Analysts at a mortgage watchdog firm say they have uncovered more than 42,000 mortgage applications, totaling nearly $11 billion, containing significant misrepresentations of the borrowers’ income.
These applications were all originated and submitted for review in the last six months of 2007 by Interthinx, a provider of mortgage fraud detection products. Interthinx is owned by insurance and risk services provider, ISO.
“For the first time, the industry is getting a real-time look at the scope of mortgage fraud, and these numbers are staggering,” said Kevin Coop, president of Interthinx said at the Mortgage Bankers Association’s National Fraud Issues Conference . “Based on what we’ve seen over the past few years, these results confirm what we’ve been saying all along: fraud is the rotten core of the mortgage meltdown.”
The loans were discovered when Interthinx analysts determined that its FLEX (FraudNET Loan Exchange) program had generated 42,610 income alerts that warn clients that a borrower has submitted multiple applications and that the borrower’s income as reported has jumped by at least 15 percent within a prescribed period of time. The alerts signal that a borrower or another party involved in the transaction has manipulated the reported income to qualify for a loan that would not be made if the true income were disclosed.
FLEX is a proprietary program that allows lenders to leverage data from all other Interthinx clients to more accurately assess the consistency and veracity of a given application — something lenders cannot do for themselves.
“The industry has not recognized the pervasiveness of fraud in part because lenders have legal obligations to protect consumer data. So if ‘ABC Bank’ discovers a fraudulent application, it can’t tell ‘XYZ Bank’ to watch out,” Coop said. “Through FLEX, Interthinx is able to compare data from all of its clients’ applications and reveal the deceptions without compromising consumer privacy. Knowing the truth lets our clients prevent billions in losses. What is really disturbing is that the $11 billion represents just one of the alerts used in the six-month timeframe.”
Interthinx analysts are currently evaluating data for when a borrower submits applications for multiple “owner-occupied” properties within a prescribed period of time. Misrepresentation of occupancy causes lenders to inaccurately assess the true level of risk and to incorrectly price the loan, according to the firm. The company sends so-called “straw buyer” alerts that the property and the borrower may be involved in an organized fraud for profit scheme. Loss severity is greatly increased in organized schemes since they can involve hundreds of loans.
Interthinx said it intends to release the results of its additional analyses in the near future.
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