Much has been written over the past year about the impact of poor loan origination and overall risk assessment by lenders, resulting in bad credit decisions and outright mortgage fraud. Despite the Congressional bailout, FBI investigations, and MBA workshops on best practices, the threat of closing table fraud is being overlooked. The failure to look at the "back end" of the mortgage loan process is occurring to the detriment of lenders and threatens to derail the many advances made in fraud detection and prevention to date. Fraud in loan origination is a serious problem, and has been thrust upon the mortgage industry largely due to the zeal of pursuing profits during the housing boom without facing the risk that large volumes of originations, by untrained loan officers, would attract opportunists who see any chance in any booming market to commit criminal acts in pursuit of unbridled greed.
Now that fraud in originations is down, thanks mainly to self - policing, increased training and automated fraud detection software, closing table fraud remains a glaring problem yet to be seriously addressed. Closing table fraud involves many of the same elements as a mortgage fraud at the origination stage, except that those who conspire tend to be off a lenders' radar screen. Realtors, sellers (including builders), and closing agents have little contact in loan origination since they do not participate in the loan application process. However the play an enormous role in real estate transactions that is the basis for purchasing money mortgage loan transactions.
Improper and illegal collaboration among borrowers, sellers, relators, and closing agents creates as equally a dangerous and costly scenario as any other fraud scheme .Yet, even in today's heightened risk adverse climate, does a lender know enough about the seller, the realtor, and most importantly, the closing agent? Everyday lenders nationwide wire hundreds of millions of dollars into the accounts of men, women and settlement companies about whom they know very little. While they wait anxiously for their signed closing packages to return, their money lies exposed "on the street" without guarantees of security". Why lenders (and title underwriters, for that matter) place universal confidence in the existing loan closing process is a mystery - and a recipe for disaster. Who are these closing agents? Are they experience? Licensed? Insured? Do we care? Should we care?
Of course we should!
Lenders that rely solely on closingprotection letters, in those states where they are issues, ignore the common practice for agents of title under writers to issue them without any criteria, and for closing agents to recycle them on their own. It is not unheard of for closing agents to simply "White out" the specific transaction details on a protection letter and use them over and over again. Fannie Mae's guidelines to banks on "Preventing, Detection and Reporting Mortgage Fraud," states in part that mortgage lenders must "know" [their] business partners... and consider using outside sources to...selectively choose closing attorneys and settlement agents...That was issued back in 2005, yet few if any lenders are following this sound advice. While there is no fool proof method of preventing fraud -since the fraudsters tend to change their tactics and methods, and since anyone who is determined to defraud a lender and has the cooperation of enough of the parties to a transaction can usually accomplish it, lender lenders can arms themselves with more data about the closing process and demand that closing agents meet certain minimum levels of experience, insurance and overall reliability.
Shining a light on the closing process, and those who work it, can go a long way toward weeding out the bad operators and defining a better process for thehonest and orderly distribution of mortgage loan funds. Furthermore, having access to a real-time data about the parties at a closing table, immediate access to key closing documents, as well as the ability to access detailed reports about a closing when audits or loss mitigation efforts are required, is highly desirable in today's fraud-infested environment. The answer: closing table data and fraud detterance is available. There are online solutions that combine closing table data collection, warehousing, and reporting functions with closing agent and registration and transaction recording features that help close the gap between front-end fraud protection and the back end still vulnerable to fraud.
There are also third party closing agent verification services to quickly verify the credentials of the "professional" to whom lenders are wiring their closing funds. The third party verification companies charge the closing agent, or the fee to verify credentials is charged as a closing fee on the HUD-1. In both cases the service is provided without charge to the Lender. Closing table Fraud remains a glaring problem yet to be seriously addressed. With the financial industry in shambles, due to risky business practice, there is no room for error when it comes to covering all the bases in the fight against fraud. Now is the time to incorporate the practices and procedures necessary to eliminate this type of fraud when the next housing boom occurs. Every realtor, seller, closing agent, and a lender will only flourish under this protection with minimal worry.