Fraud cases are surfacing again in the mortgage industry - but now it's lenders who are uncovering them.
Recently, more mortgage lenders have been victims of schemes by brokers and homebuyers, in which falsified employment records and credit reports often are used to secure loans.
"We've seen more of these cases come up in the past five years," says John Valoria, quality control manager for Dollar Mortgage, Costa Mesa, Calif. "An individual with a computer, laser printer, and a good copier can try to prepare anything."
Mortgage lenders are often faced with costly buybacks when investors discover discrepancies in their loan pools.
Developing an in-house form of quality control is a good way to catch fraudulent loans, Mr. Valoria said.
Dollar Mortgage recently settled a fraud case involving a loan officer with a brokerage firm who had manipulated a potential borrower's credit report and employment verification.
Dollar enlisted the services of Prieston Law Firm, San Rafael, Calif., which specializes in mortgage fraud resolution. The mortgage brokerage, loan officer, and borrower were all found responsible, Mr. Valoria said.
A low interest rate environment may also place lenders at risk for fraud, said Arthur J. Prieston, the law firm's founder and senior counsel.
"When rates are low, you see a lot more individuals trying to take cash out as a loan," he said. "People will create 'straw buyers,' who are not really purchasing property, so that they can get cash."
Sometimes, homeowners anxious to sell will even provide down payments for the purchasers, Mr. Prieston said, leaving the loans more vulnerable to delinquency or default.
"There needs to be a greater education of the lending community . . . lenders need to have zero tolerance of any fraud committed against them," Mr. Prieston added.
Prieston says that in the last seven months, it recovered $1.6 million on fraudulent loans exceeding $2.5 million for several California lenders.
