DEC 13, 2012
Compliance Matters

A Warning About HUD Quality Control

DEC 13, 2012 5:09pm ET
Print
Reprints
Email

A WARNING ABOUT HUD/FHA QUALITY CONTROL OF LOANS AND UNDERWRITING

FACTS

Audit the loan files to see borrower payments are current when it is streamline finance or make sure the borrower brings the money to make it current at closing. Remember the loan must be current before it goes into streamline refinancing.

HUD looks for borrower cash back after loan closing by the company or by the loan officer in excessive amounts beyond the guidelines.

Be certain the final HUD-1 in the company file and the one in the case binder agree with each other. If not, find out why. I assure you HUD will check. I also assure you that HUD, especially HUD-OIG does contact the borrowers when there are discrepancies regarding borrower payments to close on the lender loan file and the FHA Case Binder.

Be certain you conduct your loan review sampling within 90 days of closing. HUD does count the days to make sure you do.

HUD checks your quality control plan to be certain it is up to date. If your plan is up to dale then it should have, among other things, provisions that state checks are made for:

  1. Not employing or contracting with anyone under debarment, suspension or LDP or otherwise prevented from participation in HUD-FHA programs.
  2. A section showing reports are given to senior management within one month of completion and actions taken by management to cure timely.
  3. All findings of fraud reported to HUD within 60 days.
  4. Section that states lender will identify early default patterns by location, program and loan characteristics.
  5. The section on quality control of loans must state it will include loans from all loan officers, appraisers, processors and underwriters as well as real estate agents on purchase money transactions.
  6. Loans that default in six months must be 100% audited.

MORAL

Remember, HUD will interview current employees, ex-employees and borrowers to validate data or its findings. So be sure your loan files are good and your HUD Quality Control Manual is up-to-date.

WHEN IN BANKRUPTCY COURT THE PERSON FORECLOSING HAD BETTER BE ABLE TO PROVE THEY OWN THE NOTE OR NO FORECLOSURE

FACTS

In August 2006, Shellie Veal signed a promissory note secured by deed of trust in favor of GSF Mortgage Corp., covering property in Illinois. On June 29, 2008 Shellie and her husband filed a Chapter 13 bankruptcy listing American Home Mortgage Servicing Inc. as a secured creditor. On July 18, 2008 American Home filed a proof of claim on behalf of Wells Fargo Bank as its servicing agent. American Home attached documents to the proof of claim including copies of the Note showing an assignment from GSF and a letter signed by the vice president of American Home stating it had acquired the mortgage. 

The Veals objected to the letter’s consideration as evidence, contending American lacked standing and that it failed to establish that either American or Wells Fargo had been qualified as holders of the note. On Oct. 21, 2008, Wells Fargo filed a motion for relief from stay to allow it to foreclose on the property submitting the same documents. The Bankruptcy Court granted the relief from stay over objections stating the documents presented adequate showing wells owned the note and deed of trust. The Veals appealed.

The 9th Circuit Bankruptcy Appellate Panel said reversed. Wells has standing to seek relief from the automatic stay if it has a property interest in, or is entitled to enforce or pursue remedies related to, the secured obligations. Neither Wells nor American was the initial payee of the Note, and therefore, each was required to demonstrate facts to establish standing as interested parties. None of the documents submitted by Wells established its status as the holder or an entity with any interest in the Note, failing to show it or its agent, had actual possession of the Note. Relief from stay is therefore improper. (Veal v. American Home Mortgage Servicing, Inc. (In re Veal), U.S. Bankruptcy Panel, 9th Cir. No. 10-1055, 6-10-11)

MORAL

Watch how notes and deeds of trust are assigned. In this case GSF assigned the Deed of Trust and the promissory note to Option One. However, the assignment from Option One to Wells Fargo stated it transferred “the following described mortgage, securing the payment of a certain promissory note(s) for the sum listed below, together with all rights therein, and thereto, all liens created or secured thereby, all obligations therein described, the money due and to become due thereon with interest, and all rights accrued or to accrue under such mortgage.”

Noticeable by its absence is the assignment of the promissory note itself, which is the obligating instrument.

