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How to defend your team against the top three threats to loan quality

Undisclosed liabilities are one of the fastest growing loan quality defects originators are facing today

Is there anything more optimistic than the opening day of play in the major leagues? Even those among us not inclined to be everyday fans of the game can find some comfort in the return of America’s pastime signaling better and warmer days ahead at the old ballpark. The resonant crack of the bat, the murmur of voices gathered together in non-virtual celebration and the strength of the umpire’s call to “play ball” just feels right.

In the last year, the mortgage industry offered that same optimism and turned in a year of growth and unparalleled volumes despite the difficult circumstances. Now that we are back to “playing ball,” it’s time to re-focus on those old struggles between loan origination quality and loan performance.

Whether that is the struggle to manufacture loans without defect or guarding against fraud and risk threatening to erase profits by exploiting weaknesses, each day mortgage managers must defend against threats looming over their “teams.” When it feels like the bases are loaded and your starter is beginning to tire, managers need to know that they can confidently look to the bullpen for relief.  

Right now, it seems that the top three threats may be the undisclosed liabilities so many loan applications are hiding, the looming shadow of wire frauds which could decimate profits in a single appearance at the plate, and downstream mitigation of the forbearance crisis which could round the bases and head for home in a flash. This full count needs to be addressed with a strong move to the bullpen. Fortunately, there are solutions being offered to lenders.  

We know that undisclosed liabilities are one of the fastest growing loan quality defects originators are facing today. In fact, recent figures published by Equifax suggest 23% of loans with mortgage fraud findings exhibit undisclosed liabilities.

With the turmoil consumers are facing in the economy, opportunities have been created where debts and liabilities may outpace the ability of the consumer to make payments. In some cases, this may result in the underreporting or obfuscation of debts during the application phase. In order to counter that threat, undisclosed debt monitoring needs to be the relief pitcher called to the mound.

One of today’s greatest risks during the closing and funding of loans is the specter of wire fraud, which can decimate profits and ruin the dream of home ownership for consumers. Falsified wiring instructions and mis-directed payoffs accounted for almost 250,000 Suspicious Activity Reports per the FBI’s Internet Crime Complaint Center. Business Email Compromise (BEC), which is the main fraud mechanism associated with real estate wire fraud, accounted for almost $1.8 billion in losses to the economy in 2020 per the FBI IC3 report.

Lenders today need a way to validate the closing agents, ensure the legitimacy of the wire transfer information and confidently fund loans with exacting precision. The solution here is working with a trusted partner. Our clients are aware that we are always striving to up our game and mitigate risk wherever we may find it to help them stay ahead of fraud concerns. To that end, we recently introduced an association with a league-leading solution provider to validate wiring information and scrutinize closing agents, giving our lenders needed relief from wire fraud.

The constant presence DataVerify brings to the origination space means that as risks change and evolve based upon the overall economy, we have the experience to help our lenders adapt, change and thrive. Specifically, for the forbearance crisis brought on by the pandemic economy, we have been able to provide clients with real-time information around loans in forbearance.

This is significant in light of recent statements from the White House extending the forbearance protections through June of 2021 and stating that nearly 10 million homeowners are behind on monthly mortgage obligations. We were able to pivot quickly to provide our lenders with actionable intelligence at the loan level that provides timely quantification of risk. 

At DataVerify, we have been through the tough times our industry faced in the last mortgage crisis and are ready with solutions to help lenders and servicers transition to the mitigation of risk with regards to the modification of loans. We have seen the bases loaded before and we are relied upon when the game is on the line. It is just that easy – three up, three down, the risks are retired and the home team gets the win.

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