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Transcript of Presentation - Wohl
Using Lender Data to Pursue Legal Remedies for Fraud
Richard WohlFortace LLC
22
• Lenders are “Sharing” Huge Fraud Losses but not
Data
• Common Fraud Schemes, Actors & Basis for
Recourse
• Legal Pursuit is Required as Part of Loss Mitigation
• Fraud Identification, Analysis and Pursuit --Program
Template
• Using Fraud Data to Prevent New Losses
• The Future: Sharing Data to Fight Fraud
3
Lenders are “Sharing” Huge Fraud Losses but not Data
Source: US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), FBI, TowerGroup.
40,000
60,000
50,000
80,000
10,000
20,000
30,000
70,000
1996 1998 2000 2002 2004 2006 2008P 2010P
1,318 1,720 2,269 2,934 3,515
75,122
18,391
9,539
5,3874,696
71,554
65,049
50,038
37,313
25,989
SARs
File
d
Fraud Trends:• Losses in 2008 will be between $15.0 & $25.0 BB• Growth of SARs will continue at high levels• Data sharing and vigorous pursuit will be critical
Total losse
s skyrocketing
20.0
30.0
25.0
5.0
10.0
15.0
Tota
l Yea
rly
Loss
es, $
BB
4
Variety of Fraud Schemes are Proliferating
Common Fraud Schemes
“Bad Actors” Breach of Legal Duty
•Inside Collusion•Silent Seconds
•Closing Protection Letter
•Closing Agent
•Property Flipping•Value Fraud
•Identity Theft•Phantom Assets•Churning•Foreclosure Bailout
•Quit Claim Fraud•Adding False Owner
•Short Sale’s Fraud•Straw Buyer•Builder Bailout
•Appraiser •USPAP / E&O Claim
•Loan Officer•Mortgage Broker•Correspondent Lender
•Fidelity Policy Claim•Broker Agreement•Seller Agreement
•Realtor•Home Builder
•Title Company
•Tort Claim
•Fraudulent Underwriting
5
Legal Pursuit and Recovery is a Vital Component of a Robust Anti-Fraud Program
• Fraud Losses Destroy both Lender and Investor Returns– Fraud destroys bond and
portfolio ROIs
– Secondary Market Performance Models can account for statistical losses, but not for fraud
– Lenders and Servicers have historically not pursued fraud recovery beyond the originator
• Servicers Have a Contractual Duty to Pursue Fraud Recovery– Servicers are pre-occupied with
more politically pressing loss mitigation efforts like loan modifications
– Lenders and servicers owe fiduciary duties to Investors to provide loss mitigation programs
– The “Servicing Standard” now includes aggressive action to recoup fraud losses
• Investors and Regulators are Demanding Aggressive Action– HUD and the GSEs have dramatically
increased the pressure on Lenders to repurchase fraudulent loans
– Loan modifications and bankruptcy “cramdowns” will exacerbate losses
– Congress and Regulators are pressing Servicers for accountability
6
Credible Fraud Recovery Requires a Thorough, Proven Process
Portfolio Scrubbing
Loan Portfolio or
Pool
Bad Actor Database
Search
Fraud Marker Algorithm Search
No Further Work
File Audit Review
Field Investigation Claims Pursuit
File Level Audit Review by
trained Forensic Auditors
Field Auditor validates
findings and determines
collectabilityFunds remitted
to Lender or Bond Investors
via Trustee
No Further Work
No Further Work
Management QC Review
No
Funds Collected
Yes
Yes
No
No No
Yes
Claim Developed & Pursuit Initiated
Settlements & Judgments
Yes
Yes
7
Fraud Detection Tools Maximize Recovery Pool
STEP 1Identify Target Loan Pool
STEP 2Prepare and Transmit Data for Analysis
STEP 3Find “Bad Actor” andDetection AlgorithmMatches
STEP 4Determine Loans withHigh Fraud Markers for Audit
• “Bad Actor” Proprietary Data
• Lender/Servicer Shared “Bad Actor” Data
• Business Partner “Bad Actor” Data
Proprietary Detection Algorithms
Database Partner Detection Algorithms
BACKTEST AND REFINE Database and Algorithmswith Known Fraud Loans
• DQ Loans
• Repurchased Loans
• QC Findings
• M/I Claim Denials
MARI/Lexis-Nexis
8
