Mortgage Fraud Threats to Credit Unions
In an exclusive interview, Vander Wall discusses:
- What the NCUA is doing to help credit unions share best practices for preventing mortgage fraud;
- The inherent protection basic retail mortgage transactions provide;
- Why due diligence is necessary when working with third-party lenders.
Vander Wall was promoted to the position of program officer within NCUA's Examination and Insurance Division in April 2010. As a program officer, Vander Wall oversees NCUA's examination process. Before taking on the new position, Vander Wall worked for 11 years out of NCUA's Region II office as a principal examiner in New Jersey. Vander Wall is a graduate of Calvin College and holds a bachelor's degree in accounting.
TRACY KITTEN: Do credit unions have unique advantages over banks where controlling mortgage fraud is concerned? Hi, I'm Tracy Kitten, managing editor of CUInfoSecurity.com, here with Marcus Vander Wall, program officer of the National Credit Union Administration. Marcus, before we get started can you tell the audience a little bit about your role at the administration?
MARCUS VANDER WALL: Certainly. Well, I'm the program officer. I work in the supervision side of NCUA's examination and insurance division. I spent 11 years as a field examiner based out of New Jersey and recently was promoted to the position in April. So, my primary responsibilities include oversight for NCUA's examination process.
KITTEN: I wanted to ask you what unique advantages credit unions have over banks, where controlling mortgage fraud is concerned?
VANDER WALL: In general, I would agree that credit unions do lend locally and that's just a part of the field of membership restrictions that credit unions are working under; but I guess that would come in handy when we look at some of the recent trends in mortgage fraud. One of them is a trend called "flopping," and it's a variation of short sale fraud, where lenders are convinced that the property is worth less than it actually is. And there have been a lot of short sales in the market recently. It's estimated that there were approximately 600,000 last year, and that number could double this year.
So if credit unions are lending locally they're going to be in a much better position to understand and identify when they see an unrealistically low home-value figure come across their desk. I'd also say that a lot of credit unions do engage in basic retail mortgage transactions, where borrowers make their application directly with the credit union loan officer. And those are, in general, the safest kind of transactions, because they involve the fewest number of third parties, and that limits the opportunities for fraud to exist.
Now, when credit unions increase the number of third parties they use to originate loans, either through mortgage brokers or through financial-institution correspondents, they do increase the opportunities for fraud to exist.
Maybe, finally, credit unions are also working on smaller numbers of short-sales modifications and foreclosures, in general. So, in some cases, credit unions are in a better position to assign resources to certain problem loans.
KITTEN: What has the industry learned from the recent mortgage fraud cases, such as the CU National Mortgage and Lee Farkas cases?
VANDER WALL: Definitely the importance of third-party due diligence, again, has come out to the forefront; and the NCUA letter to credit unions, 07-CU-13, takes the broadest look at evaluating third-party relationships, and it provides a lot of significant details regarding performing due diligence when you enter into a third-party relationship as well as maintaining a strong level of due diligence as an ongoing factor. What I'd also like to maybe point people's attention to is NCUA letter to credit unions 08-CU-19, and that talks about third-party relationships as they apply directly to mortgage brokers and financial institution correspondents, and it provides very specific guidance on the types of due diligence that need to be in place when you look at working with mortgage brokers and correspondents.
KITTEN: And I was going to ask, "What's the best way to fight fraud?" and it sounds like you're saying, "due diligence."
VANDER WALL: Due diligence is, kind of, one of the key things that NCUA's been holding on to the past couple of years, and we want to continue to make that part of the discussion. There are some other things that are, I think, some good tools that are coming and one is going to be the SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act). It's been in place at the state level and now we're working on finalizing the federal rule; but the SAFE Act is going to allow for registration and require licensing of mortgage loan originators, and that's going to enable the government to do additional follow up when people move from institution to institution. So, that'll create another tool for fighting fraud and it's going to increase law enforcement's ability to track and prosecute it, as well.
I'd say some other tools for fighting fraud right now: I'll give you a website. It's www.stopfraud.gov and it's a website that was created by the Financial Fraud Enforcement Task Force, which is a task force of regulatory agencies that was created by the Obama Administration. NCUA recently joined over 20 other federal agencies on the task force, so it's a good website to check out. You can report fraud; you can learn more about fraud. And another good, really good, I think, source for learning about fraud is the FSIAC (Financial Services - Information Sharing and Analysis Center) Mortgage Fraud Prevention Guide, which was recently issues in February of 2010. It goes through different types of fraud, how they can be identified, what the red flags are, and it gives tools for creating best practices to avoid those kinds of frauds.
KITTEN: I wanted to ask, in closing, what steps the NCUA is taking to help credit unions.
VANDER WALL: I think we're going to be working with the FFETF (Financial Fraud Enforcement Task Force) a little bit more on sharing information between agencies, so that we can have a stronger hand in following up and enforcing fraud when we find it and getting the information out there; and part of that is broadcasts like this and also encouraging credit unions to talk to each other and share information on best practices.
KITTEN: Thank you. Again, we've just heard from Marcus Vander Wall of the National Credit Union Administration. For CUInfoSecurity.com, I'm Tracy Kitten.