Recent Trends in Fraud Prevention

Monday, September 25, 2017

Moderator: Don Effertz, Vice President, Risk Management, DataVerify, Inc. Speakers: Patti Duranty-Robbins, Associate Vice President, Strategy and Planning Specialist, Enterprise Fraud Group, PNC Bank Brian Ward, Director, Fraud Prevention, Quicken Loans Inc. Robb Hagberg, Senior Director, Fraud Risk, Freddie Mac Kevin Ludden, Fraud Industry Relations Manager, Fannie Mae MORTGAGE FRAUD AND OUR ELECTRONIC AGE September 25, 2017

Presented by Patti Duranty-Robbins Strategy & Planning Specialist PNC Bank, NA THE BALANCING ACT g

Protecting Businesses interests VS. Meeting customer needs

Threats Loss + Expense Customers

Together Building Trust

3 The Speed of Change - days vs. decades Where once it was decades for things to change, the electronic age allows change in days. Historically, frauds/misrepresentations were slow to evolve. This is no longer the case- wait and see to determine your reaction approach no longer works. Proactive approaches are required to combat today’s threat landscape. POST‐2008 PRE‐2008 FRAUD SHOTGUNNING CURRENT BATTLES ALTERED FICTITIOUS FUNDS SYNTHETIC IDENTITIES DOCUMENTATION DEBT ELIMINATION SCHEME BUSINESS E‐MAIL IDENTITY THEFT EQUITY SKIMMING COMPROMISE STRAW BUYER FICTITIOUS LOAN PHANTOM SALE ASSETS FORECLOSURE RESCUE SCHEME SHELL COMPANIES INCOME/EMPLOYER SHORT SALE SCHEME ASSET RENTAL OCCUPANCY INTERNAL FRAUD PROPERTY FLIPPING WHITE‐OUTS BUY AND BAIL DOUBLE SALE/MULTIPLE LIEN FRAUDULENT APPRAISAL

REG B HMDA KNOW YOUR CUSTOMER TRID WHILE FRAUD TOOLS AND ALERTS DATA COLLECTION & DEALING CREDIT PROFILES, OPTIMIZATION WITH SCORES, ALERTS SYSTEM UPGRADES CUSTOMER IDENTITY INVESTOR REQUIREMENTS PROFILE Quicken Loans

Brian Ward, Fraud Prevention

September 2017 6 Fraud in Emerging Tech

Risks: • Asset/Income Fabrications

• Identity theft

• Account takeover

September 2017 7 Fraud Solutions in Emerging Tech

September 2017 8 Pattern Recognition & Identification

September 2017 9 Metadata

September 2017 10 Metadata

September 2017 11 Out of 100 loans…

September 2017 12 Thank you

September 2017

September 2017 13 Freddie Mac Fraud Update MBA - Risk Management, QA & Fraud Forum

Robb Hagberg – Sr. Director, Fraud Risk

September 25, 2017 Agenda

. State of Fraud . Fraud Factors . Fraud Trends . Best Practices

Insert footer here using the Master Slide © Freddie Mac 15 State of Fraud

Fraud Volum e Organization

Insert footer here using the Master Slide © Freddie Mac 16 Factors to Consider

. Credit Policy Verbiage – Does it say what you intend? . Technology – Do you understand your vulnerabilities? . KYC – Do you really know who you’re working with? . Underwriter Knowledge/Skills – How deep does it go? . Fraud Controls – Do you have them? Are you keeping them? . Fraud Schemes – Do you know how they might evolve?

Insert footer here using the Master Slide © Freddie Mac 17 Investment Clubs

. Purchase as refinance structure . Hard money lending through affiliate . Immediate refinance . Refinance often in process at time of acquisition . Turn key service . Value and appraisal independence are questionable

Insert footer here using the Master Slide © Freddie Mac 18 Investment Income Scheme - Evolution

Change 1 - Scheme is being coupled with purchase as refinance: . Borrower acquires property using hard money loan . Borrower immediately refinances property as investment and qualifies on investment income . Often unclear how hard money lender became involved

Change 2 – Source of borrower funds are changing: . Formerly, borrowers would park funds in account to season . New twist is borrower brings money into account incrementally on a daily basis

Insert footer here using the Master Slide © Freddie Mac Mass Loan Level Misrepresentation

. Income documentation » 4506-T passes » Current documents are false » Fabricated education documentation

. Assets » Altered bank statements » False Gift Letters

These misrepresentations may become the building blocks on complex straw buyer and adverse flipping schemes.

Insert footer here using the Master Slide © Freddie Mac 20 Misidentification of Industry Professionals

. True identity of industry professionals is concealed.

. Intention may be to circumvent fraud controls – watch lists, exclusionary lists

. Examples of identities that may be concealed: » Loan Officer » Appraiser » Closing Agent/Closing Attorney

Insert footer here using the Master Slide © Freddie Mac 21 Best Practices

.Stay Vigilant

.Maintain Controls

.Actively Look for Red Flags

.Report Fraud

.Train Staff

Insert footer here using the Master Slide © Freddie Mac 22 Resources

. www.freddiemac.com/singlefamily/preventfraud/resources.html » Fraud Mitigation Best Practices » Mortgage Screening Process » Mortgage Fraud Prevention Toolkit » mortgage fraud-related articles . www.loanscamalert.org . www.stopfraud.gov

Insert footer here using the Master Slide © Freddie Mac 23 Questions?

. Robb Hagberg . (703) 903-3785 . [email protected]

Insert footer here using the Master Slide © Freddie Mac 24 Fannie Mae Fraud Trend Update September 25, 2017

Presented by Your Logo here Kevin Ludden Fraud Industry Relations Manager Fannie Mae Fannie Mae Tip Volume

3000

2500

2000

1500

1000

500

0 2010 2011 2012 2013 2014 2015 2016 PROJECTED 2017 Total Tip Breakdown: 2008-2016 (+ 2017 Projected) 3500

3000

2500

2000

1500

1000

500

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 Projected 2017

ORIGINATIONS SERVICING REO Incoming Fraud Tips: January 2015 – June 2017 500

450

400

350

300

250

200

150

100

0 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 REO Servicing Origination MFP Stage Distribution on All Tips*

Fraud Tips Assessments Investigations

34% 25% 38% 36% 39% 54% 21% 27% 26%

Origination REO Servicing Source of Tips

300

250

200

150

100

0 Scheme Attributes: Originations- July 2016 – July 2017

0 Current Mortgage Fraud Risk Landscape

• Migration from Easy Refi’s to Purchase Market

• Fraud for Qualifying

• Churning / Rapid Refi’s / Live-Free Mortgages • Commission Driven Profits

• Investors Schemes • Little or No Change in Volume • Appraisal issues Scan the code send us your thoughts on the Recent Trends in Fraud Prevention Panel.