Fraudsters Always ‘Follow The Money,’ Says Interthinx’s Fulmer

[u]PERSON OF THE WEEK:[/u][/i][/b][b] A new report published by Interthinx last week declared that mortgage fraud risk is the highest it's been since 2004.[/b] This week, MortgageOrb caught up with the company's vice president of industry relations, Ann Fulmer, to learn about fraud risk migration and the potential for government programs to trigger further incidents of fraud. [b]Q:[/b] What surprised you the most about Interthinx's first-quarter report on fraud risk? [b]Ann Fulmer:[/b] We've been looking very closely at this data in order to bring the industry these reports for the last four quarters, so we didn't see much here that caught us by surprise, apart from the decrease in occupancy fraud risk. We think that's because most banks require cash on short sales, and in many markets, real estate owned properties can be purchased for the price of a car. To the extent that loans are being made, investors are turning to nonbank sources. [b]Q:[/b] Analysts suggest that Arizona's newfound status as the state with the highest fraud risk may be attributed to risk migration. In that particular case, the correlation between Nevada's drop and Arizona's increase in fraud risk is brought up. Where else is fraud risk migration observable? What makes an area particularly vulnerable to such migration? [b]Fulmer:[/b] If you break the country down into regions, it seems there's a continual cycling between certain states. Arizona, Nevada and California are perennially trading the title of worst fraud risk, but within the Top 20, we see the same types of shifts between Illinois, Michigan and Ohio; Maryland, the District of Columbia and Virginia; and North Carolina, South Carolina and Georgia. That these shifts are associated with the physical movement of fraudsters makes sense, because it is in their best interest not to stay in one place too long, lest they be discovered. But it seems that they don't tend to go very far. I think it's important to note that despite the shift in their absolute ranking, most of the states within our Top 20 have been in the Top 20 since we began tracking fraud risk. This persistence over extended periods of time confirms what we've known anecdotally for a long time: Once a property – or a neighborhood – becomes infested with fraud, it never seems to recover. This persistence may be due to the presence of the informal but malignant networks of real estate agents, settlement agents and others who enable the orchestrators to successfully close their loans. If lenders used a "universal" database like MERS, as they do for deposit and consumer credit card accounts, they'd be able to identify these networks and shut them down. [b]Q: [/b]The Occupancy Fraud Risk Index has seen some significant swings over the last few quarters. Why do you think that is? [b]Fulmer:[/b] As you point out, the Occupancy Fraud Risk Index has seen some significant swings over the last few quarters: up by 16% in the fourth quarter of 2009 and then down by 11% in the first quarter of 2010. These large fluctuations in the index suggest that investors are uncertain about rejoining the market. However, we think that with plentiful inventories, the expected release of "shadow" foreclosure inventory and the emphasis on short sales, this index is likely to trend upward in the near future. During the boom, occupancy fraud risk rose after property valuation fraud risk peaked, as na·ve investors tried to catch the gravy train before it left the station. It will be interesting to see whether a similar pattern occurs this time around, though the increasing use of cash I referred to earlier may have blurred the connection between these types of risk. [b]Q:[/b] What are your thoughts on how the federal government's intervention into the housing market – e.g., the first-time home buyer tax credit, the loan modification and short sale programs – has impacted mortgage fraud risk? [b]Fulmer:[/b] Fraudsters always "follow the money," so any incentives will lead to increased risk. A number of recent federal programs were, of necessity, developed and implemented in a relatively short period of time and, thus, don't have the necessary safeguards built in. Further, government does not have the resources to pursue all the frauds we know about from the past several years, much less all the new cases, so it remains a high-yield, low-risk undertaking for the crooks. Bottom line: It's up to the industry to s


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