Lenders Tackle Risk Mitigation Through Technology.

FORTH WORTH -- Various technology tools have been developed over the years to combat mortgage fraudsters, and a lot of lenders say there is a constant struggle between production quality and compliance.

That's why it's important to find fraud early and find it often, according to Jay Meadows, president and chief executive officer of Rapid Reporting, Fort Worth, Texas.

While mortgage lenders typically use income and identity-verification tools on only a small sampling of their overall production, these industry insiders believe such verification increases the value of the loan portfolio and should be required by investors.

"If you are not using a fraud detection tool, you are asking for double the risk," said Mr. Meadows. "Sixty-four percent of all mortgage fraud is income or identity related. Wholesale, retail and warehouse - fraud happens across the board. There are no divisions."

Mark Fleming, chief economist at CoreLogic, agrees. He says the industry needs to be tougher on identity theft by using tools necessary to identify and prefect fraud before it gets on the books. Create risk mitigation systems in architecture to define fraud upfront. "Stop it before the loan comes to you in the first place.

Recent statistics from the FBI are only the tip of the iceberg when it comes to representing the problem of fraud. Mr. Fleming said suspicious activity reports are not required from many groups of lenders in the industry, so there is only a partial view of the activity that is being done. "There is plenty of evidence that the problem of fraud is rising in significance as well as the rate of which fraud is permitted. There are big and fancy schemes out there. It's no longer the single loan-flipping scheme. Whole neighborhoods are being modified on the perception of value. The sophistication in scale is growing," he said.

Some companies even double up on automated tools to separate the good loans from the bad ones, added Don Effertz, vice president of industry relations at Interthinx. Yet there ...