Six Real Estate Fraud Threats Identified As Concerns To Watch

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SANTA ANA, Calif.-As large financial institutions have invested millions in defending themselves against certain types of lending fraud-especially FHA fraud, falsified lien releases and multi-closing-criminals are moving on down the road in targeting smaller credit unions.

That was the message from Frank McKenna, vice president of Fraud Strategy at CoreLogic, a provider of information, analytics and business services. He said there are six fraud threats that most concern his firm right now:

Short Sale Flopping. the company defines "flopping" as undervaluing a property to obtain it below market value so that any subsequent sale will generate inflated profit. Some shady investors are flopping properties for big profits within a very short time, he reported.

REO Flipping. Investors flipping properties out of foreclosure and selling at inflated prices.

FHA Fraud. The level of FHA fraud is twice the level of fraud on conventional mortgages where borrowers put at least 20% down payment on the property.

Closing Agent Fraud. Fraud perpetrated by closing agents who embezzle closing funds and never pay off the prior lien holders.

Falsified Lien Releases. Falsifying lien releases to fraudulently obtain more loans on a property.

Multi-Closing Fraud. Fraudsters apply for multiple home equity loans concurrently so they can borrower more on the property than it is actually worth.

"These are the biggest current headaches for fraud in terms of lending," he assessed.

Particularly Vulnerable

According to McKenna, credit unions are "particularly vulnerable" to FHA Fraud, falsified lien releases and multi-closing. "Smaller credit unions have become optimal targets because they have not had to invest in fraud prevention the way the big lenders were forced to," he warned.

So what can CUs do to prevent fraud? For starters, McKenna recommends using a loan level fraud-detection tool that looks at the "holistic" risk of fraud for an application. This considers factors such as occupancy, property value, income, undisclosed debt, identity and employment.

"Examine the highest risk applications in the pre-funding process with a specific fraud review that will identify a potential fraud before the loan funds," he said. "Establish a fraud-control function that focuses specifically on implementing policies, practices and tools to prevent the ever-changing nature of fraud."

McKenna said fraud reporting that looks at the trends in fraud on existing and new loans should be established to determine what actions need to be taken to stop fraud going forward.

"Participate in industry fraud consortiums to learn and share information on fraud schemes with other lenders," he added.

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