The best way for mortgage lenders to protect themselves from mortgage fraud is to practice identity risk management says Merle Sharick, vice president and national manager for business development at the Mortgage Asset Research Institute (MARI).

“It’s just a matter of adopting a more proactive, due diligence effort and utilizing the tools that are out there in the marketplace to make sure that you’re giving qualified borrowers the right loan instrument for them and they are authentic,” Sharick said. Using the right tools, or technology, can help lenders combat mortgage fraud before it begins.

He believes financial institutions and mortgage lenders in the mortgage marketplace can combat mortgage fraud with three simple rules. Sharick labels these the three pillars of risk management to avoid mortgage fraud.

  1. Know your mortgage customer.
    “Every relationship that a financial institution has, either individual or corporately, presents opportunity, but it also presents risk,” Sharick said. It is, therefore, important for mortgage lenders to do a good job of screening whoever you’re going to do mortgage business with as a mortgage loan customer.

  2. Know your mortgage technology vendors.
    Potential problems can come from mortgage technology vendors who sell you tools to prevent mortgage fraud. Get to know your mortgage technology vendor’s products. Sharick warns, “You have to do a great job of screening them initially, but then you also have to have a monitoring program set up so that you can come back and look at those folks periodically, because life events cause people to change their attitude and outlook on what they do and how they approach their business.”

  3. Know employees who work for your mortgage lending company.
    Take the time to know the people you are hiring to work on mortgages and make sure they are right for your organization. Trustworthy, honest, hard-working individuals make all the difference in preventing mortgage fraud.

Other than the three pillars, Sharick also recommends purchasing the Loan Fraud Alert System. He believes it is a useful tool in helping mortgage lenders detect up to seven kinds of mortgage fraud early on in the loan process.

In addition to the mortgage fraud precautions above, Sharick’s company uses verification tools like credit reports, criminal background reports and licensing to help them verify the identity of individuals or mortgage companies. “Licensing is becoming a huge issue and that’s part of identity risk management, knowing who you’re doing business with,” Sharick said.

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