MORTGAGE FRAUD STATISTICS
Acting U. S. Attorney Jeff Sloman indicted forty-one “un-professionals” on mortgage fraud on July 28, 2009. These un-professionals face a variety of mortgage fraud charges involving $40 million in loans. The six separate cases epitomize the insidious nature of mortgage fraud from purchasers to mortgage brokers to real estate agents to lawyers, said Sloman.
Congress has appropriated $522 million in order to work towards higher mortgage standards. The money is to be spent in fiscal year 2010 and 2011 that is from October 1, 2009 to September 30, 2011. The majority of the money is for investigating and prosecuting mortgage fraud.
There are 2,440 pending FBI mortgage fraud investigations, as of April 2009. This is more than double from the past three years.
In total, mortgage fraud suspicious activity reports in 2008 were at 63,173. They indicated more than $1.5 billion in losses. So far, up to May 2009, there are 40,901 suspicious activity reports.
Mortgage fraud cases opened in 2009 equaled 965, as compared to 136 opened in 2004.
During the fiscal year of 2008, the FBI had 574 indictments and 354 convictions on mortgage fraud.
President Obama notes that last year, the Treasury Department received 62,000 reports of mortgage fraud, which is more than 5,000 each month.
The FBI has created sixty-five mortgage fraud task forces/working groups.
There are over 500 new internet pages a month regarding mortgage fraud.
Thursday, May 27, 2010
Thursday, May 20, 2010
AVOIDING PONZI SCHEMES: Four Tips (Part 2)
DO YOUR HOMEWORK
To save yourself from falling into the clutches of a Ponzi Scheme, it is important to do your homework and review an investment with a comfortable level of skepticism. Request a copy of the promoter’s license in order to confirm you will be entrusting your hard earned funds to someone legitimate. Check their credentials to see if they have ever had their license suspended or revoked. Speak with your state, county or city securities regulator to confirm the answer. The number for your state securities regulator can be found in the government section of your local phone book or by speaking with the North American Securities Administrators Association at (202) 737-0900. A legitimate salesperson will be registered with the Financial Industry Regulatory Authority (“FINRA”), The Securities and Exchange Commission (“SEC”) or a state securities regulator. To verify a broker’s license and registration, including whether or not they have ever had a complaint filed against them, contact BrokerCheck at (800) 289-9999. Investment advisors can be verified by the SEC’s Investment Advisor Public Disclosure website at http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_OrgSearch.aspx. Additionally, to check on an insurance agent, you can speak with your state’s insurance department, which can be located through the National Association of Insurance Commissioners (“NAIC”) at http://www.NAIC.org. Individuals that are sellers should be investigated through your state securities regulator.
DIVERSIFY
A diversified investment portfolio will keep you protected from completely emptying your pockets should you somehow invest funds in a Ponzi Scheme. No one enjoys losing money, but through proper diversification you suffer a much smaller blow. By spreading out your investments, it will be a softer pain to lose 5% of your funds than your life savings. No matter how good an investment may appear to be doing, the safest security measure is not to put all of your money in one place.
CONCLUSION
Ponzi Schemes have become a pandemic cause for concern due to the state of our current economy. Hopefully, this article has provided you with several elements that you will put to use to guard your finances. It is easy to fall victim to venom without knowing proper keys for detection and avoidance. Secure your savings with dynamic diversification, a sense of skepticism, heeding your homework and avoiding overpromised payouts.
To save yourself from falling into the clutches of a Ponzi Scheme, it is important to do your homework and review an investment with a comfortable level of skepticism. Request a copy of the promoter’s license in order to confirm you will be entrusting your hard earned funds to someone legitimate. Check their credentials to see if they have ever had their license suspended or revoked. Speak with your state, county or city securities regulator to confirm the answer. The number for your state securities regulator can be found in the government section of your local phone book or by speaking with the North American Securities Administrators Association at (202) 737-0900. A legitimate salesperson will be registered with the Financial Industry Regulatory Authority (“FINRA”), The Securities and Exchange Commission (“SEC”) or a state securities regulator. To verify a broker’s license and registration, including whether or not they have ever had a complaint filed against them, contact BrokerCheck at (800) 289-9999. Investment advisors can be verified by the SEC’s Investment Advisor Public Disclosure website at http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_OrgSearch.aspx. Additionally, to check on an insurance agent, you can speak with your state’s insurance department, which can be located through the National Association of Insurance Commissioners (“NAIC”) at http://www.NAIC.org. Individuals that are sellers should be investigated through your state securities regulator.
