HOUSTON COMPANY AGREES TO SETTLE HUD/FHA VIOLATIONS WITH THE HUD MORTGAGEE REVIEW BOARD FOR $84,000. THIS IS WHAT HAPPENS WHEN YOU DO NOT SELF-AUDIT
FACTS
Allied Home Mortgage Capital Corp has agreed to pay $38,000 fine for violations of branch office rules that require the corporation to pay all expenses of all branch offices. (See Mortgagee Approval Handbook 4050.1 Rev-2 ¶¶ 2-8, 2-14.B.). AHMCC also agreed to refund “improper fees” to two borrowers and “buy down the principal of one loan that was over-insured,” HUD said.
ACTING ON A TIP, the HUD Inspector General’s office initiated an audit of five branches of AHMCC. The IG auditors found the firm had required five branch managers to enter into contractual arrangements for office leases, equipment contracts and utilities with Allied not consistently paying branch expenses. “Further in one instance, Allied requested that a former employee use personnel funds to cover branch operating losses,” the February 2009 HUD IG audit report says. FHA-approved lenders and brokerages are required to pay all branch office expenses.
A second related company ALLIED HOME MORTGAGE CORP., a mortgage banking firm, agreed to pay a $46,000 civil monetary penalty and indemnify the FHA for losses on six loans. Department of Housing and Urban Development AUDITORS REVIEWED 252 OF THE 3,800 LOANS made by Allied Home Mortgage Corp. from July 2007 through July 2009.(on102510)
MORAL
“ACTING ON A TIP?” Conduct your monthly or quarterly audits. If you originate less than 15 FHA loans per month, then can do quarterly. Audit all defaults. Audit within 90 days of closing. Report findings to management and not to the employees at large. It is a confidential document. Look what happened here! (See Mortgagee Approval Handbook, 4060.1, Rev 2, Ch. 7) I believe it would be a whole lot cheaper if we audited you before HUD.
BECAUSE HUD/FHA IS THE “ONLY GAME IN TOWN” ITS’ RULES ON INDEMNIFICATION OF LOANS ARE NOW GETTING TOUGHER
FACTS
The Federal Housing Administration is clarifying its indemnification policies to give its largest lenders a better understanding of when they might be on the hook for loan losses. The Department of Housing and Urban Development generally requires lenders to reimburse the FHA for losses on defaulted loans when the agency can prove poor underwriting or fraud. (It is not all that difficult for them to do it considering the number of documents you are required to have in a loan file.)
Housing commissioner David Stevens said he wants to provide clearer guidance for FHA lenders with “delegated lender insurance authority” by establishing new standards for “serious and material violations” that trigger indemnification. FHA lenders with lender insurance authority can self-insure FHA loans and account for roughly 70% of FHA originations.
HUD HAS ISSUED THE NEW INDEMNIFICATION POLICIES AS A PROPOSED RULE. The comment period ends Dec. 7. Under the proposal, HUD will seek indemnification for “serious and material violations” of FHA origination requirements in cases where the loan never should have been endorsed by the lender or insured by the FHA.
The proposal requires lenders to analyze the borrower’s creditworthiness, and verify sources of income, assets and down payment. Funders must also comply with FHA’s appraisal requirements, and address problems with the condition of the property. If the lender fails to verify the borrower’s income, HUD might seek indemnifications irrespective of the whether the violation caused the mortgage to default.
The proposed rule for lender performance in terms of default and claim rates requires the FHA lenders in the lender insurance program to MAINTAIN A CLAIM AND DEFAULT RATE THAT IS AT, OR BELOW, 150% OF THE NATIONAL AVERAGE. The national average for FHA claims and defaults on mortgages 24 months old was 3.66% at June 30. Lenders that operate in one or more states will be judged by the average claim and default rate in that state or states. (on101810)
MORAL
There is really nothing unusual here other than the fact that since FHA controls the majority of loans they have gotten tougher on the indemnification side. However, FHA is not unreasonable and it will generally negotiate if you have a good explanation.
