Fannie Mae, Freddie Mac, and other mortgage industry heavyweights are planning to establish a shared data base of mortgage brokers that may have defrauded lenders.
The companies involved have so far said nothing about the project. But its existence became known when the Justice Department filed a notice in the Federal Register of Oct. 29 that the members of the group, known as the Mortgage Loss Prevention Forum, were seeking an antitrust exemption.
According to the notice, "The Forum will engage in applied research and development activities . . . designed to reduce the incidence of losses from irregularities in connection with the origination, purchase, insurance, resale, and servicing of mortgages in the United States."
The application was filed with the Justice Department under the National Cooperative Research and Production Act of 1993. An exemption protects the forum against damages in an antitrust suit.
Sources familiar with the forum say it is discussing ways to set up a data base that will list mortgage brokers believed to be involved in fraud, whether or not they have been convicted of a crime. Companies apparently will send in reports of "incidents" with brokers to a clearing house. The information will then be adapted for the data base. It is expected to be operational by March 1994.
Besides the Federal Home Loan Mortgage Corp. and the Federal National Mortgage Association, three major mortgage banking companies are participating in the program: Countrywide Funding Corp., Pasadena, Calif.; Fleet Mortgage Group Inc., Columbia, S.C.; and PNC Mortgage Corp., Vernon Hills, Ill., formerly Sears Mortgage.
Most of the top U.S. mortgage insurers are also participating. They include: PMI Mortgage Insurance Co., San Francisco; Mortgage Guaranty Insurance Corp., Milwaukee; General Electric Capital Mortgage Corp., Raleigh, N.C.; United Guaranty Residential Insurance Co., Greensboro, N.C.; Commonwealth Mortgage Assurance Co., Philadelphia; and Republic Mortgage Insurance Co., Winston-Salem, N.C.
Releasing information on defrauding mortgage brokers is a hot topic in residential lending. Lenders are losing millions of dollars a year to broker fraud, said Jim Croft, executive director of Reston, Va.-based Mortgage Asset Research Institute Inc., an information-sharing company listed as one of the forum's project managers.
Fear of Defamation Suits
Lenders have been wary of releasing this information because of the threat of defamation lawsuits. Some have instead informally exchanged data on troublesome brokers. But a source familiar with the forum said lender's existing records, and their definitions of fraud, are not consistent. The network would standardize and centralize the information.
Legal considerations have preoccupied the companies involved in this venture. Sources say lawyers for the forum are confident that the courts would allow such a data base.
Ron Scott, national manager of correspondent lending at Commonwealth United Mortgage, Houston, said the data base could be extremely useful for checking brokers far from Commonwealth's home base.