It didn’t take long for greedy swindlers and shady dealers in the United States to become enamored of the $10 trillion mortgage industry.
According to the Federal Bureau of Investigation, that multi-million dollar allure has led to a rapid rise in mortgage fraud cases. In 2007, roughly 800 mortgage fraud cases were reported. As of Feb. 1, 2008, the number of fraud cases jumped to 1,210.
“There’s so much mortgage fraud, including identity theft, people inflating their incomes and lots of documentation fraud,” said James Ronan, a certified fraud examiner and vice president for industry relations at Interthinx, a California-based provider of automated fraud protection, compliance and decision support tools for the mortgage industry. The company also offers investigative services for private clients. Ronan has been investigating mortgage fraud for 25 years.
The mortgage industry uses the services of notaries public when borrowers sign loan documents. It’s up to the notary to receive and review loan documents from the title company, lender or signing service. After setting up an appointment with borrowers, the notary meets with the borrowers in person, reviews the documents with them and instructs the borrowers where to sign and/or initial. Copies of the documents are left with the borrowers and the completed loan package is sent back to the lender.
“The notary (also) verifies that the documents were completed according to the rules and regulations of the mortgage industry,” Ronan added. “But there are cases where notaries have actively participated in fraudulent documentation.”
Typically, these cases involve forging land deeds and attesting to signatures when the individuals weren’t present.
“When you look at mortgage fraud, you may find that a notary was culpable or negligent. But when you dig into it, there could be a whole list of things that took place,” said Ronan. “The entire mortgage lending process is an integrity-based process; a communication process by documentation. Notaries are sometimes the first link in the chain. Lenders are making decisions based on what the deed records say. The recorder’s office will look at the documentation and say, ‘everything is here.'”
Then someone’s house is sold from under them or the property that was once owned by an individual is being used by someone else as collateral to obtain money fraudulently from a financial institution.
“The people committing this fraud are professional criminals,” said Ronan. “The FBI states that 80 percent of reported fraud losses involve the collaboration or collusion by industry insiders.”
Ronan believes that education and communication between the notarial and mortgage industries is crucial in deterring fraud.
“These criminals scheme because they know the process better than individuals in the mortgage industry. So the mortgage industry needs to look at how the criminals circumvent the system and then plug up the holes. That’s where education would come in,” Ronan noted.
Industries working together, through education and communication, will help solve the problem of mortgage fraud, Ronan said.
“I think, honestly, it is education, the process that has to be looked at. Everyone needs to go back in and look at the policies and procedures to see what can be done about fraud,” he added. “The industries can look at it, assess the risks and go back in and change the ways mortgages are done. This is industry outreach.”
Ronan said 2008 is a good time for the industries to get together and communicate.
“A lot could be accomplished if the individuals involved in the industries – notarial and mortgage – walk into this with open minds. The dialogue has to be there,” he added.