Fraudgate

Mortgage Banking, Nov, 2000 by Dona Dezube

There's no national law forbidding the release of this type of information. In fact, the U.S. Department of Labor ruled that prior, voluntary consumer consent is all that's needed for the release of information from state employment agencies, according to VIE President William Skowronnek.

Started as a Norwest Mortgage entity, VIE is now a joint venture between First American Financial Corporation, Santa Ana, California, and Wells Fargo Home Mortgage, Inc., Des Moines, Iowa. "We have confidentiality agreements with our marketing partners that the information [VIE receives] will not be passed on to Wells Fargo or First American," Skowronnek says.

Further, VIE doesn't store any state data. Instead, it acts as a conduit--transmitting an encrypted request to the state and sending a response to the lender via a direct connection with VIE for Windows[R] or a direct interface to the VIE server. The cost is $5 to s8 a report, depending on volume. Freddie Mac has approved VIE as a source of alternative documentation, and the company has opened talks with Fannie Mae as well. "FHA and VA recognize our report and view it as a value-added service," Skowronnek says.

If technology fails you, you can always purchase insurance. PBIS, Inc., San Rafael, California, sells a fraud policy for prime credit-grade whole loans, down to about a B-grade subprime loan. Underwritten by Ace USA (formerly CIGNA), the product covers losses due to fraud or other financial integrity issues such as bad Social Security numbers, incorrect verifications of deposits or employment or occupancy problems.

Interestingly, it's a risk-based product priced from $10 to $100 a loan, based on the lender's underwriting standards and fraud prevention efforts. What's the difference between a $10-a-loan lender and a $100-a-loan lender? "There are lenders we won't insure, too," replies PBIS Executive Vice President Stephen Bakerjian. "Upfront prefunding quality control is clearly something we'd want to see an insured [lender] utilize. It's not the be-all-end-all and it's not something that's going to preclude fraud from happening, and that's where we're there for the lender--before they have to go to the attorney and sue someone."

And if there's any suing to be done, PBIS will handle it. "As with any insurance, PBIS has the right to pursue action against the perpetrator once it has paid off the claim in favor of the insured," Bakerjian says.

How does PBIS view the fraud database operators? Does Bakerjian think one stands out above the others? "I don't know that I can answer that in all fairness, because each is doing the same thing but utilizing a different methodology to do it," he says. "MARl relies on industry information; if the industry doesn't give that information to MARI, MARI has nothing to report. New City is drawing on huge databases and Affinity is using different sets of databases. I've got to believe that a lender that's going to use prefunding has got to be better off from a fraud perspective than a lender that doesn't."