Amid growing investor concern regarding mortgage fraud, New Century Financial Corp. announced that it partnered with a company to implement fraud prevention software into its loan origination software.
New Century bought consulting services, as well as a product called FraudMark, from Carlsbad, Calif.-based financial services fraud analytics and consulting company BasePoint Analytics. The FraudMark system works during the loan origination process to assign a score of potential fraud to each loan, according to New Century. Presumably, the higher the score, the higher the chance that the loan documents in question contain false information. The company will also work with New Century to beef up current fraud detection processes.
"New Century has worked hard to detect and prevent fraud in the origination process, and our investment in deploying the BasePoint tools and techniques will allow us to better protect our customers from fraud and identity theft by enabling us to more easily identify and weed out fraud perpetrators and identity thieves in the market place," said Terry Theologides, New Century's executive vice president and general counsel in a statement on the matter. Theologides said the choice to incorporate the BasePoint software will improve the quality of New Century loans.
The move comes at a time when an increasing amount of scrutiny has been focused on the possibility that mortgage fraud, particularly within the subprime and Alt-A lending markets, could be a growing problem. As short-term interest rates push up historically low mortgage rates, creating a more stressful environment for borrowers, mortgages that have indeed been originated using false or fudged borrower data could begin to present themselves through an uptick in defaults and foreclosures, mortgage fraud experts say.
In a variation of a widely cited example of the type of fraud thought to be prevalent, a mortgage broker could mark up a borrower's annual income to $100,000 when in reality that individual's income was less than half of that, in order to push that borrower into a home loan with hopes of refinancing once the home's value appreciates.
And the array of no-documentation or limited documentation loans within the Alt-A and subprime lending markets has some investors worried about the rationale behind a borrower's incentive, or a mortgage broker's for that matter, choosing that particular loan product. Although, mortgage lenders who offer the loans, and a recent report by Friedman Billings Ramsey, point out that performance thus far on these loans has been positive.
The Federal Bureau of Investigation reported that with more than 640 mortgage fraud cases from this year currently pending, reported losses from mortgage fraud totaled $429 million last year. Meanwhile, stricter appraisal reporting requirements came into effect for Fannie Mae and U.S. Department of Veterans Affairs loans on Nov. 1. Freddie Mac and The U.S. Department of Housing and Urban Development loans will come under the same requirements on Jan 1.
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