Lenders’ techniques for discovering occupancy fraud

Lenders have new ways to find out whether those who obtained mortgages really are living in that residence:

But what loan applicants may not know is that lenders increasingly are using more sophisticated methods to sniff out lies — and they are coming after perpetrators. Previously, lenders might have employed teams of “door knockers” to visit houses to see if the borrowers listed on the mortgage actually lived in the houses they financed. Or they might have run spot checks on loans using tax, postal and motor-vehicle record databases.

Now, however, lenders have gone high-tech. Companies such as LexisNexis Risk Solutions recently have begun providing them with digital programs that instantly tap into multiple proprietary and public data resources, then use algorithms to pinpoint borrowers who likely lied on their applications.

Tim Coyle, senior director for financial services at LexisNexis Risk Solutions, told me that the company’s popular occupancy-fraud detection tool for banks and mortgage companies accesses 16 different data resources to discover misrepresentations by borrowers. Since the program is proprietary and has a patent pending, Coyle would not divulge which databases it uses. But he confirmed that they include credit bureau files, utilities bills, federal and local tax data, and a variety of other information.

It would be interesting to know how successful these techniques are. Legally, how much evidence do lenders need in order to successfully go after borrowers? It is easier or harder than evicting someone? Are there ever any cases where homeowners are wrongly accused?

Perhaps sharing this information via the media is just a technique intended to scare off potential scammers – it would be a lot cheaper for everyone if fewer people tried to claim illegitimate residency. The consequences can be pretty severe:

What happens to borrowers who lie about property use and subsequently are found out? Usually it’s not pretty. Lenders can call the loan, demanding immediate, full payment of the outstanding mortgage balance. If the borrowers can’t afford to or refuse to pay, the lender typically moves to foreclose, wrecking whatever plans of long-term investment or vacation-rental-home ownership the borrowers might have had. In cases involving multiple misrepresentations, lenders can also refer the case to the FBI: Lies on mortgage applications are bank fraud and can trigger severe financial penalties, prosecution and prison time if convicted.

Given these penalties, it seems like an area of white collar crime that may not be that profitable…

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