGRESS in Lending are quick to tell you about it. In this case, The U.S. Patent & Trademark Office (PTO) issued Atlanta, GA-based FormFree Holdings Corporation U.S. patent #8,762,243 for AccountChek, an automated asset verification system for the lending industry. By using FormFree’s patented AccountChek system, lenders and consumers can instantly authorize and share critical borrower information essential for closing loans on any device.

This patent formally acknowledges FormFree’s proprietary process for electronic certification of financial account data and protects the revolutionary technology used in AccountChek. FormFree’s flagship asset verification solution helps lenders of all sizes eliminate fraud while removing the need for borrowers to supply paper bank statements to receive a mortgage or other type of loan.

In collaboration with leading lenders and government sponsored enterprises such as Fannie Mae and Freddie Mac, AccountChek collects data directly from virtually any financial institution and generates reports in just minutes, creating enormous time savings for both the borrower and the lender. By avoiding paper bank statements and using only the highest industry security standards, AccountChek helps lenders eliminate fraud, significantly reduces buyback costs, and makes it easy for lenders to comply with new “ability-to-pay” rules.

Brent Chandler, CEO of FormFree, stated, “The lending industry has shifted dramatically since the 2008 financial crisis.  In the last six months alone, we have witnessed some of the most significant new regulations the financial services industry has ever seen. As a result, the move towards digital lending is unstoppable. AccountChek helps lenders meet new federal regulations that require them to use stronger borrower verification processes in the hopes of avoiding another crisis. The patent further validates and protects AccountChek as we approach widespread adoption and industry acceptance.”

Recently, FormFree was the recipient of Mortgage Technology magazine’s “Fix-It” Award, and was a category winner in HousingWire magazine’s 2014 HW TECH100 list of the most innovative technology companies in the housing industry. FormFree was also named a top innovation by the PROGRESS in Lending Association for transforming the method of verifying a borrower’s assets into a paperless process.

About The Author

[author_bio]

Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

The Drivers Of Automation

I want to continue our conversation from last month and discuss the true drivers of automation in the mortgage space today. First, we have the issue of fraud.

Data is the driver behind each real estate finance transaction. Looking at a purchase transaction. Nearly 70% of the data elements populated on the Universial Residential Loan Application (Form 1003) are collected either when the property is listed for sale or when the purchase and sales agreement is executed. In a purchase transaction the data between those data sources need to be combined and transferred to the lenders origination system electronically. Obviously a refinance tranasaction is working with a more abbreviated data set, but the utility and process are the same.

The real estate finance industry has compiled a comprehensive data dictionary with the development and revision of the MISMO data set. This standard is the vehicle to share and transfer common data elements through out the loan process. Unfortunately the standardization of data elements and attributes is not currently available from the multitude of listing services used by the real estate industry. In a perfect world the data elements in a purchase transaction would be directed from the Realtor® to the lender, eliminating rekeying of the data into a website or the loan origination system. The present process of delivering a paper copy, minus the listing data to the lender, generates friction in the transaction and potentially opens a window for fraud. Everyone acknowledges best practice moving data electronically is faster, more efficent and elements errors.

Traditional data delivery does not look beyond their own vertical silo. The real estate finance and real estate industries understand the benefits of communication and collaboration to close a transaction. However, they are reading from two different books. Both of these industries continue down the same process happy path that has worked the last forty plus years. This is expensive, inefficent, inaccurate and easy to fraud. The fork in the road of traditional data aggregation and management is coming, and while the players may not surprise you, they likely won’t be your traditional technology solution providers.

Touch points need to be reduced to improve data integrity, speed up delivery and drive down the cost of the process. In essence much of the groundwork is done, the data set needs to be more robust and delivered in a standard format (MISMO), providing accurate, verifiable and auditable data file.

This data set follows the life cycle of the loan rendering, (view) when needed, in the appropriate document. Once the data is compiled it can be parsed to render the appropriate data fields for the particular document in a browser. Indeed the basic premise of the SMART doc®  is data that appears in a browser as it would if you were completing a paper document. Changes to the data are date & time stamped, tracked and logged in a history file. As the transaction moves through the process certain fields become locked, and  once the loan is eSigned and closed the transaction is then securely locked down and wrapped with a tamper evident seal to prevent further changes.

Funding generates the data file necessary to deliver the collateral to the investor, at a minimum the e-Note. Since nothing is printed to paper it can’t be altered or lost. Based on the users credentials anyone who is authorized  to view any part of the transaction renders the document in a secure browser.

