Fraud is a big concern at the biggest servicing shops

fraud bank

By Ronald Jasgur

It’s no secret that fraud is a huge problem in short sale and REO disposition. And yet, what surprised us most at the MBA Servicing Conference last week in Orlando was the lack of real solutions to kick fraud to the door.

Everyone in the servicing industry, from credit risk to governance, from loss mitigation to default, recognizes that they can’t answer the most pressing questions.  And, the same folks figure they’re stemming the tide if they keep an eye out for names from a de facto “black list” of rogue agents and crooked borrowers.

An industry consortium of servicers has many tools to track duplicate borrowers, duplicate sellers and title searches, yet they have trouble catching the smallest of schemes…the ones that hurt most…those one-off transactions where a subsequent flip never heppened or the original borrower never leaves.

With all the available technology and analytics, how can such a heavily regulated industry rely on manual screening to catch a fraudster?

A large servicer we’ve been working with utilizes a feature of our OfferSubmission system to screen REO purchasers for OFAC compliance to ensure they aren’t doing business with terrorists or money launderers.  We created this modified module to make it easy to connect originations or retention groups with default servicing in order to pre-approve potential buyers for REO or short sale inventory.  It’s cutting-edge thinking on the servicer’s part, allowing them to automate what was previously a slow, manual process.

Our systems prevent fraud at point of sale.  OfferSubmission and VerifiedShortSale ensure that every offer for the purchase of a distressed asset is delivered first to the servicer; that means there’s no need to “hope and pray” that a bad listing agent is “messing with” (prioritizing, holding or discarding) better offers before a sale decision is made.

Putting the servicer first in line ensures smarter decisions and higher sale prices, while reducing risk and improving communications between platforms and stakeholders.

At the Orlando conference, I chatted with Susan Allen, VP of Strategic Relations at CoreLogic.  Sue agreed that short sale fraud is a larger problem than their analytics can get at because many transactions stay under the radar if there isn’t a subsequent flip or the deviation from market value isn’t large enough to raise a flag.

An example: if a previously valued $300,000 asset is a $200,000 short sale listing that sold for $195,000, it’s under the radar.  Sadly, higher offers might never have been seen because the agent didn’t submit them.  And if one of them was for, let’s say, $230,000, someone lost $35,000.  It happens all the time, without the proper technology in place.

If a short sale transaction includes a friend or relative of the defaulted buyer, who secretly intends to rent or re-sell to the current owner, no one knows what’s going on behind the scenes.

The industry is (finally) ready to combat fraud and avoid as much loss as possible.  Let’s solve the problems that non-compatible systems and platforms cause.

We’re here for you when you do come around.