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Technology Gives Brokers and Lenders a Defensive Edge Advanced systems, teamwork prevent ‘end-arounds’ and help fight fraud By Steve Grant




The government guarantee is not MBA proposes framework intended to support the entire mortgage for federal role in market, but only those products needed secondary market


The Mortgage Bankers Association (MBA) has released a new paper outlining a proposed framework for a refined government role in the secondary mortgage market designed to ensure liquidity for mortgages without presenting unnecessary risks for the taxpayer. The paper, “Recommendations for the Future Government Role in the Core Secondary Mortgage Market,” is the result of work by the MBA’s Council on Ensuring Mortgage Liquidity, a 23-member task force representing MBA’s membership base. “It’s now been more than two years since the secondary mortgage market collapsed,” said Michael D. Berman, MBA’s vice chairman and chair of the Council on Ensuring Mortgage Liquidity. “Rebuilding the secondary market is critical to restoring liquidity and confidence. The government has an important, limited role to play to ensure a stable flow of funds for mortgages.” The centerpiece of MBA’s recommendation is the creation of a new line of mortgage-backed securities (MBS). Each security would have two components: A loan level guarantee provided by a privately-owned, government-chartered and regulated mortgage credit-guarantor entity (MCGE); and a security-level, federal governmentguaranteed wrap. The wrap would be an explicit government guarantee focused on the credit risk of these mortgage securities, similar to that on a Ginnie Mae security. Fannie Mae and Freddie Mac’s infrastructure, including their technology, human capital, standard documents and relationships, could be used as the foundation for one or more MCGEs. “Our Council, featuring some of the best minds in our industry, has spent significant time looking at the secondary market—what worked and what didn’t— and came up with these recommendations,” said John Courson, MBA’s president and chief executive officer. “While this is not the only viable framework, we believe the recommendations represent a workable approach, balancing the government’s ability to ensure liquidity, with the need to protect taxpayers from the credit and interest rate risk inherent in mortgage finance.”

to keep the secondary market for core mortgage products liquid and functioning even during times of extreme market stress. Under the MBA proposal, the government securitization guarantee would support only “core” mortgage products with well-understood, well-documented risk characteristics. New products would be proposed by the MCGEs, recommended by the government guarantor and would require approval from a regulator. For more visit

States issue report on multistate mortgage examinations initiative The Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) have published the first report on multistate examination efforts to improve supervision of the mortgage industry. The “Multistate Mortgage Committee Report to State Regulators” identified the following key steps states have taken over the past year, including: The states formed the Multistate Mortgage Committee in December 2008 to represent the states in the coordination of examinations of the largest multi-state mortgage companies; all 50 states, plus the District of Columbia and Puerto Rico have adopted the nationwide protocol for information sharing and coordination of multistate exams; and the states have begun the first comprehensive multi-state examination of a mortgage company and anticipate expanding this effort significantly next year. This progress on the coordination of multistate examination efforts builds on the states’ success in developing a nationwide mortgage licensing system in January 2008. Forty-six states are scheduled to participate in the nationwide licensing system by January of 2010, with all states expected to participate by 2011. Currently, more than 11,000 companies and 66,469 loan originators are licensed in the nationwide system. “This initiative is about uniformity in approach and modernization of processes,” said Steve Antonakes, Massachusetts continued on page 13

The football season kicked off just the field. These fouls fall into two main weeks ago, and every good coach categories. knows that a strong defense can be the key to a winning season. That philoso- O Fraud for profit: This typically phy also applies to today’s mortgage involves industry professionals who industry—utilizing the right technoloinflate home values, overstate gy-based systems can give brokers and income and assets, steal identities, lenders a significant defensive advanand create fake properties and buytage in this highly competitive industry. ers to secure loans. More and more mortgage professionals O Fraud for property: This illegal activare making Tax Return Verification ity includes buyers who misrepresent (TRV) reports key players on their fraudthemselves and their financial qualififighting teams. cations to get a loan for which they Defensive coordinators can attest that may not have otherwise qualified. a good defense is made up of more than Fraudulent income, credit, employjust tackling or pass interceptions. It ment or appraisal docurequires teamwork, savvy ments are the tools used and plenty of strategy— to commit the fraud. the same skills necessary to succeed as a mortgage proAccessibility and fessional. The mortgage ease of use are a industry today is like a winning combo game with new rules and You don’t need to be a Bill regulations, played on a Belichick, Dom Capers or field—the housing marother defensive mastermind ket—that is as unsteady as to use TRV reports. The fact a new turf field. Pile on is that TRV reports are as consumers desperate to get straightforward as a safety loans or people attempting blitz. Simply put, they com“The mortgage industo make money by dishonpare income-related lines of try today is like a est means, and it’s easy to a borrower’s tax return with game with new rules see why mortgage fraud is the same lines on file at the and regulations, at an all-time high. Internal Revenue Service played on a field— (IRS) and highlight any disFraud instances: the housing market— crepancies. They also match Red Flags abound that is as unsteady as information in Social The facts speak louder Security Administration and a new turf field. Pile than a 0-12 coach after a on consumers desper- IRS files with what is on the blown play: loan application and, using ate to get loans or IRS-validated data, provide people attempting to O Tax return and financial cash flow analysis that commake money by disstatement fraud rose 17 pletes the underwriter’s calhonest means, and percent in 2007 and 28 culations. it’s easy to see why percent in 2008, accordSome companies have mortgage fraud is at ing to the Mortgage added technology to the Asset Research Institute team and offer fully elecan all-time high.” (MARI). tronic order and delivery O The FBI reports Mortgage Fraud of TRV reports. That means if you’ve Suspicious Activity Reports (SARs) scanned or imaged the 4506-T, the IRS rose 36 percent in 2008 to 63,175. release form used to pull a taxpayer’s The amount of Mortgage SARs filed tax transcripts, you can upload the docso far this year has reached 33,291. ument to the order you’re placing O There has been a three-fold increase in online. You then receive the data back actual mortgage fraud cases in the last electronically within 24 to 48 hours. three years, the FBI reports, with $1.5 Putting TRV reports on your defenbillion in specific dollar losses in 2008. sive line does more than just assure lenders the original IRS figures haven’t Increasingly, TRV reports are being been manipulated. They give lenders seen as a defense against these legal more confidence in making loans by and ethical end-arounds by helping to providing accurate information. That’s erect a figurative “steel curtain” around absolutely vital, given the explosive brokers and lenders. TRV reports pro- growth in lender requests, not to mentect them from a range of scams and tion increased regulations and a diminfraudulent practices perpetrated by ishing number of loan originators. buyers, sellers, mortgage brokers, real estate agents, appraisers and others in continued on page 10