Fighting Fraud with Lender Document Validation

Because mortgage transactions have significantly larger loan balances than other types of transactions, they are very attractive to fraudsters who are seeking an illicit payday. There are many schemes fraudsters use to steal money from mortgage lenders and their investors. These range from valuation-based schemes, where criminals attempt to mislead the institution as to the exact value of the property, to setting up straw borrowers with fake credit reports.

 On its website, Freddie Mac lists a number of current fraud schemes, including short payoff fraud, condo conversion bailouts, fraudulent investment property schemes, false stated income and more. However, one of the easiest ways for scammers to get past the lender’s anti-fraud systems is to falsify documents.

Getting the information

The mortgage lending process requires more information about the consumer and the collateral than any other transaction. This is a treasure trove, not just for our industry and the criminals who would steal it for their own use, but also for the federal government.

With so much information flowing into the Loan Origination System (LOS) and then back out to consumers, settlement agents and secondary market investors, it can be very challenging for the lender to manage the information properly. When it comes to the information provided by the borrower, it can be nearly impossible.

One way a lender can avoid this issue is by working with a dynamic document solution that can help prevent document-related fraud using document validation.

Document Fraud Prevention

Effective document validation is key because it helps lenders avoid problems that can arise at the closing table and afterward. By ensuring the right information is on the form correctly, loans close more quickly with fewer problems. In addition, this is also a great tool for uncovering potential fraud.

Validating consumer lending documents in the complex mortgage business may be beyond the internal capabilities of lenders, especially when they operate in multiple legal jurisdictions. On the other hand, it’s not that difficult for their dynamic document partners, if they have the right technology platform.

If the data is valid, the chances of fraud being present in the loan file are significantly reduced. There are a number of ways dynamic doc solutions can make sure this happens.

Fighting fraud with data validation

Data validation algorithms are core elements of document preparation software technology that are designed to check every data field before it is placed in the consumer lending document. It takes a robust technology platform to provide this kind of validation and involves creating direct integrations between the dynamic doc solution and the lender’s LOS.

The integration with the lender’s LOS must be seamless and allow users to easily generate accurate forms without any gaps in the data or data integrity problems. If the data doesn’t make sense for the document in question, the system should not allow the documents to be printed, in effect shutting down the system.

This is exactly the kind of fraud risk mitigation lenders need if they hope to catch document-related fraud before loans are funded.