Going Green and Stamping Out Fraud
APRIL 2010 O
TEXAS MORTGAGE PROFESSIONAL MAGAZINE
O www.NationalMortgageProfessional.com
By Tommy A. Duncan, CMT
38
The quality control and fraud detection Think of it like a social security number, arena is excited about the “going green” account number or a bar code that idenconcept for the mortgage industry because tifies you. The digital signature is more it is leading the way for a decrease in mort- secure than an electronic signature gage fraud, such as identity theft and for- because the identity is already validated gery. The problem with going paperless is and verified through the vetting process the fact that so many documents require of issuing the security certificate for the signatures known as “wet ink.” There are digital signature. Also, to use a digital sigtwo types of signatures other than wet ink: nature requires other passageways, Electronic signatures and digital signatures. including log in accounts to networks and An electronic signature software, in order to sign a is merely signing a digital document digitally, thus pad or screen that capadding more layers of secutures an electronic signarity and identity verificature, trying to replicate a tions. The digital signature wet ink signature and is usually installed on an place it on a document. electronic tape on a card We have all done this at like a hotel key or credit the store when we make card. When the digital sigpurchases with bank nature is used, it usually cards and credit cards. requires a PIN (personal The advantage is that it is identification number) in convenient and easy to order for it to activate as a “The digital signature use. The disadvantage is legal signature, yet another is more secure than that the signature pad layer of security that elechas a low pixel ratio and an electronic signatronic signatures do not does not provide a ture because the iden- require. Therefore, every smooth read/write as wet tity is already validat- page of a document leaves ink, the electronic signaa digital thumbprint as ed and verified ture can be stored in a documents are accessed. through the vetting database and can be capThis is a fraud investigator’s process of issuing the tured or stolen, the elecdream. tronic signature rarely security certificate for The disadvantages are matches a wet signature, the digital signature.” many because of the host and a person’s identity is of technology support rarely validated prior to signing and sig- and technology staff to make it work. natures are not compared. Digital signatures requires the producBecause of the primitive technology tion of card keys and the hardware to of the electronic signature, it is difficult burn the binary code to the electronic for the forensic auditor when looking tape. If you lose the card, you cannot for forgery or identity theft. Electronic sign digitally until a new card is issued. signatures, however, will be short-lived, The advantages are that it is the most because of other technologies on the secure identity protection available. A horizon that are more secure and less thief will have to utilize a host of techprone to identity theft. nologies and electronic intrusion hardA digital signature is different from an ware and systems in order to commit electronic signature because there is no fraud using a digital signature. signature. A digital signature is issued I know of one incident of fraud that from a secure platform involving other involved a digital signature. technologies that produces an individual Someone with similar access was number for a person that represents that able to access documents already digiperson’s legal signature and identity. tally signed via a network and software
access. The individual copied and pasted a different digital signature and placed it on other documents. This means that the digital signature can be lifted, however, the date could not be changed. If a document required dual digital signatures, the dates would have to match or be within tolerance for the execution of the document. Also, the documents left a digital thumbprint and were traced back to the theft. Even though, the digital signature was lifted, the electronic trail was made. The future of signatures could possibly come in the form of fingerprints or retina scans. In Iraq, pictures of one’s ears and digital voice capturing were used as a means of identity verification for verifying individuals. Technology will make the
wet signature obsolete at this point, the demand for signatures other than wet signature will only come as demand is made and as technology becomes less expensive and more available. Tommy A. Duncan, CMT is executive vice president of Quality Mortgage Services LLC. He may be reached by phone at (615) 591-2528, ext. 124 or e-mail taduncan@qcmortgage.com. Visit co-author Tommy A. Duncan, CMT’s Quality Mortgage Services LLC Web site at www.qualitymortgageservices.com for more information on quality control programs and compliance solutions.
Paperless Lending Offers Fraud Risk Mitigation By Sharon Matthews
The mortgage industry has embraced paperless lending, bringing a somewhat unexpected, but critical benefit to the market—another line of defense against mortgage fraud. The benefits of going electronic, saving time, reducing costs and improving accuracy are being realized by lenders across the industry. This is evidenced by their increased reliance on electronic documents. Today, more than 80 percent of the loan documents volume flowing through the pipelines of the largest lenders is electronically enabled, meaning that if the borrower chooses to keep it electronic, the documents will never paper out. That compares to about 40 percent just a few years ago. Those benefits are what drew lenders to the technology, undoubtedly, but they are not the only catalysts for the hefty adoption rates. Lenders have learned to manage and track their performance based on the critical metricsbased data from their electronic data streams and the associated transaction data. Banks are sending more data electronically, and that makes the data much more accessible to applications their service providers offer to protect against fraud.
An increased focus on fraud risk mitigation Fraud risk mitigation-related due diligence is no longer considered overkill, especially in the wake of the mortgage fallout of the past few years. It is a matter of business self-preservation, a defense against losses. In addition, it is not just a single department that has embraced electronic documents, but several departments, all across banks. Mortgage executives now realize that paperless lending makes fraud harder to commit, and easier for lenders to identify. There can be no doubt that mortgage fraud is on the minds of executives and about the important role e-documents play in fraud risk mitigation. Many lenders acknowledge that they are taking steps to mitigate fraud risk. To that end, several companies have released products designed to help lenders mitigate risk without hampering loan origination volumes at a time when every loan is valued at a premium by the institution. These products are working. However, until recently, there has not been a solution to address settlement agent fraud.