This week, MortgageOrb chats with Jay Meadows, president and CEO of Rapid Reporting in Fort Worth, Texas, to measure how the industry is handling the question of mortgage fraud.
Q: Where do you see the level of fraud in today's mortgage banking industry?
Meadows: The good news is people are doing something about it. People are getting a heck of a lot more serious about producing good paper. I think there's been several reasons for that. One main reason is the legislation that came out in the housing bill that said you have to verify income. We're seeing a return to consciousness of the people we are loaning money to – it's not just about the dollars.
Q: Is the industry able to successfully police itself against fraud?
Meadows: We were in a roundtable the other day, and there was a credit guy for a top 10 lender who said something that I found profound. He said, ‘We can no longer trust the people we do business with. We have to be able to trust the process.’ And I thought, ‘Doesn't that put that all into perspective?’
If you think about the mortgage industry, it is a fairly young industry – all things considered. But it was originally built on knowing people – I know that you're Phil, I know your kids and where they go to school, I see what you drive, etc. With the advent of electronics, however, I don't know my mortgage banker from Adam. We should have picked up our means of legitimizing this – but the problem is, we didn't do it. Now, we're doing it.
Q: Last summer, federal law enforcement agencies generated a great deal of attention with their Operation Malicious Mortgage sting. Can we expect more mortgage fraud crackdowns from the government?
Meadows: Now that the government has ownership of some of the major banks, I expect to see a lot more crackdown on mortgage fraud and the people that facilitate it. There is an FBI statistic that 85% of all mortgage fraud involves an insider. But what do we do about that? The fox is sitting in the hen house and we're trying to keep all of our chickens alive – it is pretty rough.
In my estimation, we have to have policies and procedures in place that hold people accountable for what they are doing. If we don't do that, you're going to see the government get very interested in what's going on. But right now, with the government running Fannie and Freddie, you have to do good loans, or you will lose the ability to do loans.
Q: Where do you see the industry heading in 2009, and what will the level of mortgage fraud look like next year?
Meadows: I think we've got it by the tail. Whether or not we continue, that's yet to be seen. As long as quality is in control of production, then I think you're going to see mortgage fraud come down, because we won't leave the holes open to facilitate that.
If you're not checking collateral, then it opens up a hole for dirty appraisals to get in. If we're checking people's identity, they can't use identity theft anymore. And we know from statistics that 6.1% of all mortgages we're looking at comes from borrowers who are not who they say they are. That's an astounding statistic. I think people are going to get more serious about mortgage fraud in 2009.
