In the past, lenders incurred few losses on defaulted loans because inflation and rising real estate prices meant foreclosed properties could be resold at prices above the loan amounts. Today, however, with inflation slowing and property values decreasing in many areas, lenders are taking exorbitant losses on defaulted mortgages. In the south Florida area, mortgages originated last year are defaulting at five times the national average. By identifying potentially fraudulent mortgage applications, their customized verification service provides financial institutions with a valuable tool in preventing default due to fraud.
Many lenders use automated underwriting and credit scoring systems to speed the approval process.
While these systems save lenders time and money in processing loans, they are not risk free. Automated underwriting systems that allow multiple submissions of a mortgage application lend themselves to abuse. All a broker has to do is keep tinkering with the application until he hits on the right combination and gets approval. So what we've found is that often times the database records are not enough to identify fraud. You need to look at the application in detail, actually go out and check the applicant's employment records and references, and go and talk to the appraiser and look at the house.