DIVERSIFY
A diversified investment portfolio will keep you protected from completely emptying your pockets should you somehow invest funds in a Ponzi Scheme. No one enjoys losing money, but through proper diversification you suffer a much smaller blow. By spreading out your investments, it will be a softer pain to lose 5% of your funds than your life savings. No matter how good an investment may appear to be doing, the safest security measure is not to put all of your money in one place.
CONCLUSION
Ponzi Schemes have become a pandemic cause for concern due to the state of our current economy. Hopefully, this article has provided you with several elements that you will put to use to guard your finances. It is easy to fall victim to venom without knowing proper keys for detection and avoidance. Secure your savings with dynamic diversification, a sense of skepticism, heeding your homework and avoiding overpromised payouts.
Tuesday, May 18, 2010
AVOIDING PONZI SCHEMES: Four Tips (Part 1)
By Gary Opper, Managing Member, Levie-Opper, LLC
There are many tricks to avoid falling into the traps of Ponzi Schemes. With more and more scams occurring in our economy, it is wise to be aware of how to stay clear of their snares. This article will explore four of the most significant ways to detect and evade Ponzi Scheme pitfalls.
THE FRAUDSTER
An easy way to detect a Ponzi Scheme is taking notice when an investment opportunity sounds too good to be true. A fraudster will make lofty promises for a guaranteed return; however, with any legitimate business investment there is risk involved. Therefore, it would be impossible to be assured of receiving a specific profit and/or rate of return. Affluent businessman Donald Trump has stated, “Some of my best investments were ones I didn’t make.” Follow “The Donald’s” lead and skip investing in an offer that seems too good to be true.
FOLLOW YOUR INSTINCTS
A product that appears to be unique or exotic is a cause for concern. It is not wise to invest your money on an investment that seems too risky or is unfamiliar. Investments that offer a rising return or that claim to provide remarkably steady returns, regardless of the current market conditions, should give pause. Due to the current state of the economy, even the most solid investments will note fluctuation from time to time. Furthermore, any funds you receive back should be given consideration, as they may be funds that originate with other investors.
There are many tricks to avoid falling into the traps of Ponzi Schemes. With more and more scams occurring in our economy, it is wise to be aware of how to stay clear of their snares. This article will explore four of the most significant ways to detect and evade Ponzi Scheme pitfalls.
THE FRAUDSTER
An easy way to detect a Ponzi Scheme is taking notice when an investment opportunity sounds too good to be true. A fraudster will make lofty promises for a guaranteed return; however, with any legitimate business investment there is risk involved. Therefore, it would be impossible to be assured of receiving a specific profit and/or rate of return. Affluent businessman Donald Trump has stated, “Some of my best investments were ones I didn’t make.” Follow “The Donald’s” lead and skip investing in an offer that seems too good to be true.
FOLLOW YOUR INSTINCTS
A product that appears to be unique or exotic is a cause for concern. It is not wise to invest your money on an investment that seems too risky or is unfamiliar. Investments that offer a rising return or that claim to provide remarkably steady returns, regardless of the current market conditions, should give pause. Due to the current state of the economy, even the most solid investments will note fluctuation from time to time. Furthermore, any funds you receive back should be given consideration, as they may be funds that originate with other investors.
Friday, May 14, 2010
MORTGAGE FRAUD: UNFORTUNATE GROWTH INDUSTRY –Defending the Mortgage Fraud Defendant and Minimizing Sentencing Time - Part 2
MINIMIZING SENTENCING TIME
Once mortgage fraud liability has been concluded, the economic damages as a result of the fraud must be calculated. This is critical since the fine for mortgage fraud in criminal matters is based on guidelines. So, the amount of the loss will be a factor in determining the sentence. The economic loss or damage must be determined through the culmination of the loan transaction. Therefore, tracing is required from the inception of the loan through the ultimate sale of the property. The net assets need to be computed in the calculation of damages. Net assets (as referred to in federal sentencing guidelines) are the “assets remaining after payment of all legitimate claims against assets by known innocent bona fide creditors.”
In order to reduce sentencing time, the expert needs to be able to minimize the economic loss, as the two are directly related. I will share an actual case in which the computation of damages was key in the judge’s determination of the sentence:
The defendant was convicted of mortgage fraud in the origination of approximately 50 loans. These loans were fully documented so that there were credit reports, appraisals, loan applications and tax returns in the loan files. The loans were purportedly suitable to be purchased by Fannie Mae. In fact, Fannie Mae did purchase them from the lender. The fraud occurred in the quality of the documents, which were altered so that they would qualify to meet Fannie Mae standards.
