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72 With the implementation of stricter servicing standards, tighter communication requirements, and elimination of products with un- scheduled and highly unpredictable payment increases, the housing industry is seeing a continuing decline in mortgage delinquencies. While this is great news it does not mean that all the risk manage- ment focus put in place during the crisis can be put to rest. ere continues to be pockets of problem loans and types of collateral that need special attention. One of these areas is consumer fraud. As an industry, we are long past the days of "liar loans" and collateral based lending, but anyone who be- lieves that fraud is no longer a problem, especially in the servicing area, is sticking their head in the sand. It is important to remember that there are still many individuals, who may or may not be a part of the industry, who understand quite well that there is money to be made in fraudulent real estate transactions. Knowing what these scams are, how they work, and how they will ultimately impact you and your customers is critical. Pre- paring for the possibility through developing and implementing plans to prevent your customers from falling victim is a fundamental part of the overall management of fraud prevention. FINDING FRAUD e most devastating type of fraud for a ser- vicer is one that deprives them of the right to take ownership of the property and sell it to recoup at least some of the losses they have suffered from the default. One common scenario where this occurs is the case of the distressed homeowner. In these instances, the homeowner has most likely suffered a serious life event such as an illness, job loss, or is faced with a significant increase in the housing payment due to the con- clusion of an interest-only portion of the loan ac- companied with a negatively amortized balance. When this occurs, it's not uncommon for the consumer to fall for promises by groups that will "solve" the problem for them. e scam typically begins with initial contact between the consumer and the scammer, wherein the consumer explains the problem and the scammer promises to help. ese scammers will assure the borrowers they can still keep the house by letting the scammers buy the house for the amount outstanding on the loan. e scammers say they will make the mort- gage payments, but stipulate that the consumer can remain in the property only if they pay rent to the scammers. Once the consumer is able to make the payments again, they will sell it back to consumer for a price equal to what they've already paid in rent. At this point the borrower will typically call the servicing company to let them know that they are selling the house and that the mortgage will be paid off. e borrowers then go to a "clos- ing" where they deed the property over to the scammers. Of course this means that the note is now due and payable, but the servicer is expect- ing a payoff, which never arrives. e scammers then collect the rent from the borrowers but never make a payment on the mortgage. At some point, the servicer once again noti- fies the homeowner that the payments are over- due and that they will proceed with foreclosure M A R K E T P U L S E / R E B E C C A B . W A L Z A K PREYING FOR PAYOFF P Troubled homeowners are easy prey for scammers, but steps can be taken by homeowners and servicers to make sure their investments are protected.