American International Group Inc.'s mortgage insurance arm, United Guaranty Corp. of Greensboro, N.C., has bought a majority stake in Investors Mortgage Asset Recovery Co. LLC, an Irvine, Calif., firm that litigates small mortgage fraud cases.
"Clearly, with mortgage fraud continuing to increase … it's nice to be aligned with a company that's involved with the recovery of these losses," said Cindy Kirkley, the group executive of United Guaranty's domestic services group.
Robert Simpson, the co-founder, president, and chief executive of Imarc, said he expects demand for its litigation services to grow in the coming years as delinquencies and defaults rise from historic lows.
"As the tide recedes, we'll find everything lying under the high-tide mark," he said.
United Guaranty is expected to announce the investment today.
The Federal Bureau of Investigation has been warning that mortgage fraud has risen sharply in recent years, and interagency guidance from banking regulators in March indicated their ongoing worries about appraiser independence. Historically, fraud spikes have coincided with volume drops, when making honest money from mortgages becomes tougher.
Other companies have taken note of the warnings. This year Insurance Services Office Inc. of Jersey City has bought Sysdome Inc. and AppIntelligence Inc., two companies that use data-driven automation to prevent mortgage fraud.
United Guaranty, which has been using Imarc since 2000, plans to double its roughly 10-person staff by yearend and to help it add new services, Ms. Kirkley said. She would not say how much United Guaranty paid.
Imarc works for several national lenders, regional banks, and all but one of the country's seven mortgage insurers. It has found a niche litigating the types of fraud cases that lenders and insurers have typically considered too small to be worth the trouble, typically where losses tally less than $50,000.
"A lot of these losses tended over time to just be written off," but in many cases money can be recovered if companies pursue their legal rights, Mr. Simpson said. To make such pursuits worthwhile, Imarc works on a contingency basis; it gets paid only if clients do.
Imarc litigates against real estate professionals, such as brokers, appraisers, real estate agents, and closing agents, but not against borrowers. It says it often handles cases in which lenders are forced by Fannie Mae and Freddie Mac to buy the loans back and are left holding the bag for others' misdeeds.
Most of its cases come from a few "hot spots," Mr. Simpson said: Texas, Georgia, Florida, New York, New Jersey, Illinois, and, to a lesser extent, North Carolina and Maryland. Imarc also offers consulting services.
Mr. Simpson would not disclose its profits, except to say it has been making money since 2000. He said it has pursued "thousands" of cases since it was founded in 1999, but would not detail its recoveries.
Ms. Kirkley said United Guaranty had discussed the investment with other mortgage insurers that do business with Imarc. "At this point we do not feel it will affect the relationships" they have with Imarc.
After working at a law firm that served mortgage banks and brokerages, Mr. Simpson, who has a law degree from Duke University, joined the mortgage industry in 1985. He worked as a loan officer in Orange County and later ran a brokerage there.
In 1995 he joined the fraud litigation team at the predecessor to Wolf Firm, a Costa Mesa, Calif., law firm that focused on the mortgage industry.
Imarc focuses on cases that have already been investigated, but it plans to expand into other services, like skip tracing, to become a one-stop shop. "We're going to be able to do a lot more" with United Guaranty's resources, Mr. Simpson said.
Ms. Kirkley said United Guaranty entered a marketing alliance with Imarc in 2003 with the idea of eventually buying a stake in it.
United Guaranty especially liked Mr. Simpson's background, she said. "I think it helps a lot that Bob Simpson was a loan officer at one point of time, and does understand the business very well, beyond the point of someone that just has a law degree."
Mr. Simpson said Imarc could find ways to deal with larger frauds and smaller ones, such as document falsification. It deals with a lot of exaggerations of pay on stated-income loans, he said. In such cases, "the loan originators have an affirmative responsibility" to keep their eyes open.
In a more overt fraud it has seen "more than you'd like to know," an unwitting individual is asked to buy an overappraised property by a fraudster, who promises to rent it out and cover the mortgage payments (and sometimes agrees to share in any appreciation in the property's value). But the fraudster does nothing, and the borrower or lender ends up paying for the overappraisal.