Upon conviction, the defendant was offered a plea bargain of a sentence of 5 years, which was turned down. The criminal defense attorney did not accept the alleged loss by the prosecution. Instead, he chose to have an expert compute the actual loss, which is critical in a mortgage fraud case. The value of the homes that have been foreclosed must be evaluated extensively to determine whether the bank/lender/investor is actually damaged by the amount they alleged. Remember the bank/lender/investor is using the government to go after what it believes is the criminal that tricked them into the loan application process. A federal criminal defense attorney will have the ability to hire experts, accountants and investigators to get the monetary loss down to a minimum. The lower the monetary loss the lower the exposure to prison time under United States Sentencing Guidelines.
In advance of the sentencing hearing, I was hired by the defendant’s attorney to compute the loss and to testify at the sentencing hearing. I attempted to compute the actual loss on each loan and used an Excel spreadsheet to summarize the findings. Factors used in the computation were the principal amount of the loans, interest rates promised to the investor, time period from the purchase of the loan to the date of foreclosure, appraised values at time of loan and appraised values of each property after the foreclosure or what the properties ultimately realized. In some cases, there were actual gains to the investor in the foreclosures as property values had increased which more than offset any loss in interest or principal. The loan losses were summarized on a net basis to arrive at a total economic loss, which was testified to and presented, to the Court. While the prosecution had its own expert to compute the loss, the final ruling was a much lower loss than alleged. Whereas the prosecution was seeking a sentence of 12 years, the judge ultimately ruled for a sentence of 3 years. The criminal defense attorney and the client were pleased since the sentence was less than that which was offered in a plea bargain.
CONCLUSION
This scenario will play out more and more as the indictments continue in mortgage fraud cases. Trials will naturally follow. As the federal government has earmarked millions of dollars in the prosecution of mortgage fraud, the defense of those charged is creating an unfortunate growth industry.
Once mortgage fraud liability has been concluded, the economic damages as a result of the fraud must be calculated. This is critical since the fine for mortgage fraud in criminal matters is based on guidelines. So, the amount of the loss will be a factor in determining the sentence. The economic loss or damage must be determined through the culmination of the loan transaction. Therefore, tracing is required from the inception of the loan through the ultimate sale of the property. The net assets need to be computed in the calculation of damages. Net assets (as referred to in federal sentencing guidelines) are the “assets remaining after payment of all legitimate claims against assets by known innocent bona fide creditors.”
In order to reduce sentencing time, the expert needs to be able to minimize the economic loss, as the two are directly related. I will share an actual case in which the computation of damages was key in the judge’s determination of the sentence:
The defendant was convicted of mortgage fraud in the origination of approximately 50 loans. These loans were fully documented so that there were credit reports, appraisals, loan applications and tax returns in the loan files. The loans were purportedly suitable to be purchased by Fannie Mae. In fact, Fannie Mae did purchase them from the lender. The fraud occurred in the quality of the documents, which were altered so that they would qualify to meet Fannie Mae standards.
Upon conviction, the defendant was offered a plea bargain of a sentence of 5 years, which was turned down. The criminal defense attorney did not accept the alleged loss by the prosecution. Instead, he chose to have an expert compute the actual loss, which is critical in a mortgage fraud case. The value of the homes that have been foreclosed must be evaluated extensively to determine whether the bank/lender/investor is actually damaged by the amount they alleged. Remember the bank/lender/investor is using the government to go after what it believes is the criminal that tricked them into the loan application process. A federal criminal defense attorney will have the ability to hire experts, accountants and investigators to get the monetary loss down to a minimum. The lower the monetary loss the lower the exposure to prison time under United States Sentencing Guidelines.
In advance of the sentencing hearing, I was hired by the defendant’s attorney to compute the loss and to testify at the sentencing hearing. I attempted to compute the actual loss on each loan and used an Excel spreadsheet to summarize the findings. Factors used in the computation were the principal amount of the loans, interest rates promised to the investor, time period from the purchase of the loan to the date of foreclosure, appraised values at time of loan and appraised values of each property after the foreclosure or what the properties ultimately realized. In some cases, there were actual gains to the investor in the foreclosures as property values had increased which more than offset any loss in interest or principal. The loan losses were summarized on a net basis to arrive at a total economic loss, which was testified to and presented, to the Court. While the prosecution had its own expert to compute the loss, the final ruling was a much lower loss than alleged. Whereas the prosecution was seeking a sentence of 12 years, the judge ultimately ruled for a sentence of 3 years. The criminal defense attorney and the client were pleased since the sentence was less than that which was offered in a plea bargain.
