04/15/2023 1

Fraud Risk Management and

Compliance

04/15/2023 2

Agenda

• Verification Services

• Application data verification

• Background data verification

• Individual reports

• Home Equity Loan report

04/15/2023 3

Data Verification

Identity• Credit header file data• Utility invoice data • Financial services data• SSA valid SSN; death

master lists• IRS direct (form 4506T)• SSA direct (form 89)• Watch lists (excluded

parties)• Prior loan submissions• Demographic data• US Telecommunications

Network• Income estimation

Property• Property data on >92%

SFR• Images of Deeds• Sale/ Refi history• USPS, CASS, NCOA

data• Suspect address lists

Court (person, company)

• Bankruptcy, Lien, Judgment

• Criminal• Arrests, Warrants,

Sex Offender• Pending litigation

Company• Commercial directories (address, phone, #

employees, revenue)• Suspect addresses (campgrounds, motels, check

cashing, etc)• Secretary of State listings• UCC secured debt• Licenses

• Web browser• System to System API• Appraisal Firewall• Calyx Point• Ellie Mae

Encompass360• Integra Online• Lender Services• MeridianLink Credit • QC Solutions • RealEC• SharperLending

Borrower identity SSA Direct Occupancy Property

ownership MERS lien search

Employer, VOE Subject Property Neighborhood

factors Excluded party

lists 4506; VOD

Professional license Bank account

verification UCC secured debt Excluded party lists CFPB complaints

National Criminal Bankruptcy Liens & Judgments Pending litigation Secretary of State

status

AVM Demographic data Field site

inspection Portfolio review Lien search

04/15/2023 4

Application Data VerificationReduce borrower fraud risks

Ensure compliance

ADV

BDV

FinCEN Roles named in SARBorrower 55%Borrower family/ business 3%Broker 14%Appraiser 7%Real Estate professional 13%Closing related person 2%Lender staff 2%Other 4%Total 100%

42%

58%

Percent

04/15/2023 5

Application Data VerificationWatch List Reports

FEMA Declared DisastersHome Price Index

Subject PropertyEmployer ID

MERS Liens

ID Validation & Address History & Ownership

Summary of Findings

Fraud Report ApprovedRural Housing

ADV-120 • Single report verifies key 1003

data elements• Comprehensive reports for

originators, correspondents, QC, warehouse

• Approved by multiple investors

04/15/2023 6

ADV –clearing false positives

ADV Reduces False Positives

• Transparency• Replicates underwriter methodology• Discrepancies between 1003 data and public

records highlighted• Data input miskey are corrected/ alternate data

returned

• False Alert Resolution• Expert Services: our fraud researches will

research a fraud alert and augment the report to show it is cleared

• Cleared by Lender: user can append report with external document and indicate “cleared by user”

• Focus• Content of report focuses on investor

requirements• Lender can further tailor report for internal

policies

Lower total cost of fraud risk compliance

• False fraud alert increases lenders loan processing and underwriting time per loan

• False fraud alerts can add:• $50 to $75 to

processing costs• 45 minutes of

underwriting extra time

04/15/2023 7

ADV ReportSummary of Findings -ADV-120

Reference # 123456789-01Process Date May 1, 2014Requesting Lender

Identity Melvin Frost coborrower nameFirst Name PassLast Name PassSSN FailDate of Birth PassAddress PassPhone AlternateZip PassID Validation Score 5(higher score = more discrepancies)

Address History & OwnershipNo. of current address records identified 1No. of current RSFR address records identified 1

MERS SSN LiensNo. of Active MERS liens found 2

Employer -Company Search London GrillCompany name/ address result London Grill RestaurantPhone number ownership results London Grill Restaurant

Subject PropertyProperty Primary Owner Melvin FrostNo. of days since last recording date 1562

FHFA HPI -Recent MSA or State Price Trend -5.81%

No. of days since last FEMA declared disaster 1059

Watch lists/ licensesExcluded party search FailAppraiser License Search Fail

1900 N Knox Ave, Minneapolis, MN 55408

ID Investigation Clear response, no “black box” = “Pass / Fail” “Miskey” shows corrections for data-entry issues “Alternate” shows corrections for close match

