How to identify fraud risks and comply with regulations as a lender

Nowadays modern lenders most reliable on tools with robust analytics to assess and mitigate risk and enhance loan quality. In addition to traditional fraud risks, COVID-19 and its complications create new opportunities for any kind of fraud.

Recently an investigation done by FraudGuard by First American shows how they use best-in-class data and real-time due diligence to detect fraud, provide investor compliance, reduce repurchase risk, and automate loan quality checks.

These investigations help lenders to:

• identify potential fraud risk and errors in mortgage applications
• comply with regulations
• improve the application review process through greater speed and efficiency
• increase the quality of loans

First American’s FraudGuard solution is a comprehensive support tool for lenders, designed to quickly and accurately identify risk in mortgage transactions.

FraudGuard’s highly tuned, smart analytics and supporting data assets are also configurable by loan program type, enabling lenders to define rule sets and alert messaging based on their own needs.

The report output is dynamic and displays data evidence that supports the analytics while suppressing unnecessary information.  These features streamline the process, allowing for quick reviews.

In addition to the new loan guidelines put in place by government-sponsored enterprises (GSEs) due to COVID-19, many lenders are implementing their own overlays with requirements beyond what they’d typically use with investors. FraudGuard alerts can be easily adjusted to encompass these metrics.

As lenders work to mitigate risk in the COVID-19 environment, FraudGuard is a valuable tool in the following areas of the mortgage loan life cycle.

• Forbearance risks: As the GSEs allow lenders to offer forbearance to borrowers on up to three mortgage payments, these forbearances will cause strain on liquidity for many non-bank lenders as well as an increase in borrowers trying to miss payments when they do not qualify. FraudGuard can help verify a borrower qualifies for forbearance with employment and income alerts.

• Refinance risks: Refi risks occur when a borrower submits false income information to persuade the financial institution to modify or refinance the loan on more favorable terms. As the 4506-T is unavailable now, the risk for fraud here is higher. First American recommends using FLEX (FraudNet Loan Exchange Review) alerts to identify loan shopping and income discrepancies, as well as checking for multiple credit inquiries in Debt Monitoring.

• Verification of Employment (VOE) with process change: Though the GSEs have removed the VOE guidelines and will accept pay stubs and banking statements for VOE, most lender overlays are requiring a verbal VOE. FraudGuard users can enable all applicable online business alerts to ensure good contact information.

• Loan slamming risks: Loan slamming occurs anytime anyone is playing the gap. As stay-at-home and social distancing orders have impacted recording offices, there is a greater gap risk in many areas. FraudGuard users can use FraudGuard FLEX to check for multiple open applications/orders, and the Undisclosed Debt Monitoring module to check for multiple credit report inquiries.

• Identify risks: As more states authorize the use of Remote Online Notarization (RON), identity verification is more important than ever. While FraudGuard cannot be used to verify identity for RON, enabling all applicable borrower identity alerts in the platform can help ensure valid identity information earlier in the loan process.

“As GSE guidelines continue to change, First American FraudGuard is committed to keeping clients up to date and in compliance,” said Brian Haber, FraudGuard product manager.

“Our innovative features, built on best-in-class data and analytics and supported by an award-winning client services team, enable us to support lenders to face the ever-changing challenges of our industry,” Haber continued. “The new measures for security and reliability will help mitigate fraud risk, streamline processes, and improve the customer experience.”