Compliance & Regulation

Gerald Carti of Oakland, N.J., a former loan officer, pleaded guilty to charges connected to a mortgage fraud and property-flipping scheme involving rental properties. Carti admitted to conspiring with his co-defendants and several others to fraudulently originate mortgage loans and to launder proceeds of the loans during 2002 through 2005. The loans were for two- and three-family homes in Paterson, N.J. Carti's guilty plea is one of 12 guilty pleas related to an investigation into fraudulent FHA-insured and conventional mortgage loans originated by various New Jersey mortgage companies.

Veronica DeGuzman, of San Antonio, has been sentenced to 75 months in federal prison for carrying out a mortgage fraud scheme involving three San Antonio and Spring Branch, Texas-based residential properties, three financial institutions and more than $1 million in foreseeable losses. In addition, U.S. District Judge Xavier Rodriguez ordered that DeGuzman pay $1.67 million in restitution to her victims and be placed under supervised release for a period of five years after completing her prison term. On Oct. 2, 2008, DeGuzman pleaded guilty to one count each of financial institution fraud and aggravated identity theft. Her husband, Fred DeGuzman pleaded guilty to the same charges on Nov. 18, 2008. Sentencing for Fred DeGuzman has been scheduled for March 20, 2009 before Judge Rodriguez. By pleading guilty, the defendants admitted that from June to November 2007, Fred DeGuzman, using an alias, and Veronica DeGuzman contacted individual sellers of residential property and enter agreements to purchase the property for an inflated price, with the excess of the stated price over the actual sales price being returned to a corporation owned and controlled by the defendants. Using the alias, as well as falsified employment and income information, Fred and Veronica DeGuzman applied for and obtained 100% financing. After one or two mortgage payments, the mortgage went into default causing losses to the lenders.

The Mortgage Bankers Association is adamantly opposed to the federal government capping the mortgage interest deduction as well as deductions for mortgage insurance payments and real estate taxes. MBA was reacting to an early read of President Obama's first budget which moves to cap itemized deductions for taxpayers who earn $250,000 a year or more. MBA believes that such a cap, if approved, would affect not only mortgage interest payments but also other itemized deductions. "We do not like a cap of any sort," said Josh Denney, vice president of public policy for MBA. "It would have an adverse impact on a market that's already in trouble." The Obama administration estimates that the deficit for fiscal year 2009 will reach $1.75 trillion, or 12.3% of U.S. gross domestic product. The deficit would be a record in dollar terms and is the highest as a share of GDP since the 1940s.

Financial institutions filed 62,084 Suspicious Activity Reports for mortgage loan fraud from the year spanning July 1, 2007 through June 30, 2008, according to a new report released by the Financial Crimes Enforcement Network. This is a 44% increase over the preceding year and constitutes 9% of all SAR submissions for the period. Mortgage loan fraud was the third most reported activity during this period. Nearly 900 filing institutions submitted mortgage loan fraud SARs. Of these, according to FinCEN, fewer than 200 institutions submitted 98% (60,800) of the total. The top 10 filing institutions submitted 57% (35,400) of these filings, compared to 30% for the top 10 filing institutions of all SARs. The top 25 filing institutions of mortgage loan fraud SARs submitted 82% (50,900) of filings. FinCEN believe this means there is a high concentration of a small number of depository institutions that account for most mortgage loan fraud filings, as compared to SARs generally.

Freddie Mac saw a spike in delinquencies in the month of January along with lackluster issuance of mortgage-backed securities and portfolio activity. The mortgage giant said its serious delinquency rate shot up 26 basis points since December to 1.98%. In January 2008, the percentage of loans 90 days for more past due was 0.71%. Meanwhile, the secondary market agency issued $16.3 billion in MBS, up slightly from $15.8 billion in December. Ginnie Mae issued $26.5 billion in single-family MBS in January. Freddie also said the size of its mortgage portfolio declined slightly to $798.9 billion. The Treasury Department recently doubled its financial backing of Freddie to $200 billion to increase market confidence in the government-sponsored enterprise, which is expected to report a large loss for the fourth quarter. Treasury also increased the GSE's portfolio limit by $50 billion to $900 billion.

