The MBA’s Fraud Issues Conference in Las Vegas opened this morning with a keynote address designed to provide an industry update on the fight against mortgage fraud. There were not many surprises offered to those working hard in this industry. The uninitiated learned that fraud is bad and getting worse. Especially in Las Vegas, which seems to be a testing ground for fraudsters. According to Jeffrey Klurfeld, Regional Director of the Western Region for the Federal Trade Commission, there has been an up tick in foreclosure rescue scams in his region. We’ll be reporting on the rest of the conference to give you information about how the industry is fighting all manner of mortgage fraud.

Florida is no longer the leading U.S. state for mortgage fraud, according to Merle D. Sharick, CMB, Vice President, National Business Development Manager for Mortgage Asset Research Institute, LLC (MARI). The No. 1 state now is Rhode Island. The other 9 states in the top-10 for fraud (in order of MARI's fraud index): FL, IL, GA, MD, NY, MI, CA, MO, CO. MARI reports that fraud seems to be shifting to the eastern U.S. According to Sharick, FBI reports that up to 70 percent of the loans in foreclosure are fraudulent, mostly application fraud (employment, income, residency and identity theft). The consensus of panelists: We must stop fraud pre-funding.

Interthinx EVP Constance Wilson was on hand for a session called Maximizing Fraud Detection in Times of Economic Unrest at today’s MBA Fraud Issues Conference in Las Vegas. Speakers on the panel, representing experts from around the industry, all agreed that income fraud is at the top of the list this year. Having a solid 4506-T process in place to verify income is vitally important. Even more importantly, according to panelists, was making it clear to everyone that the lender has a process in place to mitigate fraud. Fraudsters are cherry picking and targeting institutions they feel are not screening adequately for fraud.

How important is it to verify employment and income? Vitally important, according to speakers in an early session at the MBA’s Fraud Issues Conference in Las Vegas. A lender on a panel discussion this morning reported that as soon as a process had been set up to use 4506-T verification of income, the institution saw “an immediate decline in early payment defaults.” The key to success: training. Make sure all underwriters know how to employ the fraud mitigation processes you put into place.

Successful institutions are fighting fraud with solid policies and procedures, according to speakers at the Fraud Issues Show today. When fraud screening tools are employed—and they should be—it’s important that all personnel are trained to use them effectively. It’s also important that lenders have a way to track and monitor that people are following the company’s policies and procedures. Documenting exceptions returned by an automated fraud tool as they are cleared is also important. Speakers here agree that training must be offered on a near constant basis.

The loan modification business is proving to be a hotbed for mortgage fraud. Speakers in a session entitled Maximizing Fraud Detection in Times of Economic Unrest are finding appraisal fraud in short sales. Values are being deflated and many of these transactions are occurring between parties that are not at arm’s length from one another. Lenders must have a method for determining the relationships between the parties involved in the transaction. In most cases, only technology can provide that objective overview as automated fraud screening tools can search for matches among many past and pending transactions. Lenders must always watch for occupancy fraud. This a red flag that is appearing often in loan modifications.

Interthinx vice president Ann Fulmer is on hand today at the MBA’s Fraud Issues Conference in Las Vegas. She moderated a panel session this morning entitled Fighting Fraud and Working with Law Enforcement. The panelists: Rosemary Canales, Investigator for Wells Fargo Home Mortgage, Craig Weitzel, Fraud Investigator for Taylor Bean and Whitacker and Glenn TheoBald, Chief Counsel, Miami-Dade Police Department and Chairman, Mayor Alvarez Mortgage Fraud Task Force. Speakers emphasized the importance of forming strong relationships with local, state and federal law enforcement officials. They work on different types of cases so it’s important for lenders to know officials at all levels. Also, be sure to specify an estimated amount of loss on a Suspicious Activity Report (SAR), even if you’re not sure. SARs without an amount go to the bottom of the pile.

How fraudsters get caught was the subject of a session entitled "Anatomy of a Sting." Speakers offered attendees some advice on helping law enforcement create cases that would put these criminals behind bars. It starts with seeing the red flags and pulling the file out of automation. According to Allison F. Rabin, Esq. Vice President, SW Metro Loop Manager for Chicago Title Insurance Company, inflated values, quit claims in the chain of title and urgency on the part of the transaction parties to get the deal closed quickly are all red flags lenders should watch for.