CONCLUSION
This scenario will play out more and more as the indictments continue in mortgage fraud cases. Trials will naturally follow. As the federal government has earmarked millions of dollars in the prosecution of mortgage fraud, the defense of those charged is creating an unfortunate growth industry.
Thursday, May 13, 2010
MORTGAGE FRAUD: UNFORTUNATE GROWTH INDUSTRY –Defending the Mortgage Fraud Defendant and Minimizing Sentencing Time - Part 1
George Levie addressed the Business Law Section of the Florida Bar with the following presentation:
DEFENDING MORTGAGE FRAUD DEFENDANTS
To help in the defense of mortgage fraud charges, there needs to be a thorough understanding of the loan documents that are the subject of the allegations. Therefore, each subject mortgage loan file must be analyzed.
The various documents that will appear in the loan file include the mortgage application or Form 1003. This should be an attestation of the borrower’s assets and liabilities, the borrower’s income, a description of the property to be purchased or refinanced and the signature of the borrower. The expert needs to determine what supporting documents actually exist in the files. Questions such as “Did the borrower actually sign the Form 1003?” or “Did the loan officer prepare it and sign for the borrower?” need to be asked and answered.
There should be federal income tax returns in the file if it was a fully documented loan. Confirm that the borrower signed IRS Form 4506 agreeing to the release of signed filed copies of tax returns and transcripts from the IRS. This is to validate the tax returns submitted.
Check to see if the property is in the borrower’s name or does the loan file reveal the existence of a straw buyer. A straw buyer is a person whose profile is used to serve as a cover for a transaction. Straw buyers can be willing participants in the scheme who are paid for providing their names and credit information to make a false purchase. Straw buyers can also be victims whose identity is being used without their permission (such as in ID theft).
Answer the following questions:
• Does the loan file contain a credit report?
• Is the credit report in the name of the borrower or of a straw buyer?
• Do the social security number reconcile with the various documents?
• Is the FICO score high for the borrower’s income and debt?
• Was there an appraisal in the file?
• Was the appraiser credentialed and associated with a large organization?
• Do the names and addresses on the appraisal agree with the loan documents?
• How recent is the appraisal?
• Are values increasing or decreasing in the area?
• Are the comparables real?
In defense of the defendants, it is vitally important to understand the loan file, its contents and what each document means. Just as important is to know who prepared each of the documents within the mortgage fraud organization. The expert for the defense will need to know the role of mortgage defendants and what part they played in each of the loan documents, as well as what happened to the loan after it was funded. The propriety of the mortgage loan documents must be known in order to assist the defense. As there are voluminous documents associated with each mortgage loan file, the validity and accuracy of each document must be determined. The defense cannot just accept a plaintiff’s submission of documents in loan files.
DEFENDING MORTGAGE FRAUD DEFENDANTS
To help in the defense of mortgage fraud charges, there needs to be a thorough understanding of the loan documents that are the subject of the allegations. Therefore, each subject mortgage loan file must be analyzed.
The various documents that will appear in the loan file include the mortgage application or Form 1003. This should be an attestation of the borrower’s assets and liabilities, the borrower’s income, a description of the property to be purchased or refinanced and the signature of the borrower. The expert needs to determine what supporting documents actually exist in the files. Questions such as “Did the borrower actually sign the Form 1003?” or “Did the loan officer prepare it and sign for the borrower?” need to be asked and answered.
There should be federal income tax returns in the file if it was a fully documented loan. Confirm that the borrower signed IRS Form 4506 agreeing to the release of signed filed copies of tax returns and transcripts from the IRS. This is to validate the tax returns submitted.
Check to see if the property is in the borrower’s name or does the loan file reveal the existence of a straw buyer. A straw buyer is a person whose profile is used to serve as a cover for a transaction. Straw buyers can be willing participants in the scheme who are paid for providing their names and credit information to make a false purchase. Straw buyers can also be victims whose identity is being used without their permission (such as in ID theft).
Answer the following questions:
• Does the loan file contain a credit report?
• Is the credit report in the name of the borrower or of a straw buyer?
• Do the social security number reconcile with the various documents?
• Is the FICO score high for the borrower’s income and debt?
• Was there an appraisal in the file?
• Was the appraiser credentialed and associated with a large organization?
• Do the names and addresses on the appraisal agree with the loan documents?
• How recent is the appraisal?
• Are values increasing or decreasing in the area?
• Are the comparables real?
In defense of the defendants, it is vitally important to understand the loan file, its contents and what each document means. Just as important is to know who prepared each of the documents within the mortgage fraud organization. The expert for the defense will need to know the role of mortgage defendants and what part they played in each of the loan documents, as well as what happened to the loan after it was funded. The propriety of the mortgage loan documents must be known in order to assist the defense. As there are voluminous documents associated with each mortgage loan file, the validity and accuracy of each document must be determined. The defense cannot just accept a plaintiff’s submission of documents in loan files.
Tuesday, May 11, 2010
MORTGAGE REFORM: ADDRESSING THE LARGER ISSUES OF MORTGAGE FRAUD AND MORTGAGE FORECLOSURES – Part II
These are my comments to the Florida Legislature and the Florida Supreme Court
EDUCATING CONSUMERS IN MORTGAGE MATTERS
Through the shady dealings of un-professionals, there has been the creation of a class of uneducated borrowers. Education is needed that clearly explains the important financial obligation a borrower is undertaking when borrowing money. Un-professionals are allowing these borrowers to sign on the dotted line on mortgages, all the while knowing these people may not be able to afford their payments. Independent consumer education must be a major base from which the housing market will recover. Plus, without the complete explanation of rate and terms, these new homeowners cannot truly understand the risk and rewards of homeownership. Also, the advantages of renting versus owning must be explained. The entire mortgage process must be explained to prospective borrowers AND understood by prospective borrowers.
RAISING THE REQUIREMENTS TO ENTER INTO THE REAL ESTATE AND MORTGAGE FIELDS AND MAINTAIN A LICENSE
Florida Statute Chapter 494 has increased the requirements to become a mortgage originator. The requirements to become and to continue to be a mortgage originator, real estate agent, title agent and appraiser should be raised. This would serve many purposes.
First, there would be enough professionals to have healthy competition, but not too much competition to drive people to commit fraud in order to obtain business. The following table shows the tremendous increase in mortgage brokers in Florida:
Year Active Mortgage Brokers
2001 28,140
2002 30,282
2003 41,211
2004 46,092
2005 59,896
2006 67,266
2007 81,895
2008 63,993
2009 65,692
These 65,672 mortgages represent one mortgage broker for approximately every 98 Florida households. This does not include mortgage orginators that work for mortgage lenders and banks. Assuming there are between 100,000 to 150,000 total mortgage professionals soliciting the 6.4 million Florida households then there is 1 mortgage professional for every 43 to 64 Florida households. This is an oversaturated mortgage professional market.
Second, the regulatory authorities would be able to investigate and monitor licensees more efficiently with a more manageable number of licensees.
Third, increasing the continuing educational requirements would help create professional individuals.
GIVING FIRST TIME HELP FOR FIRST-TIME HOME BUYERS
A lot of people in the real estate industry have put their recovery hopes on first time homebuyers. In fact, there is a first-time home buyer tax credit for 2009, but there is no requirement that the first-time home buyers have any understanding of what homeownership entails. All first-time home buyers, whether they receive a tax credit or not, should attend a home ownership educational seminar.
RETHINKING THE AMERICAN DREAM
The program of the American government and the government sponsored entities highly promotes homeownership. Clearly, homeownership provides the basis for strong neighborhoods and cities hence, this will create a strong citizenry. Homeownership is not for everyone, though; however, it is blindly promoted as the “American Dream.” In some cases, the dream can be a nightmare. Homeownership can be a heavy financial burden on an individual. Other factors may indicate that homeownership is not the proper choice in a scenario. Renting provides more flexibility to move than homeownership.
MODIFYING A LOAN MODIFICATION
Where to start with the issues of loan modifications? There are honest, ethical and conscientious loan modification professionals; however, this industry has grown from zero to overpopulated with unethical people. Reviewing of Florida’s Attorney General Bill McCollum’s website will provide ample examples of individual loan modification companies.
The loan modification industry is dominated by mortgage brokers. These same mortgage brokers were pushing borrowers into the mortgages that they could not afford. Many times an attorney appears to be handling a case, but the case is actually managed by a loan modification company, unbeknownst to borrowers. This illegally circumvents the law that allows attorneys to receive loan modification payments up front, but prevents a loan modification company from collecting a fee prior to performance. This hurts everyone: the borrower, ethical attorneys and home loan modification companies. Also, a loan modification specialist needs no specialized training. In Florida, they need to be only an attorney or simply have a mortgage broker license.
BANKING THE FUTURE AWAY
Lenders take way too long to make a decision. Many times, lenders make decisions based on the impact on their financial statements. This is only “smoke and mirrors.” A bank unwilling to address what a property’s actual market value and a borrower’s real ability to pay only prolongs the mortgage monster. Rather then make the right decision and recognize the loss, currently the bank tries not to recognize the loss. If banks were to financially recognize and address the problem, the problem would be over sooner. The bank’s net worth would be reduced or eliminated. This would force the FDIC to take over or find buyers for many banks. The shareholders would suffer, but we would be further down the road to recovery. Additionally, decisions made by bank employees are in the best interest for the employee’s need for continued employment and not in the best interest of the bank, the borrower, the state or the national economy.
FINDING STRONGER BUYERS FOR A STRONGER RECOVERY
The mortgage market has dried up except for government programs and limited portfolio products. Most of the government products provide loans with less than 5% down- payments and some allow the seller to pay up to 6% of the closing costs. A borrow who is only putting 5% down and paying very little closing costs usually is not a strong borrower. There is very little financial incentive to continue to make payments in case of a financial set back. Many low down payment borrowers do not have the financial ability to even make payments if they were to have a small financial set back. By allowing such low down payments, we may be sowing the sour seeds of a second mortgage collapse.
UNCLOGGING THE COURTS BY PUNISHING COURT ABUSERS
When a borrower receives word that their home is in jeopardy of being foreclosed, often times they will step up and try to make an agreement with their current lender. If no terms can be agreed on, in order to fight back against the lender, many times a borrower will hire an attorney to assist in saving their home. The attorney may honestly have the ability to challenge the validity of the debt. To the borrower’s benefit, during the time the legal fight is occurring, they are allowed to continue to stay in their home without paying their mortgage.
Unfortunately, some unethical attorneys have filed frivolous and deceitful defenses. Their only objective is to delay the foreclosure because the borrower has no intention or ability to pay the mortgage. The lender has done nothing wrong, but the lender has to spend an inordinate amount of time and money pursuing the meritless defendant cases. This clogs the state’s courts system needlessly.
Additionally, immediately before the courthouse foreclosure sale, a bankruptcy attorney may file a bankruptcy on behalf of the borrower. In the majority of cases, the borrower’s case is dismissed and no payments are ever made during the bankruptcy. This clogs the federal courts needlessly.
Many times the borrowers cannot pay yet the system allows for delays. The current system promotes this abuse of the courts. Cases that unnecessarily clog the court system should be promptly dismissed. Attorneys that have a practice and a pattern of abuse in the court system should be firmly reprimanded, sanctioned or disbarred. Lawyers have an obligation to be honest and ethical officers of the court.
SUMMARY
The mortgage industry will continue to flounder if no action is taken to solve the festering problems. Persistent and rapid efforts to correct and address these issues created by mortgage un-professionals will aid in the national recovery.
EDUCATING CONSUMERS IN MORTGAGE MATTERS
Through the shady dealings of un-professionals, there has been the creation of a class of uneducated borrowers. Education is needed that clearly explains the important financial obligation a borrower is undertaking when borrowing money. Un-professionals are allowing these borrowers to sign on the dotted line on mortgages, all the while knowing these people may not be able to afford their payments. Independent consumer education must be a major base from which the housing market will recover. Plus, without the complete explanation of rate and terms, these new homeowners cannot truly understand the risk and rewards of homeownership. Also, the advantages of renting versus owning must be explained. The entire mortgage process must be explained to prospective borrowers AND understood by prospective borrowers.
RAISING THE REQUIREMENTS TO ENTER INTO THE REAL ESTATE AND MORTGAGE FIELDS AND MAINTAIN A LICENSE
Florida Statute Chapter 494 has increased the requirements to become a mortgage originator. The requirements to become and to continue to be a mortgage originator, real estate agent, title agent and appraiser should be raised. This would serve many purposes.
First, there would be enough professionals to have healthy competition, but not too much competition to drive people to commit fraud in order to obtain business. The following table shows the tremendous increase in mortgage brokers in Florida:
Year Active Mortgage Brokers
2001 28,140
2002 30,282
2003 41,211
2004 46,092
2005 59,896
2006 67,266
2007 81,895
2008 63,993
2009 65,692
These 65,672 mortgages represent one mortgage broker for approximately every 98 Florida households. This does not include mortgage orginators that work for mortgage lenders and banks. Assuming there are between 100,000 to 150,000 total mortgage professionals soliciting the 6.4 million Florida households then there is 1 mortgage professional for every 43 to 64 Florida households. This is an oversaturated mortgage professional market.
Second, the regulatory authorities would be able to investigate and monitor licensees more efficiently with a more manageable number of licensees.
Third, increasing the continuing educational requirements would help create professional individuals.
GIVING FIRST TIME HELP FOR FIRST-TIME HOME BUYERS
A lot of people in the real estate industry have put their recovery hopes on first time homebuyers. In fact, there is a first-time home buyer tax credit for 2009, but there is no requirement that the first-time home buyers have any understanding of what homeownership entails. All first-time home buyers, whether they receive a tax credit or not, should attend a home ownership educational seminar.
RETHINKING THE AMERICAN DREAM
The program of the American government and the government sponsored entities highly promotes homeownership. Clearly, homeownership provides the basis for strong neighborhoods and cities hence, this will create a strong citizenry. Homeownership is not for everyone, though; however, it is blindly promoted as the “American Dream.” In some cases, the dream can be a nightmare. Homeownership can be a heavy financial burden on an individual. Other factors may indicate that homeownership is not the proper choice in a scenario. Renting provides more flexibility to move than homeownership.
MODIFYING A LOAN MODIFICATION
Where to start with the issues of loan modifications? There are honest, ethical and conscientious loan modification professionals; however, this industry has grown from zero to overpopulated with unethical people. Reviewing of Florida’s Attorney General Bill McCollum’s website will provide ample examples of individual loan modification companies.
The loan modification industry is dominated by mortgage brokers. These same mortgage brokers were pushing borrowers into the mortgages that they could not afford. Many times an attorney appears to be handling a case, but the case is actually managed by a loan modification company, unbeknownst to borrowers. This illegally circumvents the law that allows attorneys to receive loan modification payments up front, but prevents a loan modification company from collecting a fee prior to performance. This hurts everyone: the borrower, ethical attorneys and home loan modification companies. Also, a loan modification specialist needs no specialized training. In Florida, they need to be only an attorney or simply have a mortgage broker license.
BANKING THE FUTURE AWAY
Lenders take way too long to make a decision. Many times, lenders make decisions based on the impact on their financial statements. This is only “smoke and mirrors.” A bank unwilling to address what a property’s actual market value and a borrower’s real ability to pay only prolongs the mortgage monster. Rather then make the right decision and recognize the loss, currently the bank tries not to recognize the loss. If banks were to financially recognize and address the problem, the problem would be over sooner. The bank’s net worth would be reduced or eliminated. This would force the FDIC to take over or find buyers for many banks. The shareholders would suffer, but we would be further down the road to recovery. Additionally, decisions made by bank employees are in the best interest for the employee’s need for continued employment and not in the best interest of the bank, the borrower, the state or the national economy.
FINDING STRONGER BUYERS FOR A STRONGER RECOVERY
The mortgage market has dried up except for government programs and limited portfolio products. Most of the government products provide loans with less than 5% down- payments and some allow the seller to pay up to 6% of the closing costs. A borrow who is only putting 5% down and paying very little closing costs usually is not a strong borrower. There is very little financial incentive to continue to make payments in case of a financial set back. Many low down payment borrowers do not have the financial ability to even make payments if they were to have a small financial set back. By allowing such low down payments, we may be sowing the sour seeds of a second mortgage collapse.
UNCLOGGING THE COURTS BY PUNISHING COURT ABUSERS
When a borrower receives word that their home is in jeopardy of being foreclosed, often times they will step up and try to make an agreement with their current lender. If no terms can be agreed on, in order to fight back against the lender, many times a borrower will hire an attorney to assist in saving their home. The attorney may honestly have the ability to challenge the validity of the debt. To the borrower’s benefit, during the time the legal fight is occurring, they are allowed to continue to stay in their home without paying their mortgage.
Unfortunately, some unethical attorneys have filed frivolous and deceitful defenses. Their only objective is to delay the foreclosure because the borrower has no intention or ability to pay the mortgage. The lender has done nothing wrong, but the lender has to spend an inordinate amount of time and money pursuing the meritless defendant cases. This clogs the state’s courts system needlessly.
Additionally, immediately before the courthouse foreclosure sale, a bankruptcy attorney may file a bankruptcy on behalf of the borrower. In the majority of cases, the borrower’s case is dismissed and no payments are ever made during the bankruptcy. This clogs the federal courts needlessly.
Many times the borrowers cannot pay yet the system allows for delays. The current system promotes this abuse of the courts. Cases that unnecessarily clog the court system should be promptly dismissed. Attorneys that have a practice and a pattern of abuse in the court system should be firmly reprimanded, sanctioned or disbarred. Lawyers have an obligation to be honest and ethical officers of the court.
SUMMARY
The mortgage industry will continue to flounder if no action is taken to solve the festering problems. Persistent and rapid efforts to correct and address these issues created by mortgage un-professionals will aid in the national recovery.
