Fighting Mortgage Fraud - Leigh Williams, BITS President

Payment cards and ACH fraud have dominated the headlines, but mortgage fraud remains a very real threat to banking institutions and consumers alike.

In an exclusive interview, Leigh Williams, BITS President at the Financial Services Roundtable, discusses:

Mortgage fraud trends of top concern;
Risks to banking institutions and consumers;
Immediate steps to take to reduce mortgage fraud.

Williams was appointed President of BITS in April 2007. Previously, Leigh was a Senior Fellow at the Kennedy School of Government at Harvard University, in the Mossavar-Rahmani Center for Business and Government. While at Harvard, his research focused on public and private sector collaboration in the governance of privacy and security. Prior to joining the Kennedy School, Leigh worked for many years at Fidelity Investments in various risk management, security and privacy roles, including Chief Risk Officer and Chief Privacy Officer. His most recent position at Fidelity was Senior Vice President, Public Policy. While with Fidelity Investments, Leigh served the industry in a variety of leadership roles, including many within BITS and the rest of The Financial Services Roundtable.

A division of The Financial Services Roundtable, BITS is a not-for-profit industry consortium whose members are 100 of the largest financial institutions in the United States. Created in 1996 by the CEOs of these institutions, BITS fosters the growth and development of electronic financial services and e-commerce for the benefit of financial institutions and their customers.

TOM FIELD: What are the trends in mortgage fraud, and what should banking institutions and consumer alike know?

Hi, this is Tom Field, Editorial Director with Information Security Media Group. It is my privilege today to be speaking with Leigh Williams, the BITS President at the Financial Services Roundtable.

Leigh, thanks so much for taking time to join me.

LEIGH WILLIAMS: Hi Tom, I'm very happy to do it.

FIELD: Now. we hear a lot about ATM fraud, ACH fraud these days; they dominate the headlines. How big of a problem is mortgage fraud for banks and consumers alike?

WILLIAMS: Well, it doesn't surprise me that ATM and ACH, or electronic payment fraud, have caught people's attention. Those are fraud in channels, and I don't think they necessarily compete with their substitutes for doing fraud prevention work on products, on mortgage, or on savings accounts. I can tell you that the institutions that we work with pay a lot of attention to securing and to protecting both the channels and individual products.

So, if you think a little bit of how much of an issue this has become for everyone lately, I would say from the banking side and the consumer side that motivation is exactly the same. We recognize that one of the most important things we do is fund people's homes, and if there is anything that puts that at risk, if there is anything that either threatens their ownership of the home because someone might have stepped in and taken the title away from them, or if it delays the resolution of some other problem, if it distracts them or confuses an issue, complicates something that we have been trying to work out with the homeowner, that is bad for the homeowner. That is bad for the customer, and it is certainly bad for our institutions, too.

FIELD: Leigh, what are the current mortgage fraud trends that concern you most?

WILLIAMS: I guess I would split the answer into mortgage trends and fraud trends. So if you think about what has been happening in the mortgage industry as housing prices have moved, as volumes have spiked, as new programs have come in from both the government side and the private side to resolve all of this, it has created a fair amount of flux, and there are always criminals who look for opportunities to take advantage of those kinds of changes or that kind of flux in any marketplace. That has really caught our attention, and it has been very important to us to make sure that we don't leave that opportunity open to them.

Fraud trends have evolved a little bit over the last few years. Originally, they were about originations and applications -- sometimes people were coaxed into exaggerating their financial condition. Then some of those originations, as the originations tailed off, evolved into servicing fraud, where consumers were convinced that someone had taken over the servicing of their mortgage and their payments might have been siphoned off.

Now, as people are trying to resolve those issues, there is another that has been layered on top, and that is loan modification frauds or foreclosure scams. It is very important to us that we deal with both origination and servicing scams beginning to surface, but that were created two to three years ago, and that we made sure that we don't add any new problems on top either from the loan modification or the foreclosure arenas.

FIELD: Who do you find to be most at risk of falling victim to mortgage fraud now, whether it be an institution or a customer?

WILLIAMS: Well, even outside of mortgage fraud, I would say in fraud more generally there is a truism that people who are in financial difficulty, or people who are somehow isolated or alienated, are ripe to be victimized by criminals. And if you think about what has been happening in the mortgage arena, both of those can be true.

There are people who have had some financial difficulties over the last couple of years, and they are worried about the value of their homes. They may be unemployed and just barely scraping by, and many of those people have not been comfortable talking to their institutions. They might have gotten a little late in their payments, and they have just lost a little bit of touch. If someone steps in and promises that they can solve all of that with the wave of a magic wand or with the writing of a check, those people are going to be very vulnerable to that kind of scam.

