Recently, mortgage fraud is a hot topic on the Active Rain social network. Before the real estate bubble popped, it seemed that along with the rapid appreciation in the value of homes in Riverside County there was a depreciation in ethics. Suddenly things that seemed a matter of right and wrong became grey when you ...or did they?
Let the Hemet Home Loan Guy share a little about mortgage fraud from the perspective of a loan officer...but if you haven't read either of these two blog posts on mortgage fraud, do that first:
Examples of mortgage fraud:
In recent years there has been so many people buying or refinancing real estate in Hemet, California and across the United States that it has been nearly impossible to maintain quality control over all the lending industry. Now that values have started to level off and depreciate in most real estate markets, we are going to see an increase in mortgage fraud cases. Why?
If you've wittingly or unwittingly committed mortgage fraud and gotten away with it, there's a good chance it will catch up with you.
Most people that falsified information to get a mortgage loan are finding themselves in a situation where they can't refinance or sell the property...but they can't afford it, either.
So when you worked with your direct mortgage lender or mortgage broker, they delivered that loan to an investor: companies such as Countrywide, IndyMac, Freddie Mac, Fannie Mae, etc.
As long as you make your payments on time, your loan might not be scrutinized. But when you don't, or when that company comes on hard times (read the news lately?), the investor will take another look at the loan files, scrubbing them to find any errors, ommissions or fraud. They will look at the appraisal, the purchase agreement, the verification of income and employment, the credit report...they will look at everything until they can find a reason to force the direct lender or broker to buy the loan back. This is an iron-clad part of the contract between the copmpany that originates home loans and the investor.
When an investor forces the mortgage broker or direct lender to buy a loan back, we call that "Forcing it down their throats." Doesn't sound pleasant, does it? It's expensive, and more and more smaller lenders and brokers are being forced out of business.
If you have a home loan, the investor now has your Borrower's Authorization. This is your permission in writing to verify everything that the loan originator was supposed to verify.
They can call your employers, pull your credit file, order copies of your tax returns and even perform an 
inspection of your home to make sure that it's owner-occupied.
The loan documents that you signed give the investor permission to call your note. That means that what you owe becomes due and payable immediately. If you don't have $417,000 in the bank or can't find someone to quickly refinance your home loan, they will foreclose on you. Guilty parties may also be prosecuted for mortgage fraud in the courts.
With the way things are in real estate today, do you have any doubt that a fraudulent buyer, mortgage loan originator, appraiser or Realtor will have trouble defending themselves in front of a jury?
By the way...Patrion Mortgage has never been forced to buy back a loan and hasn't foreclosed on a property since sometime in the 1980s. Some people say that's because we're too conservative. We like to think that we're doing our clients a favor by being upfront and honest about their mortgage loan and by hiring underwriters that are the best in their industry. Some loans we put in our portfolio, and some we sell on the secondary market. Investors love us because we have clean files.
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Bonus: FRAUD or NOT FRAUD
Here are some bonus scenarios that I would like to see some comments on:
The buyer's wife has awful credit, so they process the home loan in his name only. However, he doesn't qualify with only his income, so the originator does a stated income loan, inflating his income to include her earnings.Joey Aszterbaum is the Hemet Home Loan Guy and a member of the Active Rain social network since 11/06. Patrion Mortgage is a division of Altura Credit Union, formerly known as Riverside County's Credit Union. We are a direct lender.
The Hemet Home Loan Team serves Hemet, Riverside County and Southern California. To buy or refinance, visit www.HemetHomeLoans.com. Are you a Realtor? Free business support at www.RealAgentHelp.com
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Park and Read Zone :)
Do not give TLW a ticket :)
TLW...ROAR!
I'm right there with you TLW! Great post Joey. You're writing just keeps getting better and better. I have seen this twice where its right in my face and I havw taken my clients and walked out!! I feel like I should volunteer to go along with them now. I usually only do that if I'm asked. Great post. :)
Joey, how about this one, the lender pulls his credit and tells the buyers he can qualify them. Then our lenders pull the credit and find our they can't get any loan. He said it was a mistake. Yea, right !
TLW: The yellow zone is for loading and unloading only...
Pamela: Thank you for your kind words. I've always been in the mindset that a Realtor refers to a loan guy they trust and then leaves it alone, but I'm discovering through Active Rain that there's too much funny business out there for a Realtor not to take it further.
Missy: You know, this could have been a mistake...I know I've done that (and it's not fun). Something else to consider: there are probably hundreds of thousands of loan programs, all with different criteria. There have been instances where I wasn't able to do the loan but someone else was, and vice versa. At least he said it was a mistake instead of trying to involve you in something shady.
Excellent post Joey! I believe we will see a lot of folks being prosecuted over the next couple of years. There was builder in my area that sold about 45 homes in 2005. All but about 2 are being foreclosed on!!! You can't tell me these weren't fraudulent deals. Inflated prices and being sold as primary residences when they weren't. They were bought with the sole intent of flipping. I hope they like stripes!
Oops! Forgot. The lender on all of these was American Home Mortgage. Think these files will be checked?
Bryant: Yikes..96% foreclosure for one development deal? Ouch.
American Home Mortgage, eh? I'm not sure what will happen. If I had to guess, those notes belong to another investor now and the buyers are still liable in court.
This is an example of mortgage fraud being undone not by corporate diligence or the legal system, but by plain old capitalism running its course. I'm sure AHM and the buyers are going to suffer for their sins.
Joey...
You should know that if I know BB is going to be responding to a post like this...
I park. We very rarely comment on blogs together.
Why? We sound too much alike :)
Can you say "Redundant" :)
TLW...ROAR!
TLW: I've notice that when you repeat what Bryant says, it's an unnecessary redundancy. Plus it's kind of like a repetitive echo. Again. ;)
Great post and well worth reading and re-reading. This is something that is not going to go away!
We had a Tampa/St. Pete, FL agent that got caught last fall with about 36 deals that were all fraudulent. With her were her buyer, who just happened to be a business partner in another business (they shared the profit that he as buyer received from seller's payout at closing) and the title company.
To make matters worse...the title company completed 2 different sets of HUD's...one that the lender received and a much different one that the agent's broker received. When the agent realized "problems" were coming up, she went in search of a new broker. That broker called our state's legal hotline with a question about taking on an agent with this many contracts and that is what started the ball rolling.
I tell my agents, keep it legal and keep it ethical and everyone will be better for it!
Great Job
Joey, Great Post! I am really not a pushy person but this is the reason I have become pushy about who my clients you as a lender. It is amazing the shady stuff that goes on!
Good post joey if even a few people start getting prosecuted there will be alot of toher nervous ones, but maybe it will cause some buyers to think twice about leting there loans fall into foreclosure.Twenty years ago when things got tight people went out and worked s3econd jobs or sold their new cars and bought used ones. Now everyone has to have a house they can,t afford, two suv's in the driveway a big screen tv. etc
Than when they can,t pay the bills they just walk away from the house. its really sad.
Hey Joey - Congratulations on getting another featured post! This was an interesting blog, and a good reminder to all of us as to what constitutes fraud.
Great post, thanks for sparking more thought on this issue. I know greed has been the key to all the things that are now going wrong but I am amazed at how people justify it.
Joey, this is an excellent post. There are so many scenarios which often are taken lightly, but which constitute fraudulent conduct. Thanks for posting this to Fraiche Aire.
Joey, great post from someone in the industry. I recently had a closing that was delayed a month because the buyer first tried to conspire with my (former) preferred lender to buy the home as a 2nd, when the buyer lived about a mile away! Of course he couldn't get the loan, he was buying the home for his daughter, and after exhausting all nefarious schemes, had to do it the right way. The result was after closing I fired them both!
Thanks for throwing out another great post Joey! Lots of information that I didn't know! WOW!
