Last year a federal judge ordered Bank of America to pay $1.27 billion in damages over thousands of defective mortgages sold by its Countrywide Financial unit. Just a few months ago several US Banks incurred losses of more than $850,000 due to fraudulently obtained luxury automobile loans.
Despite that fact that law enforcers are cracking down on fraud, the number of fraud cases is still growing. Each count of bank fraud, and making false statements on loan applications carries a maximum penalty of 30 years in prison and a $1 million fine, and restitution is mandatory.
However, beyond seeking payment for damages, there are several ways that lending institutions can proactively combat loan fraud. By identifying suspicious data on loan applications fraud can be avoided before the damage is done.
There are basic rules that should be followed for any type of loan application. For example, anytime an application is flagged as being potentially fraudulent, any other forms with the same requester should automatically be identified as being suspicious. In addition, for various types of loan frauds, specific data parameters should be carefully evaluated. Employee online behavior should be monitored proactively and correlated with suspicious data to uncover any possible cases of collusion to commit fraud.
For example, income fraud - which occurs when an applicant’s income is inflated enabling a buyer to purchase a home that is beyond their means -can be detected proactively.
There are several ways to identify that information on a loan application may be inaccurate for example:
- The applicant has a new employer within the last month, the employer has the same address or telephone number as the applicant when the applicant is not self-employed
- The applicant has recently had a very large salary increase, exceptionally high salary relative to the applicant’s age and profession, or the salary quoted is a round amount.
- The applicant has a recently issued social security number or a foreign nationality with a high risk profession such as self-employed.
Shot gunning fraud occurs when multiple loans for the same home are obtained simultaneously for a total amount greatly in excess of the actual value of the property. These schemes leave lenders exposed because the property value is insufficient to cover all of the mortgages. Here are possible indicators that shot gunning has occurred.
- One employer is listed for a large number of credit applications
- The same applicant has identical applications with only one or two fields that are different, for example mobile phone, address, last name, etc.
Employee behavior should also be monitored to uncover any potential collusion is occurring to commit fraud. Employees who attempt to commit fraud are typically familiar with the controls that have been put in place, and can try to circumvent them.
Typically businesses segregate functions between roles to lower the opportunities for employees to commit fraud, but employees can work together to bypass these restrictions. For example, when companies require certain transactions to be authorized by a second employee, the fraudsters can work together to ensure that fraudulent activities are approved.
By tracking all data related to loan applications suspicious behavior can be flagged and stopped. Proactively capturing and analyzing employee online behavior across departments and correlating with data anomalies is the key to preventing loan fraud.