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Mortgage Lending Fraud: How Automation Can Help

27 Sep 2022
how automation can support mortgage lending fraud

Mortgage lending fraud continues to be a challenge for lenders. Fraud attempts in the banking industry rose 41% in 2021 over the previous year, and in the lending business, one of the significant contributors is file tampering.

During the pandemic, millions of dollars in relief funds landed in the hands of fraudsters who used fabricated information and stolen identities to get approved for small business loans. In fact, the Secret Service was recently able to recover $286 million in fraudulent pandemic loans and returned the funds to the Small Business Administration.

Fraudsters often use similar strategies to trick mortgage companies into making mortgage loans based on inaccurate information. Mortgage automation can be a crucial tool for helping lenders fight back against mortgage lending fraud.

What is mortgage lending fraud?

Mortgage lending fraud is deliberately providing false information or omitting information that is used by an underwriter or lender to fund, purchase or insure a mortgage loan. In 2021, about 1 in every 120 mortgage applications contained fraudulent information, according to a CoreLogic study.

Mortgage fraud can include fraudulent appraisals, inflating buyer income, and doctored loan documentation. A major contributor to fraud is file tampering, or deliberately modifying documents by destroying, editing or manipulating them.

Mortgage lenders make lending decisions based on the documents provided by applicants—tax returns, pay stubs, account statements from financial institutions, among others. And if those documents have been tampered with, lending decisions may be unreliable, resulting in fraudulent mortgage loans.

Four reasons to invest in automated fraud detection software

Detecting mortgage fraud is extremely difficult. Mortgage lending and underwriting takes place in a fast-paced environment, with new processes quickly introduced into the workflow, and fraud tactics are constantly evolving. Even when mortgage lenders are aware of the risks of fraud, looking at numerous similar documents every day makes it almost impossible to pinpoint fraud with the human eye.

At Ocrolus, we process millions of financial documents each year and thus have seen our fair share of fraudulent document. To aid lenders in identifying suspicious activity (and more importantly, the associated rise in loan defaults), Ocrolus has developed File Tampering Detection (FTD), a proprietary technology that enhances our core service of automating financial document workflows. While document tampering itself is not proof of loan fraud, usually loan outcomes from applications with tampered bank statements, pay stubs, or tax documents perform significantly worse. With Detect, lenders now have the ability to identify mortgage fraud red flags, prevent and detect file tampering, and price loans more accurately.

Go beyond what humans can detect

The right automated mortgage fraud detection software can uncover suspicious reporting and tampering that the human eye is unlikely to see. When a person is reviewing many documents every day, it’s easy to miss small changes such as invalid information and abnormal editing history.

A powerful fraud detection software solution will automatically evaluate each submitted document for signs of file tampering and inconsistency, flagging edits that were made since the document was created and highlighting areas where changes have occurred.

Process documents continuously

Mortgage fraud activity such as file tampering can happen at any time. Mortgage lending staffers typically work only during business hours, but tampered application documents can be submitted anytime, day or night. For example, a staff member may return to the office on Monday to a pile of documents submitted over the weekend. In a rush to catch up and get those documents reviewed and sent to underwriting, the staff member might miss clues that a file has been altered.

On the contrary, automated fraud detection software can process documents continuously to uncover potential tampering. That means if an applicant submits tampered files through an online application over the weekend, the documents can be evaluated and flagged for review by Monday. As a result, the mortgage lender can quickly evaluate and levy a credit decision, without waiting for manual review.

Detect tampering faster

With algorithmic checks and validation, automated software can detect tampering almost immediately. Based on computer algorithms, the software can quickly review documents and flag only the ones that need human review, freeing staffers to focus on closing more business and undertaking more strategic tasks.

The best fraud detection software provides for a partnership among technology and human workers to confirm possible tampering. For example, Ocrolus returns a detailed set of suspicious activity signals in a structured format with any document that has been flagged for tampering. That data set provides risk systems and document fraud analysts with the information they need to handle questionable cases and ultimately make confident lending decisions.

Maximize productivity and spending

Because automated fraud detection software can work quickly and continuously, it allows mortgage companies to scale operations rapidly. As fraud tactics evolve, the software can also evolve to flag new forms of tampering. In addition,the software frees up current staffers to focus on other, more strategic work.

With gains in productivity and reliable lending decisions, mortgage lending fraud detection software also makes it easier for lenders to quickly grow their businesses, serving more applicants in less time.

The Ocrolus automated solution recognizes suspicious documents by identifying potentially incomplete data, missing pages, invalid information, and abnormal edit history, using algorithms that have been trained on more than 100 million pages of documents derived from thousands of financial institutions.

To help combat file tampering, Ocrolus launched Detect. Detect is an automated part of Ocrolus’ solution and will provide signals and visualizations of file tampering via the API and Dashboard. Best of all, it’s built into Ocrolus and easy to start using, just reach out to your account manager or Support today.

Learn more about our document fraud detection solution and try it out today.