There's that gold star...this one was too good not to be featured. :)
Hey Joey: Tell us what you think about those 3 scenarios first.
My lenders are scrutinizing appraisals so closely that # 2 is a joke. That appraisal will just get kicked back. I think it is fine for the Realtors to supply an info sheet to the appraiser, and comps as well.
Would not lie about the use of the property to the lender. Yes, I think this is fraud.
Outstanding post Joey! I gave it a fiver when I first saw it and just stopped back and as expected you got a much deserved featured post!
Excellent.
Having to take loans back is the big risk that mortgage companies dread probably as much as anything. I've been waiting for the audits to start. It would be so busy. Maybe they could borrow some algorithyms from Google.
Mortgage fraud is so easy to identify. A 10th grader could probably program one these days.
We'll see.
Thanks for the mention.
Chris: Thank you for your comment. I like the "keep it ethical" advice to your agents. A title guy I work with is fond of saying "Are we doing the right thing here?" Just a non-judgmental way to keep everyone on the lighter side of the force (wow, that was geeky). Come back soon.
John: Thanks for visiting. I wish you well in your mortgage business.
Marchel: It's so important that the people we refer to come from honesty, integrity and compassion. I referred one of my investor clients to a financial planner who is doing an awesome job...and that reflects well on me. If someone is shady, what does that say?
I'm going to share this one with some of the people in this industry I've met who seem to spend a lot of time in the 'gray area'. Thanks!
Hugh: It's bizarre the sense of entitlement and how easy it is to just walk away from your responsibilities. Thanks for your comments.
Jason: Thanks for dropping in. Feel free to pass on whatever info is useful to you.
Darrel: I know two people who were caught in awful white collar crimes. The amazing thing is not how awful they are, but how easy it is to fall into. The love of money is the root of all kinds of evil. Thanks for stopping by.
Lola: Thank you. I like the Fraiche Aire group...I just can't spell it.
Matt: One mile away? This post was about fraudulent behavior, not stupid behavior. That one's pretty funny. Thanks for swinging by...and I wish you a better team mate than the previous lender.
Renee: Thank you for stopping in. For someone in Sin City you're surprisingly open to doing things the right way! :)
Pamela: Thanks. I actually took the gold star and bronzed it so that I can have it forever. On the mantle.
Janet: I hesitate to answer, because different investors and guidelines view them differently. Every time I run into a grey area I call up my underwriter, Kellie. She's a DE underwriter and has been in the biz for ages.
On #1 This is the reason they offer stated income loans to wage-earners rather than only to the self-employed...I'm going to have to research it a little to get to an answer and was hoping someone else could help out. Your idea?
#2 is fraud...and you'd be amazed how many underwriters wouldn't find the error.
I'm going to disagree with you on #3...the intent is to use it as a second home, and as long as it's 50 miles away and in a resort area, that meets the guides and reasonability. Buyer CAN'T use rental income to qualify, but it's okay to rent out a vacation home. (It does complicate your taxes.)
Lenn: Your post deserved the attention. And it's so true...mortgage companies just don't want to be landlords. Maybe they should have kept money tighter? Speaking of keeping money tighter, how about that Bernanke?
Elizabeth: Feel free to send out a link or something. I'm glad you found it useful.
All 3 are fraud. What is amazing to me is how clever some of the schemes are. If they would just work equally hard at "legitimate" business...they would be successful.
Of course, all three are fraud. It is perfectly OK for the agent to provide comps, but unless the comps are actually better than the one's used by the appraiser they are useless. I see this happen a lot because many agents list houses with prices that don't take differences in square footage into account.
The astonishing thing to me is how many people in the real estate chain of events seem to think that they are never going to get into trouble once they get the deal through underwriting and closed, given the massive paper trail that follows a mortgage. In my area, I see many fraud convictions in the news from transactions done many years ago.