FEDERAL COURT IN NORTHERN CALIFORNIA APPROVES $3.1 MM AMERISAVE MORTGAGE SETTLEMENT

FACTS

Plaintiffs brought a class action lawsuit against Amerisave Mortgage Corp., a Georgia corporation alleging that Amerisave improperly charged property appraisal fees and application cancellation fees to plaintiffs who had applied unsuccessfully for mortgage loans or locked-in mortgage rates available through the Internet.  (Sonoda, et al.,etc. vs. Amerisave Mortgage Corporation, a Georgia corporation, 3-11-cv-01803 EMC; 11-8-12)

MORAL

Do not charge fees on cancellation or up front unless your attorney advises it as legal and at that you should have an agreement and be sure you are complying with the Dodd-Frank Act and Truth-in-Lending.

IF YOU ARE GOING TO SUE A CALIFORNIA MORTGAGE BROKER BECAUSE A PROMISSORY NOTE SECURED BY DEED OR DEEDS OF TRUST DID NOT PERFORM BE SURE YOU DO IT TIMELY OR YOU WILL NOT COLLECT

FACTS

Richard Green purchased two trust deeds for two separate properties, a single-family home in Nevada City and a 13-unit apartment complex in Oxnard. Chris Boulter was the mortgage broker on the deeds.  Green loaned money to each of the borrowers in exchange for a deed of trust in the second position.  Both borrowers eventually went into default and filed for bankruptcy.

Green sued Boulter alleging negligence, fraud, negligent misrepresentation, breach of contract, breach of fiduciary duty and rescission. Green claimed Boulter failed to verify material information about the borrower’s ability to repay the loans. As a result, he lost his investments on both properties.

Boulter argued that Green’s claims were barred by the applicable statute of limitations. Green had lost $718,000 in damages. Defendants motioned for a nonsuit.

A judge in the Santa Monica, Calif. Superior Court granted the motion based on the statute of limitations.

MORAL

1)  If you are going to sue, do it timely and know the length of time in which you have to sue. 2) Do your own due diligence. If you are investing over $100,000, let alone $700,000, it behooves you to check the data such as credit and value of the property which is not all that difficult to do.

SAN DIEGO LOAN OFFICER GETS TWO-AND-ONE HALF YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD

FACTS

On Dec. 3, Simon Saeid Koli was sentenced in San Diego federal court by the Honorable Irma E. Gonalez to serve 30 months in custody, followed by three years’ supervised release, for his role in a conspiracy to commit mail fraud, wire fraud, and money laundering in connection with a mortgage fraud scheme involving four expensive homes in Carlsbad, Calif. Koli pleaded guilty to the charge on July 13. Co-defendant Kian Ashkanizadeh, also an LO, has pled guilty to the same charge on July 9.

Both defendants previously worked at a mortgage company called Southern California Finance, where they recruited family members and friends to supply their names and signatures on mortgage loan applications as the purported buyers for million-dollar homes. The defendants then fabricated the job titles, income, and assets of the purported buyers so they could qualify for an approximately $1 million mortgage loan on each property. The defendants also acknowledged that they arranged for $200,000 in sham “consulting fees” to come out of each transaction and another $45,000 for fraudulent “construction fees.” The defendants took for themselves most of the extra $245,000 in fees paid out from each of the four transactions. The defendants also admitted disguising these “fees” by first funneling the payments through bank accounts owned by friends and relatives and then causing the funds to be withdrawn or transferred for their own benefit.

Koli will appear before Judge Gonzalez for a further hearing to determine the amount of restitution to be paid by the defendant. Ashkanizadeh is scheduled to be sentenced by Judge Gonzalez on Jan. 28, 2013. (usattysdca12312)

MORAL

One interesting aside−none of the names mentioned seems to have or have had an NMLS&R unique identifier. One of the two individuals had his real estate license revoked with a right to a restricted licensed but the other is NBA. Just a note to let you know they can both conduct real estate transactions as of Dec. 4, if the one with the NBA activates the license with a broker and the other applies timely for the restricted license. How is this?