Use Forensic Audits to Confirm “Collectible Fraud”
• “Bad Actor” matches
• Fraud detection algorithm correlations
• Utilize specially trained“ fraud finder” auditors
• Specialist Audit firms can assist (Clayton)
• Fraud must be clear and convincing
• Fraudulent acts must be attributable to a professional party to the transaction
• Find significant available assets from sponsoring company or insurance policy
• Develop and prepare claim for legal pursuit
• Liaison with federal, state and local law enforcement to enhance asset discovery and recovery
STEP 5Audit High FraudMarker Loans
STEP 6Use Specially Trained Auditors
STEP 7Find Material Fraud, Culpable Parties and Recovery Resources
STEP 8Prepare Case for Litigation
9
Use Qualified Counsel to Pursue and Litigate Claims
• Standardized & proven pleadings and motions cover common claims types by jurisdiction
• Refine agreements, pleadings and motions based on case experience and results
• Use Counsel with specific experience in pursuing mortgage fraud
• Use established metrics to ensure timely case resolution
• Identify and manage outside claims attorneys in key jurisdictions
• Utilize uniform performance agreements, quarterly accountability reports and standard fee schedules
• Develop parameters for approval of settlements and judgments
• Settlement and judgment proceeds will mitigate lender and investor losses
STEP 9Use Proven Templates for Claims, Demands and Litigation
STEP 10Develop Specialized and Capable Case Management
STEP 11Qualify and ManageStrong Network ofOutside Attorneys
STEP 12Closely supervisenegotiations andsettlements
10
“Those Who Ignore History are Condemned to Repeat it”
2004-2005…
Hawthorne, CA Home
• Civil Fraud Judgment: LA County Superior Ct, 2005
• Title Agent forged signature on Deed and recorded it to convey title to new owner
• New Owner Borrowed: $470,000
Prior Lien Payoff:$203,000
Net Fraud Proceeds/ $267,000
Bank Losses
2007-2008
Rancho Cucamonga, CA Home #1 Rancho Cucamonga, CA Home #2
• Criminal Conviction : US Attorney, Central Dist CA
• Straw Buyers found to purchase properties using fraudulent title/escrow company
• Straw Buyer Borrowed: $4,000,000
Prior Lien Payoff: $2,000,000
Net Fraud Proceeds/ $2,000,000
Bank Losses
Angela Cotton Victory Title &
Escrow
11
Using Fraud Data to Prevent New Losses
• Lexis-Nexis/Choice Point
• Fraud Guard (SS#, Employment History, Address History
• Credit Report Fraud Alerts – contact borrower directly to confirm identity and legitimacy of proposed transaction
• Internet– Social Security Verification
– State, County & City Licensing Verification
– Tax Preparer Authentication
– Reverse Phone Number & Address Lookups (free sites)
– People/Business Searches (zabasearch.com – free & fee sites)
– Salary Approximation on Stated Income (salary.com – free site)
• Utilize 4506-T with the IRS to validate Tax Returns & Filing Status (stated income loans)
• Property searches & aerial photos (Sitex.com AVM’s – fee; RealQuest.com – fee; Zillow.com – free; Realtor.com – free; Googleearth.com – free & fee)
• County Assessor Data
12
The Future: Shared Lender Database
Key Elements Key Legal Risks Key Mitigants
•Data Contributed by Major Lenders and GSE’s
•Fair Credit Reporting Act Claims
•FCRA consumer defamation claims prohibited
•Providing FCRA appeals process
•Covers all major categories of “Bad Actors” (closing agents, realtors, brokers, loan officers, appraisers)
•GLB privacy claims •GLB safe harbors for preventing fraud and for reporting to Credit Agencies
•Contains origination and servicing “incident” information
•“Interference with Contract Claims”
•Qualified privilege for lenders to share information under “common interest” exemption
•Develop for Mortgage Industry (MERS Model)
•State UDAP Claims •MARI Case Experience