During "Anatomy of a Sting" Craig Weitzel, CFE, Fraud Department Manager for Taylor, Bean & Whitaker Mortgage Corp., urged lenders to work closely with law enforcement officials when setting up a fraud sting. These arrests are important for the industry, not just because they take one more criminal out of the game, but because the publicity they get can deter others from committing mortgage fraud. In addition, stings prevent the financial loss that would otherwise accompany a fraudulent closing and deprive criminals of their profit, which is frequently used as "seed" money for the next fraud. Weitzel urged lenders to have an excuse ready for delaying the closing a day or two to allow law enforcement officers to be prepared. It’s important to coordinate the sting without raising suspicion.

In a session today entitled "Effectiveness of the Mortgage Fraud Task Force Approach," Lisa R. Gore, Assistant Special Agent in Charge, Criminal Investigation Division, Office of Inspector General of the U.S. Department of Housing and Urban Development and HUD-OIG Representative on the FBI National Mortgage Fraud Task Force, told lenders that mortgage fraud is rising right along with the originations that are being insured through FHA. Furthermore, she says that the number of loans involved in any given fraud case increased dramatically. One investigation can easily involve between 300 and 1000 loans.

In a session on mortgage fraud task forces, HUD assistant special agent in charge Lisa R. Gore told attendees that investigators are dealing with a significant up tick in zero payment default. In response, HUD, FBI and other agencies had formed a special mortgage fraud team, on which she serves. The purpose, she said, was to combine and leverage resources so that they can identify the most egregious cases and coordinate a multi-agency response. She encouraged lenders to support law enforcement efforts and to develop relationships with local task forces and working groups. A call to the lender’s local agency office would get them the right contact information.

There are plenty of benefits for lenders who get involved with mortgage fraud task forces, according to Jenny Nunn Brawley, Mortgage Fraud Investigations Manager for Freddie Mac. Speaking in a session today, she said that lenders are in a unique position to help identify fraud victims (mortgage loan owners and investors) as well as in calculating loss amounts, which is critical for getting prosecutions. She also said that lenders can be very effective when they perform some of the preliminary investigative work. Often, those involved in the fraudulent transaction will open up and talk to lenders whereas they would be unwilling to talk to law enforcement. If you can get to the criminals early enough, their self-preservation instinct often leads them to provide evidence against their co-conspirators.

William Stern, Supervisory Special Agent of the Federal Bureau of Investigation working out of the West Palm Beach office, told attendees of the MBA Fraud Issues Conference today that the FBI’s case load has risen dramatically. Whereas the agency was dealing with 1,644 cases just 2 months ago, it’s now working on over 2,000 cases. Stern said that the task force approach works to turn cases into specific projects with a systematic flow of information. When Suspicious Activity Reports or other lender fraud reports surface, the task force look back in time to help build the case. He said that undercover operations and stings are an incredibly efficient at stopping mortgage fraud and getting convictions. He said “getting a perpetrator on tape is worth 30 boxes of documents.” He added that the lending industry was in a unique position to identify potential fraud and get cases started.

In a session entitled "Appraisal Fraud Prevention" speakers Steven Albert, MAI, SRA, Partner/Executive V.P., Allstate Appraisal, L.P. and Kathy Coon, CRU, SRA, Chief Appraiser-Director at FNC, Inc. shared some information lenders should know about the appraisal process. Under USPAP, the appraised value must be more than just an opinion of value. An appraisal must be credible, include all relevant information, it must support your value and provide sufficient information. It must not be misleading. This is a problem for lenders today because there is a concern not just about over valuation but also about under valuation.

There are a number of red flags that lenders can watch for in regard to collateral valuation, according to speakers at today’s MBA Fraud Issues Conference in Las Vegas. If a historical listing price for a property is lower than today’s listing price for the same property, there could be a problem. Sales concessions are a huge issue today because they tend to create a result that overstates the actual value of the property. Market information regarding the neighborhood is very important today. Appraisers who go outside the neighborhood to a competing development for comparable sales should make certain that the neighborhoods truly compete with one another. Supply and demand is critical. If demand is low but the valuations are increasing, the lender may have a problem.

When it comes to comparable properties for collateral valuation, nothing is more important than location, according to speakers at the Fraud Issues Conference. Price and date of sale are also important, but experts here suggest that it’s better to use an older sale in the same neighborhood and make time adjustments than to go to a different neighborhood to get a more recent sale. In any event, the quality of the comparable sales is important and it depends, in part, upon the subject property’s history. Appraisers are required to report and analyze both the subject and the comps.

