How To Reduce Mortgage Fraud

by. Henry Meier

A report released yesterday by the Financial Crimes Enforcement Network (FinCEN) underscores one of the key areas for policy makers to consider as they grapple with housing reform. If we’re going to have a vibrant secondary market, whatever form that market takes, more emphasis has to be placed on sharing the burden of both preventing and recognizing mortgage fraud.  In the meantime, I would rechristen your originators your quality assurance supervisors to underscore just how important they are to your mortgage process.

According to FinCEN, the bulk of its mortgage related suspicious activity reports (SARs) deal with activity that began in 2006 and 2007.  Furthermore, a little less than half of all the mortgage related SARS received by FinCEN over the last decade came in to the agency over the last three years.

On the bright side, the worst seems to be over since this year there was a 25% decrease in mortgage related SAR filings.  On the face of it, the statistics aren’t all that informative beyond confirming what many people already knew, which is that there was a lot of reckless lending going on.  But unless you believe that mortgage fraud just started in 2006, what the statistics also show is that it is relatively easy to get away with mortgage fraud when times are good:  as long as the check is in the mail, chances are no one is going to catch their malfeasance.  This is what has to change.

To me the more interesting question is how do we reduce the lag time between the actual suspicious activity and the identification of the mortgage fraud.  One of the most basic steps that can be taken is to impose a statute of limitations on the ability of Fannie and Freddie, and whatever entity replaces them, to force originators to buy back mortgages.

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