SAN FRANCISCO MAN GETS 12 YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD

FACTS

On Dec. 4, Sergio Gutierrez was sentenced to 12 years in federal prison after a jury convicted him of running a scheme in which he defrauded victims by telling them to stop paying their mortgages.

Gutierrez defrauded investors by falsely telling them that they would be able to own their homes outright if they paid him for documents that he claimed would dispute the validity of their mortgages that various banks held on their properties. The lawsuits filed by the victims were dismissed by various courts throughout California, and most of the victims ended up losing their homes through foreclosure. Gutierrez’s purported mortgage elimination program specifically targeted victims who had little or no ability to read or write English. From 2008 to 2009, Gutierrez received more than $89,000 from individual victims who paid him for this program.

He was charged with one count of conspiracy to commit mail fraud and seven counts of mail fraud. On Aug\ 17, Gutierrez was remanded into the custody of the U.S. Marshals Service before trial, after the court found that he violated the conditions of his pre-trial release. He remains in custody pending designation to a Bureau of Prisons facility.

The sentence was handed down by U.S. District Court Judge Jeffrey S. White following the defendant’s conviction by a jury of seven counts of mail fraud and one count of conspiracy. Judge White also sentenced the defendant to a three-year period of supervised release.  (usattynd12412)

MORAL

Whenever, someone tries to convince you to do something that you should know is wrong. Listen to the queasiness in your stomach, it is never wrong.

FLORIDA MAN PLEADS GUILTY TO MORTGAGE FRAUD AND THAT MAKES 19 SO FAR IN THIS ONE SCHEME

FACTS

On Dec 4, Scott S. Schuhriemen pleaded guilty to conspiring to make false statements to Branch Banking and Trust, an FDIC-insured financial institution. Schuhriemen faces a maximum penalty of five years in federal prison.

From 2006 to mid-2007, Schuhriemen conspired with other individuals, including R. Craig Adams and Richard Bobka to knowingly make false statements on mortgage-related documents submitted to BB&T in order to obtain home equity line of credit loans on real property located in the Sarasota area. At the time, Schuhriemen served as a loan officer for BB&T and arranged loans for the co-conspirators. On two occasions, in 2006, Schuhriemen falsely notarized mortgage documents for borrowers related to R. Craig Adams.

Fourteen other defendants, including R. Craig Adams, were sentenced in October 2012 for their roles in a large-scale, Sarasota-area mortgage fraud scheme that spanned over 10 years and involved tens of millions of dollars in fraudulent loans. To date, the investigation has yielded convictions of at least 19 individuals for conspiracy and/or mortgage fraud, including four other former bank loan officers. (usattmdfl12412)

MORAL

Quite a few and it took the federal government 10 years to catch them.  Doesn’t say a lot for the banks’ quality control system does it?  Is your Red Flags Manual in place? 

DETROIT MAN GETS MORE THAN SIX YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD

FACTS

On Nov. 29, Jonas Rogers was sentenced to 78 months in prison for his role in a mortgage fraud and identity theft scheme.

Rogers was found guilty by a federal jury of conspiracy to commit wire fraud and money laundering. In September 2006, Rogers and others used a qualified straw buyer to purchase an investment property in an upscale neighborhood in Oakland County, Mich. for $799,000. The property was financed with what was then called an 80/20 loan, where the financial institution provides two mortgages covering the entire price of the property with “zero down” from the buyer. Rogers lived in the property for a few months. When the bank sought payments on the house, Rogers convinced the straw buyer to flip the house and sell it for more money.

In April 2007, the property was “sold” for $1.1 million to an impostor using the stolen identity of a local doctor. A new mortgage in the amount of $990,000 was obtained and the straw buyer received $62,786 at the closing. Evidence showed that this money was subsequently transferred to Rogers in large sums of cash or through checks made payable to his mother. No payments were made on the new mortgage and the property went into foreclosure. (usattyedmi113012)

MORAL

Loan went back six years and the federal judge gave him six-and-one-half years in federal prison. One year for each year the loan was around. Like I have been saying ad nauseam, the federal prosecutors are still working on 2006 loans and coming forward.

THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.

AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE.

Comments (0)

Be the first to comment on this post using the section below.

Add Your Comments: