Glen Ogden is vice president of mortgage lending for Community First Credit Union, headquartered in Madison, Wis., and prior to that worked as a mortgage lending executive for Mountain America Credit Union in West Jordan, Utah, where he said he first began to see the importance of real-life experience in efforts to block mortgage fraud.
"Too many of these presentations in the past have looked at things from the highest level statistics and not included real-life examples that you can use to catch fraud," he said. "So much mortgage fraud can be caught if credit unions would just ask more questions about some of these [mortgage] applications."
Ogden explained that, in his view, credit unions processing mortgage applications often have staff that focus too closely on the paperwork of the application without stepping back often enough to remember that those applications are meant to represent reality. That stepping back can help mortgage underwriters ask questions about what they are looking at and those questions can prevent the CU from being a victim of mortgage fraud, he maintained.
Ogden explained that mortgage fraud traditionally breaks down into two broad categories. In fraud for housing cases, individuals make misrepresentations in order to be able to buy a house in which they plan to live. In fraud for profit cases, individuals make mortgage loan applications in order to profit from their transactions and often do not care about the real estate at all.
He also noted that the flood of new members coming into community chartered credit unions have provided potential fraudsters with additional opportunity.
"I don't know about you, but a lot of our new mortgage business lately has come from new credit union members," he said. "People we don't know as well and for whom their first loan with us might be the mortgage," he said. "That is a risk."
"Mortgage fraud takes place at the nexus of opportunity, access and rationalization," Ogden said. "To protect themselves, credit unions need to prevent the union of those three elements."
Ogden touched on the foreclosure prevention sort of fraud that have gotten a lot of attention lately, where someone purporting to be able to help a homeowner avoid foreclosure takes a usually large up front fee and then does nothing to prevent the loss of the home. In the most egregious cases, the fraudsters urge the homeowner not to pay even part of their mortgage and to divert one or more payments to them instead.
The best way credit unions can help homeowners avoid this fraud is to be proactive in reaching out to homeowners before they become too delinquent in their mortgage payments to let them know that the credit union is their best hope for having their loan modified to avoid foreclosure, Ogden said.
Another form of fraud that Ogden detailed involved identity theft, which often involves immigrants or the elderly. These types of cases have become more prominent in situations where homeowners might be upside down on an existing mortgage and want to walk away from it and get into another property, Ogden explained.
One way a credit union underwriter can catch this fraud relatively easily is to familiarize themselves with Social Security numbers and to verify a Social Security number actually belongs to that applicant, Ogden explained.
"The Social Security Administration maintains a Web site that explains how social security numbers are generated," Ogden said. "And there are certain rules. It's unusual for a Social Security number to have an eight or nine in the leading position, to end in four zeros, to have zeroes in position four or five."
Its also worthwhile to check if a Social Security appears on the administration's death master file, he said.
"I remember one case where I ran a Social Security number which did not appear to come from a region of the country the applicant claimed as his place of residence," Ogden said. "So I ran the number and it came back with 16 different names. I called him up and suggested he needed to find a number that not quite as many people have used," Ogden said, laughing.
The numbers of different schemes were as numerous as the numbers of details that go into a mortgage application, Ogden explained. Straw buyer schemes, where a mortgage loan applicant is actually buying the home for someone else who would not otherwise qualify for the loan; "chunking" schemes, where dupes are recruited into "investment clubs," where they apply for multiple mortgage loans without disclosing the other applications; and appraisal fraud, where property appraisals are fraudulent to hike the home value and loan amount.
This last makes it particularly useful for a credit union mortgage underwriter to get to use some of the free technology available today, Ogden said. He described a case where a credit union mortgage loan officer prevented a fraud from taking place by entering the addresses of properties on a questionable appraisal into Google maps. This allowed the underwriter to discover that two of the three properties that the appraiser had used as comparative properties were more than two miles away from the appraised property and in a significantly higher priced area.
"The homes more accurate value was $540,000 and was reflected in the one lower comparison property that, wouldn't you know it, happened to be the closest," Ogden said. "Not the $730,000 the application claimed for it. Details, details details," he added, "details is where they make mistakes and where the credit union can avoid a disastrous fraud."
Ogden also took a hard line on turning in fraudsters when potential cases of fraud are detected. Over the course of his career, he said, he had turned in appraisers and real estate agents to their state licensing boards and some applicants to the FBI, where investigations have found fraud rings extending across multiple states.
He also took a relatively hard line on the question of the "unwitting dupes" fraud model, allegedly innocent applicants who are supposed not to realize they might be participating in fraud.
"People ask about the folks who say, 'Oh, we didn't know we couldn't do that' or 'I didn't know that was fraud" but I never bought it," Ogden said. "Everyone out there was born with a conscience."
"People may not know exactly what they are doing wrong, but most people know they are trying to put something over on the lender," he added.