Industry News

Ratings agency quizzes MBS issuers on anti-fraud measures

S&P says automated risk detection could help

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Standard & Poor's Ratings Services is asking issuers of mortgage-backed securities how they detect and manage fraud at the origination stage. While loose underwriting standards and declining home prices are reasons often cited for the recent dramatic rise in delinquencies and foreclosures, industry reports suggest fraud has also been a factor. An industry database maintained by the Mortgage Asset Research Institute (MARI) registered a 30 percent increase in reports of suspected mortgage fraud in 2006. The database revealed that the most common types of fraud involved misrepresentations of borrower income and employment. So Standard & Poor's says it's asked the 25 largest issuers of mortgage-backed securities (MBS) to explain the procedures they use for verifying that information. Standard & Poor's also wants to know how MBS issuers are using automated tools that validate income, generate red flags about suspicious valuations, and detect flips, straw buyers and ...