17th October 2008
Proper Disclosures Reward the Best
Mortgage fraud, or business fraud in general, will never go away. Those who have a false belief that theft is a form of living, rather than mere existing, help make this a reality.
There are only four ways to reduce fraud; 1) education; 2) selectivity; 3) fear of prosecution; and 4) positive rewards.
Of the four, 'Education' is perhaps the best long-term method. If used properly and consistently it can ensure quality loans, from the beginning of the loan application process. After over fifty (50) years in this business, training at the originator level has, for the most part, not changed from the antiquated, "Here's your amortisation book and your territory, go and get some loans." This fosters an industry inhabited by those interested in commissions rather than the customer. Happily, the industry associations are now making an aggressive effort to provide sorely needed education, and so has La Trobe.
'Selectivity' means lenders create restrictive standards to do business with people they suspect of fraud. This is perhaps the most difficult to achieve, because anyone who thinks financial statements equate to quality, only need to remember the Savings and Loan problem in the U.S. to see that size is not the measure of quality. A careful formula that includes experience must be proposed.
'Fear of Prosecution' is a viable alternative in our litigious society. Those with a fraud mentality will most certainly find some logical reason to continue their ways. An industry that aggressively prosecutes these people and publicises the outcomes is a great start.
'Positive Rewards' is perhaps the easiest concept to understand, but hardest to implement. The concept is simple: Give those who consistently produce quality loans a competitive advantage over those who don't. The concept of rewards for quantity production are well known, but in an industry where quality affects both short-term and long-term profitability, more may be done to reward quality loan packages.
The primary reason to give rewards for good loan packages is the cost to the lender. Many lenders have looked at their quality control/audit departments as a profit centre, in the sense that if they had to re-purchase a loan, the cost could be astronomical, both financially and in reputation. Conversely, it is safe to assume, loans produced by quality originators cost a lender less to sell and to service.
Ten Commandments for Good Lending
- Thou shall fully explain the origination process.
- Thou shall give customers several product options.
- Thou shall not bait and switch.
- Thou shall quote the borrower accurate fees and rates.
- Thou shall disclose all material facts on the loan application.
- Thou shall insure that all documents are complete and accurate.
- Thou shall tell the truth.
- Thou shall fund loans where the loan is accepted.
- Thou shall under-promise and over-deliver.
- Thou shall originate good loans (loans that pay!)
If you would like to sight a copy of our internal loan fraud policy statement, please contact us on 1 800 707 707.
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Head of Lending
Iain Pepper is a Vice-President and the Head of Lending for the La Trobe Group.Read full profile here.
La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 145 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.
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