FraudNET Mortgage Alert System Raises Red Flags on Fraud

Interthinx, a California-based provider of mortgage fraud detection products, announced recently major findings discovered with the use of its FLEX program–or fraudNET Loan Exchange. Company analysts analyzing mortgage applications submitted over the last 6 months of 2007 found 42,000 applications with misrepresentations. The potential losses equaled some $11 billion dollars. Interthinx gathers data about borrowers and any participants to the loan, about lenders, brokers appraisers, sellers and agents. The systems look at information that concerns identity and income. Interthinx validates phone numbers, employment histories, and occupation data, and aggregates all the derogatory data. For example, the systems collect any complaints or articles that mention names. And they collect information about the property that is the subject of the loan application. In the past, one financial institution could not inform any other institution about any particular fraud that was discovered, due to privacy laws. Released in June, the FLEX system permits Interthinx to compile, compare and take advantage of all the data it collects. Interthinx can evaluate data from all clients and reveal problems to lenders without breaking privacy laws, or compromising borrowers. The company has about 1100 customers–mostly banks–and the data base is being updated every day. Explained Jeff Moyer to CPN, “We collect data every day, and use the data in our analysis on an on-going basis, whether it’s from Wells Fargo, or Bank of America. Normally lender A and lender B do not talk to each other. But now, the [new FLEX] data sharing capability enhances how we can benefit the lenders. We have to be fairly vague with what we share—we can’t say exactly what was reported, but we can say we think there is an income issue there.” The Income Alert pops up when a borrower has submitted multiple applications, or if the borrower’s income has jumped by at least 15 percent in a certain time period. One alert generated 42,610 income alerts in mortgage applications that together uncovered about $11 billions worth of potential losses. Added Moyer, “And this was just one of 300 plus variants in our system. We think this tells a very compelling story. The FLEX has only been around since last June, and the income alert has just been introduced into the system. But using all the lender data, and looking at it in concert with all the other applications, makes us better at picking up information and much more effective than we otherwise would have been.” Currently Interthinx analysts are looking at straw buyer and occupancy alerts, and results will soon be announced. Straw buyers are those who appear on various applications in a short period of time; the occupancy alert refers to borrowers submitting applications for owner-occupied properties within a short period of time. Such situations could mean that the property is really being purchased on spec, which changes the value and the level of risk involved.