About The Author

[author_bio]

Alan Harris is the founder of IRIS Corporation and is a designated Certified Mortgage Banker, (CMB), with 25+ years’ experience in the real estate finance industry. He started in loan origination, servicing operations and system administration. Subsequently moving to Change Management, Process Re-engineering, System Integration and ‘e’ Implementation. Alan has ‘backend’ and/or User Interface ‘hands-on’ experience with the many Loan Origination and leading Servicing systems, managing integration or implementation of those platforms.

Executive Spotlight: Brent Chandler of FormFree Holdings Corp.

Brent-ChandlerIt often seems that mortgage fraud is just like the weather – everyone talks about it, but no one seems to be able to fix it. This week, we explore the thorny subject of mortgage fraud with a leading expert on the topic: Brent Chandler, founder and CEO of Athens, Ga.-based FormFree Holdings Corp.

Q: In your opinion, how successfully is the industry addressing fraud prevention today? And are there areas where improvement is needed?

Brent Chandler: The industry is very aware of fraud and is working actively to remove it, but there is always room for improvement. Any part of the loan application process that still relies on the exchange of paper and manual processes is at the highest risk for tampering and the falsification of data. Thankfully, technologies have been emerging to automate a lot of the data collection. To the extent that you can remove people and paper from the lending process, you can mitigate fraud.

Q: What do you see as the most common fraud schemes going on today?

Brent Chandler: We still see a lot of origination fraud being perpetrated by borrowers. Lenders tell us that they receive between three to five fake bank statements on applications a day, and those are only the ones that they catch. The actual number could be much higher on applications in which the borrower’s income, assets and employment are being verified through paper manual processes.

Other common fraud schemes involve the inflation of assets through large deposits made into the borrower’s bank account in order to qualify for the loan; the use of mule accounts; and falsely inflating the price of the home. These are all schemes that are extremely hard to catch when lenders rely on paper documents—and many lenders still do.

Q: How has the migration to paperless transactions helped or hindered the efforts of fraudsters?

Brent Chandler: All paperless transactions are not created equal. If the borrower is simply providing an upload, scan, digital picture or even a PDF of their statements to the lender, the fact remains it is still coming from the borrower, and the borrower has an opportunity to edit these documents with something like Photoshop. There are many websites that offer tools to create fake bank statements (a simple Google search returns 1.6 million such sites) and there are easy ways to edit PDFs, too.

So just having a digital copy of something isn’t enough. To truly hinder fraudsters, you have to remove any opportunity for them to manipulate the data. That means getting the data directly from the source (such as the bank for bank statements, or the IRS for tax documents) and creating read-only views that get included as part of the loan file.

Q: The Inspector General of the Department of Justice recently issued a harsh report questioning the federal response to prosecuting mortgage fraud. Does this report surprise you?

Brent Chandler: In some ways, no. With upwards of 500 pages of information in each loan file, and multiple persons involved in every loan, it can be really hard to tell who tampered with information and at what point. The paper trail can be a real mess. I imagine that the time needed to investigate each case would be tremendous.

Do I think the FBI could be doing more? Absolutely. Will they actually move these investigations up in priority? Probably not. However, I am encouraged that the industry is focusing so much on fraud prevention, and not relying on discovery and prosecution after the loan goes bad.

Q: Can the industry ultimately ever get mortgage fraud stomped out?

Brent Chandler: I think it is unrealistic to think that you could prevent? all fraud in any industry. However, the more we automate systems and strive to get the highest quality of data possible directly from the source, the more we can limit the opportunity for tampering. We are introducing smarter systems that can learn to identify suspicious behaviors and suspect activity prior to loans being funded, which will definitely help reduce the level of fraud.

However, not all bad information in a loan file gets there by intentional tampering, but simply through human error. The more we rely on direct data sources and apply machine learning and?artificial intelligence to run calculations and conduct analysis, the more errors and fraud we can remove. I imagine in the coming years it will be harder and harder for fraudsters to overcome the advantages offered by these technology advancements.

FormFree Holdings Corp. is online at www.formfree.com.

Phil Hall has been (among other things) a United Nations-based radio journalist, the president of a public relations and marketing agency, a financial magazine editor, the author of six books and a horror movie actor. Also, as you will discover, he is not shy about stating his views.