Address History & Ownership Tests for more than one current address Returns list of address with borrower ownership

MERS Fully integrated MERS search for all liens

associated with borrower Active, inactive, transferred

Employer ID Two tests; first verifies company name/address Second returns billing name/address for phone #

Subject Property Ownership verification Last sale date, test for anti-flipping Refi / Sale/ Finance history Neighborhood price change history FEMA declared disaster history

Watch Lists & License Tests all participants (company & person)

against excluded party lists Verifies appraiser license is active

04/15/2023 8

Updating ADV Report

1) Cleared by lender• Instantly update fraud report• Change an alert to “cleared by lender”• Add comments and attach supporting

documents• Reprint full report with change and new

documents

2a) Request a rework• Request assistance from fraud experts to help

research an alert to clear it or provide additional information

2b) Refresh report before closing• Instantly request key data be updated just prior

to closing

3) Communication• Integrated two-way messaging with experts to

assist in updating report

• Fully integrated:• LOS: Encompass, Calyx, Integra• Credit: MeridianLink, SharperLending

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2

Summary of Findings Reference Number 123456789-01 Process Date Jan 1, 2013 Requestor ABC Lending

Identity John Homeowner

Mary Homeowner

First Name Pass Pass Last Name Pass Pass SSN Discrepancy Pass Date of Birth Pass Pass Address Pass Pass Phone Pass Discrepancy ID Validation Score 1

Address, Ownership History No of current address records 1 1 No. of current ownership records 1 1

Summary of Findings Reference Number 123456789-01 Process Date Jan 1, 2013 Requestor ABC Lending

Identity John Homeowner

Mary Homeowner

First Name Pass Pass Last Name Pass Pass SSN Cleared by Lender Pass Date of Birth Pass Pass Address Pass Pass Phone Pass Discrepancy ID Validation Score 1 1

Address, Ownership History No of current address records 1 1 No. of current ownership records 1 1

04/15/2023 9

Background Data VerificationReduce service provider risk

Ensure compliance

ADV

BDV

FinCEN Roles named in SARBorrower 55%Borrower family/ business 3%Broker 14%Appraiser 7%Real Estate professional 13%Closing related person 2%Lender staff 2%Other 4%Total 100%

42%

58%

Percent

04/15/2023 10

Third-Party Vetting

CFPB Bulletin 2012-03:

Under Title X regulations CFPB expects supervised banks and nonbanks to have an effective process for managing the risks of service provider relationships. These steps include, but are not limited to:

• Conducting thorough due diligence …,

• Establishing internal controls and on-going monitoring...

Reduce service provider risk and ensure compliance with:

CFPB OCC Investor guidelines FDIC, NCUA

o Typical lender has many hundreds of service providers

• Title, closing, real estate attorneys• AMC, appraisers• Originators, internal staff• Correspondent applicants

o Regulators now audit for• Initial due diligence on each service provider• Ongoing monitoring for new risk factors

o CFPB is enforcing new regulations• “Consumers must not be hurt by unfair, deceptive,

or abusive practices of service providers…banks and non-banks will be held accountable”

• CFPB announced on May 2014 –they issued over $70 million in fines to non-bank entities

• Penalties ranged from $5,000 to $25,000 per day; with double and triple damages for negligence