Single-family existing home sales fell 4.7% in January from the previous month, but Realtors are optimistic the economic stimulus package passed by Congress will boost home sales this year. National Association of Realtors found that sales of previously owned homes fell from a seasonally adjusted annual rate of 4.25 million in December to 4.05 million in January. NAR economists estimate the stimulus package, which includes an $8,000 first-time homebuyer tax credit and higher loan limits, along with lower mortgage rates, will result in 900,000 additional sales this year. Meanwhile, the median single-family sales price was $169,900 in January, down 13.8% from a year ago. A preliminary analysis by NAR suggests that house prices in traditional sales are holding up better the distressed sales involving foreclosures and short sales. However, Wellesley College professor Karl Case estimates 1 million homes were sold in auctions last year, which is one reason Standard & Poor's Case-Shiller Housing Price Index has registered steeper price declines than other indexes. In addition, the auctions were heavily concentrated in the hardest-hit states - Arizona, Florida, California and Nevada. Auctions comprised 54% of sales in those four states, Mr. Case said.

Key Republican congressmen say they are willing to work with the Obama administration on bankruptcy cramdown legislation that exempts Fannie Mae, Freddie Mae, the Federal Housing Administration and government-related loan programs. Four high ranking Republicans on the House Judiciary and Financial Services Committees said they oppose the "broad" bankruptcy bill that the House is scheduled to vote on this Thursday. "It is our hope the Obama administration will work with us in a bipartisan effort to narrow the proposed changes to the bankruptcy code," the four House members said in a letter to Treasury secretary Timothy Geithner. Reps. Lamar Smith (Texas), Trent Franks (Ariz.), Spencer Bachus (Ala.) and Shelly Capito (W.Va.) signed the Feb. 23 letter. Meanwhile, financial services trade groups are urging House leaders to strip the bankruptcy provisions from the housing bill (H.R. 1106) that is slated to go to a vote on Thursday. "We appreciate the fact that provisions have been added to H.R. 1106 that improve the bill reported by the Judiciary Committee (H.R. 200) with respect to FHA and VA loans and how losses are allocated to investors in mortgage-backed securities pools. However, H.R. 1106 still does not address the president's recommendations for narrowing the scope of the cramdown to a targeted approach that makes bankruptcy a last resort rather than a first option," says a joint industry letter to House Democratic and Republican leaders.

In their fight to stop bankruptcy cramdowns, financial services groups can no longer count on the support of the Realtors and homebuilders as the House prepares to vote on a housing bill that would allow bankruptcy judges to reduce or cram down the principal amount of residential mortgages. The National Association of Realtors is supporting passage of the bill (H.R. 1106) because it enhances the FHA Hope for Homeowners program that allows certain troubled borrowers to refinance and provides legal protections for servicers that engaged in loan modifications. The National Association of Home Builders recently changed its position on bankruptcy cramdowns. And the trade group is willing to accept a temporary change in the bankruptcy code to facilitate loan modifications. Meanwhile, the House is slated to vote Thursday (Feb. 26) on the housing bill and financial services lobbyists are working to narrow the negative effects of the bankruptcy provisions.

Key Republican congressmen say they are willing to work with the Obama administration on bankruptcy cramdown legislation that exempts Fannie Mae, Freddie Mae, the Federal Housing Administration and government-related loan programs. Four high-ranking Republicans on the House Judiciary and Financial Services committees said they oppose the "broad" bankruptcy bill that the House is scheduled to vote on this Thursday. "It is our hope the Obama administration will work with us in a bipartisan effort to narrow the proposed changes to the bankruptcy code," the four House members said in a letter to Treasury secretary Timothy Geithner. Reps. Lamar Smith (Texas), Trent Franks (Ariz.), Spencer Bachus (Ala.) and Shelly Capito (W.Va.) signed the Feb. 23 letter. Meanwhile, financial services trade groups are urging House leaders to strip the bankruptcy provisions from the housing bill (H.R. 1106) that is slated to go to a vote on Thursday. "We appreciate the fact that provisions have been added to H.R. 1106 that improve the bill reported by the Judiciary Committee (H.R. 200) with respect to FHA and VA loans and how losses are allocated to investors in mortgage backed securities pools. However, H.R. 1106 still does not address the president's recommendations for narrowing the scope of the cramdown to a targeted approach that makes bankruptcy a last resort rather than a first option," says a joint industry letter to House Democratic and Republican leaders.

A St. Louis man pleaded guilty in U.S. District Court for the Southern District of Illinois to making a false statement to a financial institution in connection with a mortgage fraud scheme. Keith L. Pittman was indicted in June 2008 as part of a nationwide crackdown on mortgage fraud. Pittman was one of more than 400 people charged nationwide in mortgage fraud cases that were identified as a result of a Department of Justice initiative known as "Operation Malicious Mortgage." Pittman and others participated in a scheme to obtain residential real estate for himself by making a series of false statements in connection with a series of fraudulent transactions designed to enable him to obtain real property without making an actual downpayment, while simultaneously exposing the lending institution to an undisclosed and increased risk of default. Pittman is scheduled to be sentenced on June 5, 2009.