Monday, May 10, 2010
MORTGAGE REFORM: ADDRESSING THE LARGER ISSUES OF MORTGAGE FRAUD AND MORTGAGE FORECLOSURES - Part I
These are my prepared comments to Florida Legislature and the Florida Supreme Court
I applaud the efforts of the Florida Legislature to address a major state problem of mortgage fraud and mortgage foreclosures. This crisis is part of a larger national problem, an international problem. Finding solutions to the crisis will obviously help return business to an effective and efficient system; however, the underlying problem that caused the financial fiasco needs to be addressed at both a macro and a micro level. The solutions will help provide for more stable personal lives for many Floridians whose lives have been disrupted.
No matter how many times you try and shake them off, some problems still rear their ugly heads. In fact, the same issues are continuing to arise in the mortgage industry. They may be hidden now, but they have not gone away. Unfortunately, the problems and causes of the mortgage meltdown are not necessarily being fixed. Many of the same mortgage un-professionals (lenders, Wall Street bankers, mortgage brokers, appraisers, etc.) are still leeches involved in the industry either working or, even worse, making mortgage decisions. The following will explore the areas that are still of the gravest concerns. If not seriously addressed, they create a ripe recipe for more mortgage misfortunes.
ELIMINATING THE “BAD
Unfortunately, mortgage fraud has become pandemic and not just epidemic. It is, sadly, pervasive in our society to the point that it has become the “hot topic” as lead articles in newspapers and magazines. The city, state and federal governments have begun devoting tremendous resources to fight mortgage fraud. It has brought down top businesses and banks in
The crisis has changed the way that people act and think for the next generation. With the growing cases of fraud, the government is seriously and aggressively pursuing guilty parties. Thankfully, with the passage of the Fraud Enforcement and Recovery Act of 2009, $522 million is being provided to the FBI, the Attorney General, the Department of Justice and other governmental agencies over the next two years in order to work towards tracking down fraud and punishing the guilty parties. As part of the law, Senator Bob Graham, an alumnus of both the Florida House and the Florida Senate, is a member of the Financial Crisis Inquiry Commission. The commission was established by Congress to examine the global and domestic causes of the financial crisis. The Commission will provide their findings and conclusions to Congress on December 15, 2010.
To our dismay, many appraisers, title agents, mortgage brokers, processors, underwriters, bankers and real estate agents that were dishonest are still in place. In order to fix this injustice, many individuals need to be removed from their positions; some may need to be retrained to fully understand their obligations and some may need prison time.
The removal of many un-professionals will reduce the hyper-competition among the remaining professionals, which will foster a more ethical professional industry. Many of the un-professionals that created the exotic products are still holding positions with major mortgage lenders. They created and touted products that made no financial, economic or mortgage sense; other than to provide tremendous incomes and bonuses for these un-professionals. These lender’s companies need to be cleaned of these dangerous people. They need to be permanently expelled from the mortgage industry. They are not mortgage leaders, they are mortgage leaches.
SIMPLIFYING MORTGAGE PRODUCTS AND DISCLOSURES
The mortgage process is too complicated. Former Secretary of HUD Mel Martinez stated that his home purchase was complicated even for him. We do not need to return to the days of hundreds of mortgage products. We need enough mortgage products to satisfy
The disclosures are voluminous. Many do not truly explain anything. The main purpose of the numerous disclosures has evolved into simply creating defenses for foreclosures. Most borrowers simply sign the documents and never completely read them, even though they have a three day right of rescission. Understandably, the documents must protect the lender’s interest; however, many documents can be eliminated or combined. The remaining documents can be written in simple English and in short paragraphs.
FIXING A FLAWED SYSTEM
The mortgage system, as it is now, creates the opportunity for fraud. Ultimately, the lender usually has no contact with the borrower and may not even see the loan until after it closes and funds. The ultimate lender’s underwriting decision has been delegated to a mortgage company that processes and underwrites the loan or the loan processing may be done by a mortgage broker. The group of people responsible for making sure the documents are complete, correct and valid are the same individuals who are paid a commission only if the loan closes.
A person who earns a commission from a loan should never be allowed to handle the processing of a loan, the ordering of a real estate appraisal or title policy. The pressure is too great to do what is best financially for the un-professional than what is honest and ethical. The ultimate lender should ultimately be responsible for the integrity of the loan by directly supervising the processing and underwriting of the loan.
Also, the mortgage industry is currently filled with complex mortgage buy-back agreements. Under certain circumstances, the ultimate lender may require a downstream lender to buy back a mortgage. A downstream lender may require a mortgage broker to buy back the loan. The ultimate lender has the deep pocket; no one down stream usually has the money to buy back a loan much less a portfolio of loans. Making the lender responsible will eliminate this false sense of financial security.
Subscribe to:
Posts (Atom)
