The Home-Grown Threats

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DALLAS-The most common type of housing fraud CUs face is individuals giving false or misleading information to obtain financing to buy a home.

But that's hardly the only threat. CU Members Mortgage is cautioning that not only is the entire mortgage process vulnerable to exploitation-from both inside and outside the credit union-there are also organized fraud rings to worry about.

Matthew Abbink, VP of direct lending for CU Members Mortgage, reminded that fraud begins with the application, such as omitting child-support payments or not disclosing all properties owned.

Another area of vulnerability is in CUs' own staffing, Abbink continued. He noted CUs have increased their mortgage share in the last five years, meaning many have hired new staff from other mortgage lenders that have gone out of business.

"These new employees might not have the same credit union values and ideals," he said. "This might cause an imbalance between the credit union's intentions and the individual loan officer's intentions. Some loan officers are very creative. This means credit unions must be continually educating and evaluating their own personnel to make sure there is not fraud on the employee level."

To prevent fraud, technology and the Internet are primary tools for verification. One example is Form 4506T, which is the borrower's consent to allow the lender to examine tax returns and other information directly from the Internal Revenue Service. Abbink said CUs should not delay in sending that form to the IRS in order to have returned tax returns and transcripts electronically within 24 hours.

"This eliminates borrowers submitting false tax returns using accounting software," he explained. "Public records checks can determine if a seller is involved in multiple transactions in the neighborhood, with can artificially raise values. Also, reverse phone searches can confirm employer numbers and addresses. Technology can raise red flags, but then it is up to the credit union to ask questions."

Other tips from Abbink: Zillow and Google Maps give aerial views of property, which can show something that does not show up in the appraisal, such as the home is next to a power line or adjacent to a highway.

With credit reports, he recommends examining all inquiries in the most recent six months and asking the borrower to explain them. "In lending it is important to know the customer, which credit unions often have a leg up because they usually know their members," he observed. "But an exception would be a new member who just joined, which front-line staff should be trained to look at. Preventing identity fraud goes back to knowing the member. Ask them to confirm the amount of their car loan payment to confirm identity. Make sure they know that information."

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