Early Detection Is Key To Fighting Loan Fraud.

Las Vegas -- A former Nevada mortgage regulator told attendees at the recent SourceMedia Nonprime Lending Symposium here that the key to combating mortgage fraud is in having procedures in place to focus on prevention and early detection.

But, added Susan Eckhardt, who is now a compliance consultant, that needs to be combined with high lending and brokering standards as well as industry rewards and sanctions related to findings of fraud.

Some hold a belief that 1% fraud is tolerable. But Ms. Eckhardt presented the audience with several other instances of 1% errors, including 268,000 defective tires will be sold this year, 14 babies would be given to the wrong parents each day, there would be two unsafe plane landings each day and 18,322 pieces of mail would be lost each hour.

She provided a scorecard for attendees to grade themselves, covering such areas as anticipation of potential fraud, accountability, avoidance, action and assessment.

Those companies that scored highest have strong compliance and internal controls in place to expose and eliminate fraud. At the other end of the scale, those that did not do well need to reassess the lack of internal controls that present a serious compliance risk.

During the conference, a number of speakers described the situation in the subprime business as the perfect storm. Merle Sharick, assistant vice president for MARI, defined that term as one part fraud, one part frothy markets, one part an exploding secondary market and one part greed.

The industry has an overreliance on the ...