Mortgage executives got a lesson in fraud detection during an association seminar in North Texas recently.
At the National Home Equity Mortgage Association’s Fraud Detection and Prevention conference, attendees got an opportunity to hear from Household Mortgage Services on how that company analyzes fraud risk.
Loren Morris led the presentation, entitled “Ahead of the Curve.”
According to notes from the conference, Morris noted that technology and the internet have made fraud easier to commit.
Morris pointed out that fraudulent loans often share suspicious characteristics. Household, as a subprime lender, looks for many indicators in determining the veracity of the potential borrower: An income higher than $100,000 yearly, a loan amount greater than $200,000, a FICO score higher than 740, and a cash-out of more than $50,000. Other red flags include someone who is a long-time renter while owning other rental properties, someone who can’t or won’t verify income. Property value can indicate fraud if it is more than $300,000 and/or it is high compared to its surrounding properties.
The conference manual included information Household provided to create a “Fraud Scorecard.” This data, according to the manual, is to enable brokers to quickly judge whether the situation may result in a fraudulent transaction. The Household scorecard includes seven factors: FICO score, number of people on the loan, income, owner-occupied status, original loan balance, lien position and purpose. A property that is not owner-occupied gets 13 points, versus zero for an owner-occupied residence. A first lien garners 3 points, a second lien zero. If the purpose of the loan is a purchase, the loan gets seven points, a non-purchase zero. If the original balance is less than $150,000 the scorecard nets zero, more than $150,000, six points. The borrower’s income rates three points if it’s between $50,000 and $84,999; six points if it’s $85,000 or higher. FICO scores ranging from 300-579 rate one point, as do FICO scores between 640 and 679. Scores higher than 680 get five points.
After scoring these factors, Household recommended further detailed investigation if the total equals 28 or higher.
As for avoiding fraud altogether, Household suggested knowing your business associates. Ideas included employee background checks, financial reviews, training staff to recognize fraud, and using predetermined service providers.
