As real estate loan fraud mounts across the country, more technology companies are throwing their hats into the ring of fraud-fighting solutions.
Digital Risk’s software evaluates loans to help mortgage lenders avoid real estate loan fraud, using identity authentication services. The system flags worrisome elements in loan applications, using red for the most marked problems and orange for less urgent issues.
Residential real estate loan fraud is a national epidemic, costing communities nationwide an estimated $1 billion in 2005, compared to $429 million in 2004, according to the Federal Bureau of Investigation. Experts in the field advocate a combination of employee training and technology as the optimal way to fight mortgage fraud.
Read the Inman News white paper, “Inside Real Estate’s Fraud Crisis: Schemes that Hijack the American Dream.“
Digital Risk’s identity and income verification product, called RiskIQ, allows lenders to confirm the identities and incomes of potential borrowers in minutes. The program combines data compiled from various government databases, public records, credit bureau information, automated valuation models, and proprietary data sources.
“We work in Washington with agencies like the Internal Revenue Service and Homeland Security to create programs for lenders to access critical data necessary in the lending process,” said Jeffrey Taylor, the company’s chief executive.
“We’ve consolidated all the risk mitigation tools in one place,” Taylor said, “so a lender does not have to go to four or five companies to get each piece.”
Streamlining identity verification will cut down on human error as well, Taylor said.
The company’s software can be customized, Taylor said, because “in today’s lending and lending in general everyone does lending a little differently.” It can be installed as a part of a lender’s loan origination and underwriting systems, and can also be accessed online.
Digital Risk doesn’t charge a start-up fee, but charges per report. There is an additional charge when lenders follow up on red or orange alerts and request identity or income verification on potential borrowers.
RiskIQ has special features to deal with different issues that may arise in the mortgage loan process – for example, the stated income loan, where the borrower does not supply proof of income such as W-2 forms but simply a statement of his or her income. While the practice is legal and many such loans are perfectly honest, obviously, there is a potential for abuse in the practice.
“RiskIQ provides information on such details as the fact that an emergency room nurse makes more than a front desk nurse, and the low, medium and high income ranges for different professions so the stated income is reasonable as to what they are saying,” Taylor said.
“We had identity, income, collateral products you could use together. We tied them together in one automated report providing one 360-degree view of an application,” Taylor said.
With RiskIQ, a company can designate an individual who should be notified in addition to the employee running the report if a red or orange flag should appear. “If there is a warning, a caution or alert, we provided the next step,” Taylor said. Also, if an identity issue should surface, it’s possible to move to the Social Security Administration for resolution, or if an income discrepancy comes up, “it can escalate to the IRS,” checking those records for veracity, he said.
There is an extra fee for accessing these government records, Taylor said.
“If the appraisal looks wrong, it can escalate to automated valuation models,” Taylor said.
The company’s competitors in the fraud detection software area include Interthinx, DataVerify, LoanIQ by First American Real Estate Solutions and CoreLogic.
“Fraud is one of those issues that at first blush seems like a standalone issue, but that’s not the case,” Taylor said. “It’s just below the surface of half or more of the issues in this area that are important.”
To learn more, read the Inman News white paper, “Inside Real Estate’s Fraud Crisis: Schemes that Hijack the American Dream.“