Servicers Starting to Emphasize Fraud Detection.(Conference news)

LAS VEGAS -- There are several challenges for mortgage servicers when it comes to detecting mortgage fraud, an executive with one of the leading technology firms told attendees at the SourceMedia Mortgage Fraud Conference here.

Lester Dominick, president of MortgageFlex Systems Inc., said much of the burden on finding mortgage fraud has been left to originators until now.

But among the issues for servicers being able to detect a fraudulent loan is that much of the industry is using legacy servicing platforms.

There is a demand for more modern technology so that information can be easily retrieved, adding there is no coordination between origination and servicing platforms.

Foreclosures increased 100% in 2006, noted Bob Norrell, senior vice president of Litton Loan Servicing, and a number of those loans were fraudulent transactions. A random sample inspection of loans that went into early payment default found that 20% were damaged, unoccupiable properties. That means, he said, these were fraudulent loans to begin with.

Mr. Norrell later added that he believes 35% of subprime mortgages are fraudulent, especially with the growth of exotic products used to put borrowers into homes they might not have gotten using traditional products.

Originators will find ways to make loans under any circumstances. But, he said, they do not understand the cost this results in for servicers.