More information from lenders from the Appraisal Fraud session: lenders must take care to ensure that the values returned on appraisal reports are adequately supported. It’s fine for appraisers to use automated appraisal review tools to provide data on market trends, other neighborhood sales and the history of the subject property. But having the data is only part of the service. Appraisers must also provide their analysis of that data. Speakers also pointed out that there is a tremendous demand right now for professionals capable of providing good post-funding appraisal reviews.

Jim Ronan, Interthinx Vice President of industry relations is on hand at the MBA’s Fraud Issues Conference in Las Vegas. Speakers on the panel he moderated agreed that while fewer applications are being funded, the overall amount of fraud is increasing. Primary hot spots: income and employment fraud and identity theft. Expert forgers are working hard here. One tool lenders can use to beat them is a guidebook available from Drivers License Guide Company. It can help lenders determine if these documents are valid. Write to: Department OF09 PO Box 5305, Redwood City, Calif. 94063 or call 800-227-8827.

Loan servicers face increasing risks, according to speakers at the Fraud Issues Conference. Loan modifications are risky business. The government is pushing for more modifications, but if servicers don’t take care to protect the interests of secondary market investors, they could be subject to litigation. The chatter in the hallways after this session suggests that many believe it is only a matter of time before a servicer ends up in court. Short sales that are the result of property flipping, identity theft and modifying loans originally made based on fraudulent or misrepresented information are all danger zones for servicers.

Secondary market investors are not feeling particularly good about investing in mortgages, according to speakers at a session at the Fraud Issues Conference in Las Vegas. Volumes are down but fraud is up. Add that to a generally depressed real estate market and a rise in institutional mortgage fraud and you’ve got a riskier than normal marketplace. Institutional fraud is fraud perpetrated against a lender and it can lead to very high losses. Hot spots now include air loans, mortgages on undeveloped land that a fraudster claims is developed, and double-sold notes, mortgages sold to more than one institution. Much of this fraud is related to builder bailouts.

Some experts are suggesting that lenders make it a policy to review the disbursement ledgers for settlement services partners with whom they work. Too much fraud is currently being perpetrated in the form of payments to third parties that don’t show up on the HUD-1. Seller concessions are also being hidden and handled as off the closing table transactions. Builders are using these tactics to flip homes through third parties in order to hide concessions that would otherwise reduce the value of the property.

When it comes to identity theft, lenders must have a plan. That’s the consensus of a panel of speakers at the Fraud Issues Conference. Identity theft is the No. 1 consumer complaint and that makes it high priority to legislators and the FBI. Lenders are required to know what information is in their databases, their cellular phones and personal digital assistants (PDAs). They must also have policies in place for disposing of this information. In the case of a security breach, lenders should have a crisis plan in writing that provides for mitigating financial, operational, compliance, and reputation risks.

What should go into a lender’s Identity Theft Crisis Plan? First make sure you have a senior member of management in charge of coordinating the response. The plan should include reasonable policies for identifying red flags and categorizing the type of identity fraud found: purchase money theft, equity stripping theft or account theft. Keep the plan updated and create policies to respond to schemes perpetrated against other banks you hear about in the news. Start with your existing policies and continuously make them stronger. Identity theft carries with it significant potential losses for the institution and many responsibilities for making the consumer victim whole after the fact.

More states are creating their own mortgage fraud legislation and that’s a good thing, according to speakers at the Fraud Issues Conference. In 2005, only Georgia had a mortgage fraud law. By the end of 2008, 15 states had such laws. States that don’t have laws specific to mortgage fraud may find it more difficult to prosecute these crimes. To get around the lack of specific legislation, Texas, for instance, prosecutes mortgage fraud under its theft, money laundering, organized crime, bribery and credit abuse laws.

When states consider writing their own mortgage fraud legislation, it’s important to build in some mechanism for funding training and enforcement. Georgia passed the nation’s first mortgage fraud specific state law. They did a good job of working with local law enforcement and the lending community to draft the well-though-out law, but failed to provide funding for training or enforcement. Results have been mixed.

In Florida, state statute section 817.545 deals with mortgage fraud. It was passed in 2007 but because it created a new third degree felony, sentences often defaulted to the lowest permissible level, a non-prison sanction under the states sentencing guidelines. Consequently, results were mixed. Last December, the state changed the law such that convictions would require a jail sentence of up to 18 years. Speakers at the Fraud Issues Conference report that the law in Florida is already working much better as a fraud deterrent.