04/15/2023 11

BDV –Background Data

Verification

Public Records Search Company Person Package* BDV-C1 BDV-C10 BDV-P1 BDV-P10 BDV-200 National Civil Court Records (Bankruptcy, Lien, Judgment) √ √ √ Pending Litigation (Civil, Criminal, Bankruptcy, Appellate) √ √ √ Professional Licenses -NMLS, Title, Appraiser (Status, Sanctions) √ √ √ √ √ Excluded Party Lists (EPLS, OFAC, HUD, Investor specific, …) √ √ √ √ √ Internet search for related links to derogatory mortgage activities √ √ √ √ √ Secretary of State Company Status “In Good Standing” √ √ UCC Secured Debt Filings (with cautionary collateral) √ √ National Criminal Records (Person) (Convictions, Arrests, Sex Offender) √ √ Person Identity Verification (Name, SSN, DOB, Address, Phone) √ √ HUD Neighborhood Watch & CFPB Complaints Databases √ Bank account verification Option Option Insurance verification (E&O and Fidelity Bond) Option Option Reference checks Option Option BDV Management System (automatic alerts for new records) Option Option Option Option Option

(*BDV-200 includes one company and up to 3 owners/ executives)

BDV –Person (owners, agents)• Comprehensive review P10

• Uncover license sanctions, criminal charges, financial stress factors, exclusion list matches

• Short review –P1• Licenses and exclusion lists

BDV –Company• Comprehensive review C10

• Uncover compliance issues, financial stress factors, legal issues, exclusion list matches

• Short review –C1• License and exclusion lists

04/15/2023 12

Summary of Findings: BDV-100Reference # 1234567890Process Date 5/1/2014Requestor ZXY WarehouseInput Company name ABC Title IncAddress 1 Main Street, Minneapolis, MN 54321Agent Jack FrostPhone (555) 444-3333

Results: Company ABC Title IncPublic records type Result UpdatedSecretary of State

Status Active/In Good Standing 5/1/2014Bankruptcy

Records < 7 years old, company = debtor 0 5/1/2014Civil Court (Liens, Judgments)

Unreleased records < 2 years old, amount > $0, company = defendant 1 5/1/2014Pending litigation

Pending records < 2 years old & company = debtor OR defendant 1 5/1/2014UCC secured debt

Records not terminated/expired w/ cautionary collateral in last 90 days 1 5/1/2014Watch Lists

Excluded party search No match 5/1/2014

Additional OptionsLicense verification Verified

Results: Person -agent Jack FrostPublic record type Result UpdatedLocate by Name

Unique identify record found Yes 5/1/2014Address History

Records identified Verified 5/1/2014Bankruptcy

Records < 7 years old, person = debtor 0 5/1/2014Civil Court (Liens, Judgments)

Unreleased records < 2 years old, amount > $0, person = defendant 0 5/1/2014Pending litigation

Pending records < 2 years old & person = debtor OR defendant 0 5/1/2014Criminal (arrests, convictions)

Criminal = non traffi c & < 7 years old 0 5/1/2014Watch Lists

Excluded party search No match 5/1/2014

Additional OptionsLicense verification Verified

BDV -Company Secretary of state status Bankruptcy Liens & Judgments New lawsuits UCC secured debt Watch lists Internet articles License

BDV -Person Identity verification Bankruptcy Liens & Judgments (county, state,

federal) New lawsuits (federal & district) Criminal (county, state, federal) Watch lists Internet articles License

BDV Features• Minimal input information• Detailed results with filters to help

focus in on high risk factors• Up to date information• Unique internet article search

04/15/2023 13

BDV Management System

• Manage all background reports• Staff, appraisers, settlement, general, …

• Review derogatory records• Assign temporary / conditional / full

approval

• Manage monitoring• View alerts lists

• Review new incremental derogatory records

• Change approval status

• Archive reports• Retain reports to show what was know at

time of loan

Typical lender has 100 to 500 partners plus staff:

BDV provides a simple, economical solution to:

Order initial report

Manage 100s of reports

Monitor statusAdd, remove

agents

04/15/2023 14

BDV Mgt Sys –screen shots

Initial Report Search for new company /

Person Enter new order

BDV Report View summary and

detailed derogatory records

Approve / Conditional Approve / Suspend partner

04/15/2023 15

BDV Mgt Sys –screen shots

Monitoring Report View new alerts on all

partners & staff

BDV Updated Report Review new incremental

derogatory record Update partner status

04/15/2023 16

Individual ReportsAd hoc research

04/15/2023 17

Individual ReportsIdentity• ID Investigation Report• SSA Form 89 Verification• Participant Report $/report (up to 8 names)• NMLS license status search• Enhanced Reverse Phone (unpublished

numbers, cell, etc)

