Servicers Seem to be Repeating the Same Blunders That Led to the Foreclosure Crisis
It seems that mortgage servicers are repeating the same blunders that culminated in the current foreclosure crisis. The risk of fraud is rising noticeable and so too the number of re-defaults. Despite media focus on what caused the damage to the mortgage industry nationally and to the international economy, the mortgage servicers continue to be lax in verifying the information given by borrowers. This poses the risk of another rerun of the same calamity.
The behaviour of the servicers is in sharp contrast to that of the lenders who are being more proactive and aggressive about avoiding the same pot holes in future transactions.
Jay Meadows of Rapid Reporting said, “In the mortgage origination side, we’re seeing lenders use third party verifications in most—if not all—new mortgage transactions. But in loan modifications, servicers and third party service providers are taking chances, focusing their attention on closing deals to prevent foreclosure and spending minimal time on making sure the loan terms are in line with the borrower’s ability to repay the loan. It’s like seeing enthusiastic mortgage originators from years past, but this time it’s happening in loan modifications. This is a very disturbing trend, because of the implications that re-defaults can have on our already struggling industry and economy”
As per the current rules the servicers as well as the lenders have to obtain tax returns and pay stubs from the borrowers as verification of their income. But this is insufficient today where photo retouching is child’s play to anybody with own computer. This leads to easy falsification.
Instances of mortgage fraud start generally from the point where the loan application is first made. It means the information given by the borrowers is the most common areas of fraud. According to MARI (Mortgage Asset Research Institute) application related fraud accounts for 66% of all the reported scam cases. Falsification of tax returns and monetary statements account for 28% and verification of accounts of employment account for 15% of all cases of conning.
Meadows explains, “Loan modifications by definition belong to a category of borrowers that have had difficulty in meeting their existing monthly mortgage payment. That in itself should be reason for servicers to investigate the borrower’s information in more detail. Verifying borrower information is the best way to identify false or fraudulent information. Only then can servicers separate those loans from higher quality transactions, and protect the company from the high costs of a re-defaulted loan.”
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