According to some experts who spoke at the MBA’s Fraud Issues Conference, some lenders are not paying enough attention to settlement services agents who warn them that something at the closing table doesn’t seem right. There is a communication problem between some closing agents and some lenders, they said, which is leading to increased risk of fraud. When these business partners inform lenders that there are issues on the HUD-1 or on other documents in the closing package, lenders need to pay more attention they said.

Florida is taking an interesting approach to fraud deterrence that is fostering some support from homeowners. Fraud often inflates the value of properties, which can then affect the assessed values of other homes in the neighborhood and lead to higher property taxes. In Florida, if fraud is detected, the other homes in that neighborhood are re-assessed, which can lead to lower property taxes. That is often enough to get a neighbor to blow the whistle on a fraudster.

A federal bill now making its way through Congress calls for a federal mortgage fraud task force after 2009. The bill, if signed into law, would set up task forces for the identification and prosecution of mortgage fraud. Responsibility for enforcement would fall to the Department of Justice, which would then provide training to other law enforcement agencies. The new law would help to encourage states to set up their own mortgage fraud task forces. Originally, the bill was part of the stimulus package, but was recently pulled out of that legislation and made part of the bankruptcy mortgage cram down bill as an amendment. That bill is expected to pass. For up-to-date information on all pending industry legislation, visit the MBA’s website at http://www.mortgagebankers.org.

Technology is a great boon to mortgage fraudsters, experts at the Fraud Issues Conference said today. Digital manipulation is making is easy to create W-2s, pay stubs, verifications of deposit, canceled checks and fake IDs that look real. Computers are allowing criminals to forge appraisal licenses and identification documents. They then purchase form-filling software to complete their appraisals and start creating falsified documents. A red flag is raised when application is made to cover several investment properties under a single mortgage where all are appraised by the same appraiser.

Attendees at the MBA’s Fraud Issues Conference seemed very interested in understanding why mortgage fraud was on the rise and what, specifically, was causing it. Experts agreed that some of the fraud being perpetrated today was designed to ensure continued business income streams, which is expected to continue. Realtors, brokers, builders and others trying to shore up falling business volume are turning to fraudulent transactions to maintain a standard of living that is no longer possible in many cases. Other reasons include the fact that the shift from subprime, no-doc loans to full-doc loans has left lenders unprepared to deal with new work flows. Underwriters have not been adequately trained to verify the information now being presented on the application. Desperate borrowers and overloaded REO departments are two more causes of increased fraud.

Technology must be employed to stop rising incidents of mortgage fraud, according to experts here. Third party verifications, especially when they employ technological automation, are superior in most cases to manual verification of documents. First, employees have not been trained to spot forgeries. Secondly, technology for the verification of employment and income are now inexpensive and provide a high return on investment. Thirdly, technology will always provide the same workflow, whereas manual workflows vary by department, training level and oversight. Human resources are better utilized investigating red flags that technology returns.

Integrating automated fraud screen tools requires active participation of the lender’s IT department, experts at the Fraud Issues Conference said today. The lender’s IT department must understand the results the lender is seeking so it can create the systems to deliver them from the vendor. IT must know the results and the reports required in advance. Increasingly, lenders are being urged to go paperless because the risk of fraud is reduced when all documents and verifications are provided electronically. Paper provides for little control over people, process, or legal compliance at the same time it opens doors for fraudsters who can create fake documents and forge signatures. Paperless mortgages are harder to manipulate, they provide information that is manageable, archivable, retrievable, and transferable.

Freddie Mac
Joan Ferenczy, Institutional Investigations Director said that the number of open fraud investigations is the highest in 20 years, and that Freddie's caseload has increased 400% in just the last four years. She said that while a big case in 2006 involved 15-20 loans, today they typically involve more than 100 loans, reflecting the proliferation of investment clubs during the boom phase of the real estate bubble.

Ferenczy said that Freddie now mines its data for fraud earlier in the process, and that this analysis shows a surprising shift in patterns:

• 50% of fraud is now associated with loans that are current;
• Most fraud cases involve borrowers with high FICO scores and "very high" FICOs on loans originated in 2008;
• 50% of the cases opened in 2008 involved borrowers who represented they were buying second homes but these "second homes" were frequently located in low income neighborhoods;
• Nearly 100% of loans under investigation carry interest rates near 8% even though they’re not subprime;
• 50% of fraud cases involve condominium conversions.

