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leaders. And that the leaders ultimately bear the responsible for their associates actions.
Mortgage fraud is not a victimless crime or one that only affects lenders with deep pockets. Industry experts affirm that there is a correlation between mortgage fraud and the current record high mortgage payment delinquencies and foreclosures. As we have seen over the last year, these delinquencies have lead to a reduction in mortgage products and tightening in lenders guidelines, effecting the entire industry and spilling over its affects to the housing market.
With such impactful changes happening in our industry, there is a fret of pressure to make deals happen. There is additional pressure that comes from those that have seen their income drastically reduced. This mix of pressure becomes a recipe for fraud that could be going on inside the four wall of your organization right now and you might not even know it. For some people this pressure can gray the line between right and wrong in committing Fraud. But that line is not gray it is a sold black line that should not be crossed.
Often it is too late as an owner when you get that phone call from a lender stating that during a due-diligence check of their pipeline they found fraud in a loan submitted from your shop and that they are now cutting you off. Worst yet, it is far to late if the FBI comes knocking on your door with a warrant for your arrest.
Since mortgage fraud has such an impact on both the mortgage and real estate industry it is everyone’s responsibility to fight it. So you need to ask yourself; “What kind of culture does my company have when it comes to loan quality?”
Ignorance is not bliss when it comes to fighting off mortgage fraud. Like high blood pressure, it can be the silent killer of your company's overall stability and financial health. Here are 5 Tips that will help you build a strong foundation in fight off mortgage fraud in your organization:
• Create a company Code of Ethics – Whether you want to call it a “Code of Ethics”, or a “Fraud Policy”, or any other name it's important to define for your associates your company’sexpectation when it come to ethical behavior and honesty in the work place. Don’t just post the Code of Ethics in the lunchroom or share it with your associates by email. Have a meeting with your staff as a group or individually to go over the reasons for implementing and discuss the consequences. Importantly make sure that each manager within your organization understand the Code of Ethics and is reviewing it with their teams during department meetings.
• Inspect what you expect - One of the most important tools for any manager is to make sure that when you put expectations in front of your associates, you have a process in place to track and monitor what they are doing. Don’t leave it up to chance that your associates are going to take your Code of Ethics and never cross that line. Inspections should be conducted pre-funding as well as post-funding. You should also include loans that never close as you can learn just as much if not more about how your associates conduct business.
• Create and Integrity Tip Line – An anonymous Tip Line is a valuable tool for employees to report unethical or illegal behavior in the workplace. Tip Lines should be available 24/7 because most employees will not call during business hours, thinking that someone might over hear them during the day. Also, since anyone in your organization can commit fraud it would be beneficial to use a third-party provider with experience in taking such calls, reporting directly back to you.
• Know who your are doing business with – It is more important than ever before that you know who you are in business with. Pre-screening new employees and getting background checks on them is important. Don’t rely on references provided on a resume or application. Do you know of anyone that would provide a name of a person who would give them a bad reference? Most people think that pre-screening is just for employees, but it is as important for businesses as well. Do you let your associates use any closing agent or appraiser they want? Find out who they are doing business with and have them pre-screened before they get the chance to abuse the relationship harming your company’s reputation.
• Training & Education – It is important to educate your team on the importance of building a good foundation to fend off Fraud. Have frequent training sessions with both your process and origination teams. Discuss with them how to detect “Red Flag” and what to do if they suspect misrepresentation. Teach them how to use the Tip Line. Regularly test your associates on your company’s Fraud Policies and Procedures so that they gain an understand of how important it is. More importantly testing your team helps you gage their understanding of what Fraud is and how to guard against it.
Now that you understand the 5 steps you can use to better prevent mortgage fraud in your organization, there is one last tip. Take any Fraud found in your organization seriously. Don’t just say you have a Fraud Policy, but enforce it. Associates follow the actions of their leader. If they don’t see you taking Fraud seriously, then they won’t either and crossing that line will ultimately become habit forming.
Protect your reputation as a mortgage professional by fighting mortgage fraud today.
Remember it starts at the top!
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Ralph LoVuolo, Jr. is Founder and President of Fraudmit, LLC., a professional nationwide provider of Financial Fraud Auditing and Quality Control Review Services specifically geared towards the mortgage industry. Fraudmit also provides consulting services to help mortgage professionals identify organizational gaps in quality. Visit www.fraudmit.com for more information.
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The Mortgage Press - March 2008
Dealing With Mortgage Fraud Starts at the Top
Written by Ralph LoVuolo, Jr.
If there is anything we have learned from the Enron scandal, where CEO Kenneth Lay was sentenced to twenty-five years in prison, is that the culture of an organization comes from the behavior of its
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