Magazine article Mortgage Banking

The Importance of Good Data in the Fight against Fraud

Magazine article Mortgage Banking

The Importance of Good Data in the Fight against Fraud

Article excerpt

IN MARCH, THE DEPARTMENT OF JUSTICE (DOJ) Office of the Inspector General Audit Division (OIGAD) issued the findings of its Audit of the Department of Justice's Efforts to Address Mortgage Fraud report. The objective was to "assess the Department of Justice's approach and enforcement efforts to address mortgage fraud." [paragraph] While media and social media coverage from both sides of the aisle focused on the Federal Bureau of Investigation's (FBI's) de-prioritization of mortgage fraud investigation and enforcement, but a closer reading of the nearly 60-page report suggests the core of the problem is perhaps less about politically motivated indifference and more about a familiar albatross: data.

Let's divest ourselves as much as possible of partisanship and look at the actionable implications of this thorough and unflinching example of self-examination by the federal government.

There is valuable information in the seven recommendations offered by the OIGAD and accepted by the DOJ. At least half are related to data and the vetting/communication/correction of data.

In reviewing the audit of mortgage fraud investigation and enforcement at the federal level, a recurring theme is apparent: One of the greatest hindrances to policing and enforcing mortgage fraud is unreliable data and data ill-suited to the job.

Focusing on the data problems relative to mortgage fraud enforcement and prosecution is consistent with the ongoing challenges facing the mortgage industry as they relate to overarching risk management. The government's audit recommendations are a reflection of the industry's challenge with data and the importance of data integrity at all levels of risk management.

In an effort to protect both industry investment and consumer financial obligations, the Consumer Financial Protection Bureau (CFPB) released new mortgage regulations that took effect in January 2014. These regulations outlined rules for quality loans and emphasized loan and borrower quality. However, it is still too soon to tell whether additional regulatory action like that taken by the CFPB will ultimately strengthen loan standards enough to see a marked decrease in defaults and whether there will be an impact on mortgage fraud.

Changes in the economy and in financial markets have a tendency to provoke corresponding changes in fraud schemes as perpetrators learn how to game the system in new ways. Since the economic recovery began, residential mortgage originations have shifted from a refinance-driven market to a more purchase-driven market, and this has given fraudsters new opportunities to adapt to changing conditions.

Why faulty FBI fraud data matters to the entire industry

Many lenders and government agencies, including the DOJ, continue to rely on FBI mortgage fraud data--and if that data is unreliable, it compromises efforts to address the widespread challenges of mortgage fraud.

However, if the industry relies on fraud information that is based on a comprehensive, timely and established proprietary database, it greatly increases the validity of the data and its usefulness in adapting to changing fraud schemes.

Because many mortgage lenders are currently being scrutinized based on data provided by inaccurate mortgage fraud numbers, let's take a few minutes to consider the seven recommendations mentioned earlier that were posed by the OIGAD and accepted by the DOJ. …

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