Ferenczy reported that the top five fraud states for 2008 are:

• Florida
• Illinois
• California
• New York
• Mississippi

Ferenczy noted that for the first time in several years, Georgia is not in the top ten.

Fannie Mae
Amy Heinz, Senior Industry Relations Manager, Mortgage Fraud Program, said that scams involving short sales and other default-based are rising because the glut of foreclosures on the market makes it very difficult to sell legitimately.

Heinz said that lenders need to provide servicing personnel with fraud prevention training as soon as possible, and to be on the lookout for the following red flags:

• Sudden default after a strong payment history;
• Borrower is current on other debt payments and utilities;
• Borrower still contributes to 401K;
• Borrower explanations for default are inconsistent;
• The short sale offer is presented within days of the default
• The offer comes from a relative or trusted friend of the borrower;
• There is no effort to mitigate or work out the loan.

To address fraud in short sales and "buy and bail" schemes, Fannie Mae has implemented new guidelines which are available at: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0816.pdf

Mortgage fraud prevention resources are available at: https://www.efanniemae.com/utility/legal/antifraud.jsp?from=hp

Gary Lacefield, Director of Compliance with WR Starkey Mortgage, said that lenders must get "back to basics" and train underwriters to look for fraud by critically analyzing the application and asking "Does this make sense?" Lacefield says that credit reports should be carefully examined because there are an increasing number of borrowers who are "authorized users" who have purchased seasoned trade lines in order to boost their scores and meet tighter underwriting standards. He also said that branch auditors should be assigned to specific shops to maintain the consistency that allows them to spot patterns and problems that only become apparent over time.

Lacefield noted that loan modification programs are "rife with problems" because the flawed models and procedures used during origination are being used in modifications. He said that lenders need to re-qualify the borrower before a modification, to look for fraud and predatory lending issues, and to qualify borrowers using the full PITI, not just the DTI. Where borrowers obtained 100% financing, Lacefield recommends educating the borrower on the need to escrow for taxes and insurance.

Al McDonald with NominoData stated that lenders need to use advanced technology which allows them to go beyond the "minimum standards used in originations" when attempting to modify a loan. He also said that tools are "most effective when combined with policies and procedures that ensure that the technology does what it’s supposed to." McDonald recommends monitoring these systems to make sure they take into account the current market situation, and that they reflect the latest risks. Policies and procedures must also be monitored and updated to adapt to emerging fraud schemes, practices and other issues.

Continuing with the theme of improving origination quality, Richard Wohl from Fortace LLC said it is critical to know who you are doing business with. "Lenders must have a robust approval and monitoring process for third parties" which harnesses internal intel from the operations and fraud prevention groups. Even though Operations generally works in compliance, it is a crucial department for preventing fraud - and that "should be job #1." Wohl recommended that lenders need a feedback loop to monitor and to hold employees and third parties accountable for their actions, and that it's important for lenders to pursue known fraudsters. "Lenders need to become like porcupines - they need to make it known that they will not tolerate fraud."

Bob Simpson, president of IMARC (Investors Mortgage Asset Recovery Co.), told the audience that "If the industry is going to save itself, it has to...learn to say, 'This is what you can qualify for, and no more." Simpson stated that lenders can't let credit policy be set by sales people," explaining that loan programs that were developed because of the "I can sell that" attitude killed the industry.

• The total dollar loss due to fraudulent loans is guesstimated at $1.5 trillion; the number rises to $4 or $5 trillion when the decline in values for nearby properties caused by the inevitable foreclosures are included.
• From an REO specialist... In areas with high rates of foreclosure, lenders' losses are averaging 60% of the original loan amount. This number is double the industry's historical rule of thumb for foreclosure losses.

Representatives from Fannie Mae and Freddie Mac noted a particularly troubling trend: lenders who ignore the results of their own Quality Control audits. The seriousness of the problem was highlighted by Freddie Mac, who called the 2007 book of business "the worst ever." Both GSEs said they will be eliminating their stated income/stated asset programs and tightening their underwriting guidelines to stem the flow of bad loans and stop "subprime creep." Freddie announced it will soon issue a bulletin that will:

• Eliminate all stated income/stated asset programs, even those already approved by LP
• Eliminate 40 year amortization
• Change minimum FICO to 620
• Change maximum DTI 45 percent

Advice to lenders: prepare for heightened scrutiny of loan originations. Going forward, verify all income and assets, look for hidden liabilities, and triple-check collateral values.

