Compliance & Regulation

National volunteer programs and state government entities are busy working to unearth and close down "unscrupulous and unlicensed loan modification companies" who prey on financially stressed homeowners.

For example, NeighborWorks organizations around the country held more than 150 events during National NeighborWorks Week June 5-12 to inform tens of thousands of homeowners on how to avoid and report mortgage modification scams.

Congress has extended the Protecting Tenants at Foreclosure Act through 2014 as part of the Dodd-Frank Wall Street Reform bill that President Obama signed this week.

The Federal Housing Administration's legislative and regulatory agenda to bolster its depleted insurance fund and tighten underwriting standards continues to be a work in progress.

Back in January, FHA commissioner David Stevens began talking about a legislative proposal to give the agency more flexibility in setting premiums, including a hike in annual charges.

The House eventually passed a bill, allowing the FHA to adjust its premium structure but Senate action is still in doubt.

Regulatory changes continue to be what largely drives automation for those on the production side, especially when it comes to the documentation necessary, according to executives at DocMagic Inc., Carson, Calif., which does business as Document Systems Inc.

Only a few hours after regulatory reform was signed into law Wednesday, Federal Reserve Board Chairman Ben Bernanke assured lawmakers the central bank was well along toward implementing many of its biggest provisions.

Mortgage fraud, recognized as an impediment to lender-servicer efforts to maximize portfolio recovery, is on the rise and expected to get worse, especially in property valuations.

Property preservation company Mortgage Contracting Services is currently tracking over 500 enacted code compliance related ordinances and disaster notifications.

These ordinances consist of city and state ordinances, including vacant property registration as well as FEMA disaster notifications.

One state law to note is the Colorado "fast track" foreclosure bill, which expedites the foreclosure process on vacant, abandoned properties.

From industry insiders to straw buyers, nearly 500 people have been arrested in a nationwide mortgage fraud takedown that reflects the coordinated efforts of law enforcement to address the growing problem of crime in the housing industry.

"Mortgage fraud ruins lives, destroys families, and devastates whole communities," Attorney General Eric Holder said recently at a press conference to discuss the results of "Operation Stolen Dreams." Launched on March 1, 2010, the multi-agency initiative has led to a total of 485 arrests. More than 330 convictions have been obtained, and nearly $11 million has been recovered. Losses from a variety of fraud schemes are estimated to exceed $2 billion.

An FBI special agent describes some common mortgage fraud scams.

- Application Fraud

U.S. District Judge J. Frederick Motz has sentenced Timothy Reed, 45, of Beltsville, Maryland, to 51 months in prison followed by five years of supervised release for mail fraud arising from the fraudulent purchase of 25 properties in Maryland, the District of Columbia, and Virginia using false mortgage and settlement documents. Judge Motz also ordered that Reed pay $4,196,967 in restitution.

According to Reed’s plea agreement, Reed and others allegedly paid over 15 straw purchasers $10,000 per property to purchase houses for Reed and others. Reed created false mortgage and settlement documents, many of which misrepresented the straw purchasers’ income and assets. Reed and others also created false invoices to claim that their company, Brotherly Investment Group, performed “renovations” on some of the properties. Using these false invoices, Reed and others were “repaid” at closing for the purported renovations. Reed was an organizer and leader in this scheme.

From 2006 to 2008, Reed and others received approximately $3,830,418 in fraudulent funds as part of this scheme. Many of the purchased properties have been foreclosed upon.

President Obama Wednesday morning signed the Dodd-Frank Wall Street Reform bill, which will transform the regulation of financial services and the mortgage industry over the next three years as new rules are issued and implemented.