Liens• MERS SSN Lien Report• Voluntary Lien Search• Involuntary Lien Search

Subject Property• Subject Property Report• Property Tax Status Report• Legal & Vesting + Transaction History Report• AVM -standard• AVM -enhanced

Employment• Employer ID Report• VOE (fax with reverse phone check)• Verbal VOE (with reverse phone check)• VOE with reconfirmation

(fax or verbal, reverse phone & verbal voe prior to close)

• VOE via 3rd party database

Occupancy• Occupancy & Bankruptcy Report• Field Inspection -Occupancy

Income• Estimated income• 4506-T (1040, 1065, 1120, 1120S, W-2, 1099)

Vetting (person, company)• Bankruptcy, Lien, Judgment• National Criminal • Pending Litigation• UCC Secured Debt• Professional License, Education, References• Excluded party lists• Secretary of State status

Batch• Watch List (OFAC-SDN, etc) $/search• Appraiser License• Research a "false positive" $/ name• Watch List -Daily Monitoring of staff/vendors

Comprehensive fraud detection, verification and

background screening options

04/15/2023 18

ADV-2nd LienNew Product

2013

2014

2015

2016

-

4.0

8.0

12.0

Number of home equity loans

04/15/2023 19

Home Equity Loans• Home prices are on the rise and that means

opportunity for home equity lenders. • HELOC originations growth was 20% in 2014 and

is expected to continue for 2015 as home owners access equity they have in their homes.

• Banks and CU home equity underwriting requires information on:o Verify current ownershipo Research current liens (mortgage and judicial)o Research current property tax statuso Verify applicants identityo Current valuationo Current credit report

04/15/2023 20

ADV-2nd Lien• Summary of findings• Valuation• Liens

o Current mortgage lienso Liens, judgmentso Personal bankruptcieso Property tax status

• Neighborhood factorso Purchase price trendso Recent FEMA declared disasters

• Subject property detailso Ownershipo Last sale dateo Physical description

• Identity verificationo SSN, DOB, Name, Address,

Phoneo Exclusion list check

Summary of Findings: ADV-2nd LienReference # 123456789-01Process Date January 7, 2015Requesting Lender DEF Bank & Trust

Subject PropertyProperty Owner(s) Melvin Frost

AVM valuation range $250,000 - $310,000Mortgage liens (cumulative since last transfer) $228,000

Property tax status (date updated) DELINQUENT 11/8/2014

FHFA HPI -Recent MSA or State Price Trend -5.81%No. of days since last sale recording date 13,520No. of days since last FEMA declared disaster 1,310

MERS SSN Liens Melvin Frost coborrower nameNo. of Active MERS liens found 1

Bankruptcy, Lien, Judgment Melvin Frost coborrower nameBankruptcy 0Judgments -non released 0Liens non released (matching property address) 0

Identity Melvin Frost coborrower nameFirst Name PassLast Name PassSSN FailDate of Birth PassAddress PassPhone AlternateZip PassID Validation Score (higher=more discrepancies) 99Excluded party search Pass

1900 N Knox Ave Temecula CA 92501

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Benefits: ADV-2nd Lien • Reduced fall out

o Immediate access to ADV report while borrower is in branch or online

• Lower costo Data is available from Title company and county records officeso Saves time and cost of abstractor

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BenefitsObjective search of billions of public records to compare and identify discrepancies in loan application

Consolidated summary report highlights key findings

Easy to read detailed reports highlight discrepancies, warnings and risk items

Consistent report layout makes it quick and easy for underwriters to find the information they need

Save $30-$300 in total cost of fraud detection

Access only the reports you need from POS to closing

Eliminate errors at 1003 to reduce underwriting delays

Independent

Comprehensive

Cost-effective