Mortgage fraud is serious business, harmful to the public and financial markets. And it will always be with us, like cheating at cards and taxes. Both vigilance and punishment are permanent necessities.
Unfortunately, other behaviors are just as common. Whenever something bad happens, we will overreact — overreaction in direct proportion to how bad the bad was. The regulatory reaction to stock market and banking abuses and failures leading to the Great Depression stayed in force for 40 years (and more or less forgotten altogether by the 70-year mark). The overreaction to the Credit Bubble and Great Recession will last as long.
But overreaction it is today — heavy, crazy, and an impediment to recovery, and far stronger than the Depression aftermath.
Embedded in the overreaction: those who would profit as over-reactors, commercial ventures or regulators. Some new market cops are useful, and their overuse is not the fault of the providers.
Another layer: Everyone today is tempted to use the media to puff business ventures, but what does mortgage fraud have to do with “Super Tuesday States” except to attract search engines?
What’s the real problem?
Every loan application today is scoured by similar correlation-search software, often several kinds. So is every credit report (Patriot Act, identity and address matching …). We search every county in the U.S. for your name, looking for real estate ownership not disclosed to us (we find a lot of parents of same name, and heaven help the Smiths).
Every lender (person and company) is licensed, and the license tag stays with the application forever — any pattern of wrongdoing will quickly stand out in tracking software. Contrary to the notion that originating firms could “sell and forget” their loans, forced buy-backs of not-very-deficient loans 2008-2014 nearly cratered the system.
Most mortgage lenders today feel that we spend more time chasing imaginary fraud and complying with compliance departments struggling to comply with regulators than we do making loans to you.
So when you see an assertion of fraud detection, ask: Is this the bad guys coming back? Or salesmanship by a vendor or regulator defending its existence long after the barn door has been locked, bolted, chained and welded shut?
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at firstname.lastname@example.org.