The answer, of course one of many answers, is that we need to make sure that those people are reconnected with their lenders, that they feel comfortable working with the institutions that are our members to resolve the problems that these other people will never/can never resolve for them.

FIELD: You just released a new booklet that is entitled Be Your Own Best Advocate- Mortgage Fraud Prevention. Leigh, what are the main takeaways from this booklet?

WILLIAMS: The booklet actually has a couple of different components to it. One is one that just frames this issue where we look at the kinds of scams that are being perpetrated, the frequency with which we are seeing them in institutions or the frequency with which law enforcement is now investigating them. And the other piece is what individuals see from their perspective, what some of the red flags might be form a consumer's standpoint. So we think of it as two real threats; one is beginning to characterize this as a shared concern, and then beginning to think about what institutions and consumers ultimately can do to protect one another.

FIELD: Well, I want to break it down and ask you about the institutions and the consumers, and let's start with the former. What are the specific messages to banking institutions from this new publication?

WILLIAMS: Institutions have done a lot on this count for not just a couple of months now since our booklet has been out, but for many years. One of the things that we have tried to do is to refresh some of that work to help them understand what kinds of protections and controls they have in place, what red flags they need to watch for, how to structure investigations for the maximum effect, how to prepare and package their cases so that law enforcement and prosecutors can follow up on them. A lot of the things that institutions have been doing for years just needed to be a little bit refreshed with some new schemes in the marketplace and with new volumes and new programs that touch this area.

FIELD: Flipside of that Leigh, what is the message to consumers?

WILLIAMS: Consumers, as we said a second ago, need to make sure that they are fully connected with their lenders. These lenders know that there are certain things they can do, but they need to be working with their customers, and they are happy to do that. I would encourage anyone who spots something that is a little suspicious to contact their lender right away. Anyone who sees a promise that looks to good to be true to contact their lender right away.

And if for whatever reason, if they are a little behind in their payments or they have other issues and they are a little uncomfortable having that conversation, we have set up a separate channel so that there are people who know these issues inside and out who can help them without them feeling as if they have to talk to someone that they might owe money to. One suggestion is that they go to a non-profit coalition, Hope Now, available through their website HYPERLINK "", or at (888) 995-HOPE.

There are some things that we just encourage people to stay very conscious of. There are some do's and don'ts that we published in this brochure. For example, do be honest. Be honest about your situation. Be honest about the information that you have in applications for financing or refinancing. Do pay a lot of attention to the details that are in inspections and appraisals and documents and, then again, do work with your lender.

There are a couple of don'ts in the brochure as well. One is don't either on your own or at other people's encouragement provide any false information. At the end of the day, that doesn't help the homeowner. That doesn't help the process, and puts everyone at risk. Don't sign documents that are incomplete. Every once and while someone is tempted to fill something out 90 percent of the way, let a mortgage broker or someone that might be a stranger to them fill out the rest. We would highly discourage that. Let's make sure that people do their own due diligence and that they don't let others take advantage of them.

FIELD: Leigh, let's also get in a plug for this booklet, where can institutions and consumers find this?

WILLIAMS: Many of our lenders are making it available through their institutions. We are also making it directly available to consumers on our website, HYPERLINK "", and we are hoping that it will get as much circulation as possible. We know that we really need awareness and involvement of consumers and people who ultimately will hope be our members customers to make all of this work.

FIELD: So, if we could sum it up please, if there is one thing that banking institutions could be doing now to reduce their risk of mortgage fraud, what would you advise them?

WILLIAMS: I would say it might not be one thing, but two. The first is to do all the things that they can do themselves, to sharpen up their own controls, get employee awareness up, make sure that they follow their own policies and procedures -- the whole bundle of things that they work very hard to do, but we would encourage them to double up those efforts then.

And then a second bundle of effort is to work with everyone else. There are lots of things that can't be done by an individual institution. Some of those we do as an industry when we get multiple institutions together; some they do with law enforcement or other agencies. And as I think I have stressed, much of it has to be done with the customers. So we would say: Banks, do everything that you can on your own, and do everything that you can collectively.

FIELD: Very good, Leigh. I appreciate your time and your insight today.

WILLIAMS: It's my pleasure.

FIELD: We have been talking about mortgage fraud, and we have been talking with Leigh Williams, the BITS President at the Financial Services Roundtable. For Information Security Media Group, I'm Tom Field. Thank you very much.

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