Oklahoma Mortgage Professional Magazine November 2013 by United Sports Publications

leveraging advanced intelligence continued from page 63

Implement early warning triggers Anticipating where short sale fraud is likely to occur and who is most likely to perpetrate this fraud are vital guides to overall strategy, but it is also critical to implement analytic tools that effectively and efficiently evaluate the risk of fraud on specific short sale offers. This is especially important to lenders and servicers in their ongoing portfolio management efforts. Here, the emphasis is on identifying potential short sale fraud on loans within the portfolio as quickly as possible—ideally immediately after a property is listed. Integrating deci-

sioning with comprehensive property intelligence can provide this type of early warning system characterized by the following components: l Review all loans in a portfolio against a national MLS data source on an ongoing basis. l Identify loans on new listings that have a high likelihood of short sale by comparing the listing price to current property value. l Gauge the borrower’s motivation to potentially bend the rules by identifying all liens on a property, performance on these loans and CLTV. l Use a fraudster profile, such as the

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one discussed in the previous section to further pinpoint potential problem borrowers. l Escalate those loans and borrowers identified as having the highest likelihood of short sale fraud for more intensive review and follow-up. Though advanced analytics and automated decisioning drives these types of solutions to quickly provide accurate analysis of all transactions, they do not take the human element out of the equation. In fact, these automated solutions optimize the deployment of critical human resources by flagging problem transactions that require the evaluation of an expert. Review teams are freed from the drudgery of a full evaluation on the transactions that already conform to pre-determined business rules and standards, and are able to spend their valuable time on the transactions that need the most care.

Know what is right before the offer is made Along with implementing these early warning systems to evaluate each short sale immediately after the property is listed, lenders and investors can also deploy solutions to protect them before the offer is made. One of the most effective tools to deploy is automated valuation models designed specifically to estimate the discount that should be expected for different stages of default—including short sales. The emphasis should be on a very local view of distressed properties, as it is essential to understand the zip-to-zip variations that are prevalent in most markets. By evaluating discounts at the most granular level of geography, mortgage professionals can quickly detect potential fraud and accept or reject a short sale with a much higher degree of confidence.

Leverage technology to quickly evaluate the offer The final best practice builds on the rest to provide an automated, more comprehensive evaluation of the short sale offer and a more in-depth review of the potential for fraud. By utilizing a variety of valuation sources, lenders and investors benefit from a more thorough interrogation of the offer and generate

more defensible documentation to justify their decision to accept or reject an offer. This type of valuation validation can be deployed as follows: l A consensus value is determined for the specific property based on a custom “expert panel” selected by the reviewer. The panel can consist of a variety of valuation sources, including: MLS Valuation Model, Tax Assessed Value, HPI Index Value and others. l Based on the distribution of values within the expert panel, a confidence score is developed to provide a clear understanding of the level of accuracy associated with the consensus value. l The offer price is then compared to the consensus value and either accepted or rejected based on the pre-determined tolerance level. Tolerance levels can vary based on property type, geography, price band and a host of other variables. Based on these outcomes, some may choose to adjust the consensus value by applying the short sale discount percentage for the subject property’s specific location. Following this type of approach will provide the confidence that all short sale offers have been evaluated in a consistent, accurate fashion. More importantly, it will help ensure that any fraudulent activity is identified before finalizing critical lending decisions. As long as there are short sales, there will be short sale fraud. The best practices outlined above provide a strong foundation to combat fraud by profiling where the risk is greatest and deploying advanced intelligence to quickly assess short sale fraud potential. This is a great start, but truly effective anti-fraud solutions come when these tools are integrated with a lender’s specific business requirements, systems and institutional knowledge of market-specific fraud trends. This combination will lead to the most relevant, effective solutions possible. Randy Wussler is vice president of product management and marketing for San Diego-based DataQuick. He may be reached by phone at (858) 597-3295 or email rwussler@dataquick.com.