Rich and Carl: #2 is clearly fraud, I'm not sure if I agree on number 1 or 3...anyone else want to pipe in? I deliberately chose loan situations where it is grey. #1 is grey because the man has difficult-to-document income...his wife's income. That seems to be why stated wage-earner loans exist. #3 I'm more confident about...the person is buying it as a second home. It's clearly their intent to live there during part of the year. Why would this be fraud? I'm open to correction. Thanks for chiming in!
As they say: the worst loans are made in the best of times. A bunch of the bozos who took part in these schemes figured that they would make a quick 100k in appreciation as the market continued to boom, and nobody would ever be the wiser. Of course, when the market hit the skids, and they couldn't sell it for the inflated amount ... we can agree that the bank is not happy when they take back an asset that is worth considerably less than expected. What kills me is the sheer idiocy of the participants. Do they not realize that this has been done before? Did they not know that a couple of decades ago, there was massive fallout from similar scams (such as a title officer having the file that is shown to the lender, and the "real" file tucked away in a cabinet)? I've had "buyers" call me about a listing, and tell me they want to buy it sight unseen. How about we write it up for 100k over asking, and the seller just kick me back 100k cash? Sure, buddy. Save yourself the trouble, cuff yourself and lose my phone number. I've seen plenty of listings that sat, and sat, and sat on the market. The price gets reduced multiple times. All of a sudden it goes pending and the list price is raised to reflect the original number. It subsequently closes at full price. So let me get this straight. The buyer walks in and falls in love with this property that has been on the market for 2 years ... and pays 150k over the current asking price??? And this person doesn't expect to get caught? Morons.
Paul: Tell us how you really feel! The scenario you describe has been happening in Southern California recently...not so much in Hemet, but it seems to be creeping this way from San Diego County to Temecula and Murrieta. The Hemet-San Jacinto Association of Realtors' lawyer keeps coming to the MLS meetings and warning people to keep it above board and to look out for this stuff.
"Cuff yourself and lose my phone number" is priceless.
Those are all scenarios that you posed to me over the past few years Joey. Yup...you did some pretty creative stuff. You should be ashamed.
OOPS, wrong Joey sorry!
Chris: You're the guy who asked me to do that no doc 105% option arm, aren't you? I still have an appraiser that is willing to push the value if you're still willing to kick a referral fee to the escrow agent who falsifies those notarized documents from the senile person that thinks you're her grandson Chad and is gifting you the funds. Just remember: it's your primary residence as long as you keep using your fictitious name and nobody knows that you're in the country illegally.
No, no Joey. It was 125% no doc - neg am! The owner was to carry a silent second and refund 100K of the loan proceeds at closing, you were paying all of my closing costs and rebating 2 of the 4 points over. She really was my grandmother...I swear, It is my partner who is the illegal, Why is Cathy not mentioned in this post either and no, I will not go out with you on Thursday......Darn it's late....strike that last one. I am setting up my calendar and doing this at the same time.
I like the Mortgage folks who say...well, the agent told me to.....
Joey - This insipid scam is like a snake who keeps growing new heads after you cut one off. We are fighting it head on. If you see something that smells funny, send an email to mortgagefraud@earthlink.net
Hi Joey,
This is an excellent post and well deserved Feature. There have always been and will always be those who do not feel the need to act legally and morally and when things are going gang busters, there are more opportunities. Sad but true.
Tom: Thanks for bringing Chris and I back to reality with a snap! The email...who does it go to? Maybe someone should post on that (hint, hint) because I forgot to include what to do if you see this sort of thing in my post. Thank you for your visit.
Cynthia: They don't do this sort of thing in North Carolina, do they? :) Thanks for visiting...you're a gem.
Joey - I'm going to meet with our Chair-elect Gene Wunderlich tomorrow. I'll confirm that email address and the do a post, or better yet, nudge him to do one.
Tom: Very cool. Thanks for that. Please come back here and post the link in the comments.
Joey,
Once again, informative and well written.....gave it a 5.....
Julie: Thank you very much. I hope all is well for you!