Fannie also said the GSE would make a clear distinction between pre-foreclosure sales and short sales. Short sales, where the borrower has tried to work with the lender in good faith to rectify the situation, will be treated more favorably.

• UPDATE? ALERT?: Interthinx investigators and clients are reporting significant levels of fraudulent "flipping" involving short sales. Collateral values are being understated on the short sale; the flip involves inflated borrower income, employment and assets and/or a straw borrower.

FHA reminded the audience that new appraisal guidelines will require the use of certified appraisers for all FHA and that down payment assistance is still prohibited.

USDA said it will no longer be accepting any loans with FICO scores below 580.

Equifax reported that delinquencies are getting worse faster for new accounts, while delinquencies for more seasoned loans are rising more slowly. Fair Isaac reports that borrowers at all levels are performing worse than in the past and that a borrower today with a 760 FICO score is behaving like a borrower with a 720 score. Equifax also noted that

• Mortgage delinquencies have doubled since 2006 and are up 44 percent year over year because borrowers are increasingly paying everything but the mortgage
• 30 day plus mortgage delinquencies for borrowers with one mortgage are up 34 percent
• Add a second mortgage and the delinquencies are double that figure
• Delinquencies were still trending upward between August and September, with the biggest increases in the 30 day past due bucket
• It's even worse for HELOC lenders: 30 day delinquencies for second liens have quadrupled from 2007

Experts at the conference noted that high loan-to-value mortgages written between 2005 and 2007 are "substantially more risky" than those written between 2003 and 2005. This was attributed to fallout from occupancy fraud and the investor mentality that saw many homeowners investing in second or third homes in an attempt to profit by flipping them later.

Ann Fulmer, VP at Interthinx, reported that the motive for fraud has shifted from profit to desperation as underwater borrowers and specuvestors try to get out of burdensome financial obligations and as mortgage professionals try to maintain their standard of living. The primary issues for the top 10 states in Q3 2008 were:

• Collateral valuation
• Identity theft
• Employment/income misrepresentations
• Occupancy misrepresentations
• Overall, fraud rates are increasing, with Interthinx reporting critical risk indicators rising to 24.08 percent of all applications reviewed in the third quarter. More trends:
• Increasing use of forged documents
• Increased use of investment clubs to exploit lenders' need to dispose of REO inventories
• Foreclosure rescue schemes increasing; by careful if your borrower's seller is a land trust
• Fraud in modification attempts increasing
• Borrowers who didn't commit fraud to get the original loan -and many that did-- are committing fraud in the modification by deflating income/employment and property values to get a better modification and/or debt reduction

FNC chief appraiser Cathy Coon stated that seller concessions are "out of control" and are increasingly being hidden from appraisers and lenders. She pointed out that concessions are a function of financing and marketability only and serve only to inflate the sales price of a subject property. Coon reminded lenders of the need to review the sales contract carefully, and to focus on the subject's prior listing history and neighborhood sales to get a more accurate picture of where the true value lies. As appraisers "travel" further to find comparable sales that will satisfy investor underwriting requirements, some are wondering why there are not more comps in the local neighborhood. And well they should! If homes in the same area as the subject property are not selling or not listed as comparables, appraisers should be ready to explain why. A red flag here: if the "traveling" comps are the ones with the highest sales prices, the appraiser may be trying to support an inflated value on the subject property.

Coon also stated that it's a "red flag" when the appraiser uses square footage as the primary criteria for deciding if a recent sale is comparable because people don't buy homes based on size. The three top criteria should be, in order:

• Location
• Site influence (view, schools, etc.), and
• Room count

Dan Duplantis, EVP and Chief Credit Officer, American Reverse Mortgage, said it's impossible to efficiently take all the steps necessary to find and investigate identity red flags without using automated technology. Duplantis said that tools like FraudGUARD can quickly identify 'red flags' relating to fictitious addresses, social security numbers that haven't been issued, mismatches between date of birth and date of issuance, social security numbers which appear on the Master Death index, and SSNs used by persons other than the person to whom a number was issued.

Duplantis also said that any identity flags must be thoroughly investigated because under the new rules, a letter of explanation from the borrower won't cut the mustard with the regulators. He also said that it's important to monitor the QC and due diligence processes to make sure they work, and to increase communication between these departments so that problems discovered in one department don't get overlooked by the other.

Christopher Witeck, a partner with the law firm of Buckley Kolar, stated that lenders should play it safe and make sure compliance programs take into account the "optional" red flags contained in guidelines. Better to be safe than sorry!