Everything’s relative, or so the saying goes, and Calabasas, Calif.-based Interthinx is taking the expression literally, using a relational database to help lenders detect and prevent mortgage fraud.
“A half-million mortgage applications hit our system every month,” said Jeff Moyer, vice president, sales, for Interthinx, which provides fraud prevention and decision support tools for the mortgage industry. The company can compare the information in all those applications to help uncover fraud, Moyer said.
Read Inman News’ White Paper, “Inside Real Estate’s Fraud Crisis: Schemes that Hijack the American Dream.”
“Let’s suppose you apply for a loan from the Bank of America and go through a broker, and the broker says, ‘You don’t have enough income. Let’s change your income from $70,000 to $100,000 and submit an application somewhere else.’
But if we at Interthinx saw the first application, where the income was $70,000, we are going to say, ‘We saw that person two weeks ago and they made a lot less in wages then,'” Moyer said.
Residential real estate loan fraud is a national epidemic, costing communities nationwide an estimated $1 billion in 2005, compared to $429 million in 2004, according to the Federal Bureau of Investigation.
And mortgage fraud is likely to increase as the mortgage market shrinks, Moyer said, an opinion echoed by mortgage fraud insurance company the Prieston Group. One way to fight mortgage fraud is to use technology such as that offered by Interthinx.
Of course, “no tool is perfect,” in the words of Arthur Prieston, principal of the Prieston Group. When the group asked some 300 lenders how effective technology is in detecting mortgage fraud last year, 90 percent said they use one or more tools; 50 percent use them on 90 percent of their loans; and 80 percent say such tools reduce fraud less than 25 percent.
But technology can be of help in fraud detection, Prieston and other experts say, advocating a combination of employee training and technology as optimal.
Interthinx is active in the former of these two approaches as well as the latter. “We train the Mortgage Bankers Association, the Federal Bureau of Investigation, Fannie Mae, Freddie Mac and others in mortgage fraud detection,” Moyer said.
Fannie and Freddie also use the company’s products for fraud prevention, Moyer said. “We have about 1,100 lenders who rely on our products for prevention,” Moyer said.
Moyer said that brokers originate 80 percent of loans, and though most brokers are honest, “brokers are the primary source of fraud. There are a few bad apples out there,” Moyer said.
Because of the way the industry is structured, brokers often don’t work directly for lenders, and “the level of control is not there,” Moyer said. Interthinx offers a third party review product that reviews brokers, Moyer said.
“Countrywide has all their brokers reviewed by us twice a year. We approve them to send loans to Countrywide, and we make sure they aren’t on an industry watch list or convicted of fraud,” Moyer said.
This process is Interthinx’ second core competency. The company’s primary product is DISSCO, a mortgage fraud detection tool which “reviews all parties to the loan: borrower, broker, appraiser,” Moyer said. “It also verifies income and verifies the value of the property,” using an AVM, or automated valuation model. Also, he said, “we rule out loans against the Patriot Act government list of known or suspected terrorists.”
When DISSCO reviews a mortgage application, it flags problem loans, which generally comprise about 10 or 15 percent of the loans processed, according to Moyer. Any potential issues are identified and further action is suggested.
For example, the system checks applicant’s Social Security numbers. If the applicant’s name doesn’t show up on the trace, this is reported, and the system makes suggestions, such as “Verify that the Social Security number given in the application belongs to the borrower through a Social Security Administration Validation report or tax return verification.”
Just because a red flag is raised, Moyer said, doesn’t mean the loan is fraudulent.
“We don’t want to have every single underwriter looking at every data point,” Moyer said. “We’re not here to stop mortgage production. We are here to promote the funding of quality loans.”
Read Inman News’ White Paper, “Inside Real Estate’s Fraud Crisis: Schemes that Hijack the American Dream.”
***
Send tips or a Letter to the Editor to janis@inman.com or call (510) 658-9252, ext. 140.
