The Agency Insider with Linda McGlasson

Smart Bankers Avoid Mortgage Fraud

Smart Bankers Avoid Mortgage Fraud

I can't say enough about the mud slinging and finger pointing being done during the continuing mortgage crisis. It is getting ugly out there. Even the government-sponsored enterprises Fannie Mae and Freddie Mac are now under the watchful conservatorship eye of the federal regulators, mortgage foreclosures top 1.2 million this year. Clearly, there is another growing cancer in the industry - mortgage fraud.

But one thing I do know is something that smart bankers already understand: Know who you're doing business with before you write a mortgage. Check out this mortgage fraud case, this time in (Broward County, Florida). I don't know many institutions that would want to have a $10 million loss on their books, especially during these economic hard times. These seven defendants came in with false paperwork, from the loan application to employment verification forms, salary information and even false bank account statements.

Institutions that offer mortgages should expect more regulatory scrutiny in this area, and don't just sit there and think that, well, it's only happening in California, Florida, Texas and a couple of heavily-populated states like New Jersey. Mortgage fraud is happening everywhere, and based on current FinCEN SARs numbers and FBI statistics, it's going to be a continuing problem, even with the increased regulatory scrutiny of financial institutions under the ID Theft Red Flags rule.

The "Know Your Customer" or KYC rule -- if that's not enough to get you awakened, the fact that a glut of foreclosures are creating a problem for banks holding those mortgages should also be your sign. Smart bankers don't get burned by charlatan mortgage brokers who put up a sign and go to business. They double check paperwork and identities.

Remember, know who you're doing business with, from the buyer to the broker to the mortgage broker to the appraiser. Knowing your institution's community and the economics of the area are also key factors in keeping fraud from entering your institution. Questions beforehand and some of that good smart grey matter being used to assess the situation will keep your institution's loan portfolio clean of any mud.

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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