HUD-1A, HUD-1 AND CLOSING CERTIFICATION REVISED FOR HECMS
FACTS
NEW MORTGAGE LETTER 10-39 brings to you a revised HUD-1 Settlement Statement closing certification for Home Equity Conversion Mortgages. The certification language has been changed to:
1. Include new statutory authority to impose penalties for false certifications or fraudulent activities;
2. Include new certification language for sellers of a HECM for Purchase transaction; and
3. Replace the language found in paragraph 6-9(g) of HUD Handbook 4235.1, REV-1, which is required for HECM traditional and refinance transactions.
The purpose of the certification on HECM purchases is: on the day of loan closing, the HECM mortgagor must certify the source of cash, or its equivalent, used for the monetary investment or closing costs was not provided by the seller, or any other person or entity that financially benefits from the transaction. Likewise, the seller must certify the HECM mortgagor will not be paid or reimbursed for any part of the monetary investment or closing costs before, during, or after loan closing.
Remember: You as the Mortgagee are responsible for the accuracy of the HUD-1. (ml 10-39)
MORAL
Fraud in the offering. See the attachment to the Mortgagee Letter. If the seller, or the broker or the real estate agent assist in the purchase in any way, the loan is fraud, the sale is fraud and I or someone like me may be defending you before the Mortgagee Review Board or worse yet in Federal Court.
MORE ABOUT HUD/FHA MORTGAGEE LETTERS AND HOW AN AUDIT BY HUD CAN TRIP YOU UP
FACTS
FHA-approved mortgagees shall not be “subject to unresolved findings contained in a Department of Housing and Urban Development or other governmental audit, investigation, or review.” all Principal Owners and Corporate Officers of FHA-approved mortgagees MUST CONFIRM that their institutions and the officers, partners, directors, MANAGERS, PRINCIPALS, SUPERVISORS, LOAN PROCESSORS, LOAN UNDERWRITERS, AND LOAN ORIGINATORS of their institutions who participate in FHA programs are not subject to any unresolved findings or federal lawsuits resulting from an investigation, audit, or review by the Department of Housing and Urban Development or other federal, state, or local governmental agencies, OR ANY OTHER REGULATORY/OVERSIGHT ENTITIES (e.g., banking institution) with jurisdiction over the activities of their institutions and/or employees. The above referenced lawsuits and findings may include, but are not limited to, Fair Housing Act lawsuits by the Department of Justice alleging an ongoing pattern or practice of discrimination; or HUD letters of findings or charges alleging systemic violations of the Fair Housing Act; OPEN ISSUES IN ANY HUD OIG AUDIT, INVESTIGATION OR REVIEW; any action by HUD’s Mortgagee Review Board; the SUSPENSION, SURRENDER, OR REVOCATION OF A LICENSE OF ANY KIND (e.g., Mortgage Broker License, CPA) by a state or local jurisdiction; the IMPOSITION OF FINES, SETTLEMENT AGREEMENTS, OR OTHER MONETARY SANCTIONS BY A STATE OR LOCAL ENTITY; OR ANY OTHER ACTION TAKEN BY A GOVERNMENT AGENCY. In addition, all Principal Owners and Corporate Officers of FHA-approved mortgagees must confirm that none of its employees or their subsidiaries are involved in investigations or reviews that may be due to an instance of fraud, embezzlement, forgery, or any other crime related to the real estate or mortgage loan industry. The Department considers matters to be “unresolved” until such time as an action is taken by the investigating entity, or the entity formally determines that no action is warranted.
All Principal Owners and Corporate Officers must confirm that their officers, partners, directors, managers, principals, supervisors, LOAN PROCESSORS, LOAN UNDERWRITERS, AND LOAN ORIGINATORS PARTICIPATING IN FHA PROGRAMS HAVE NOT BEEN CONVICTED OF, OR PLED GUILTY OR NOLO CONTENDERE TO, A FELONY RELATED TO PARTICIPATION IN THE REAL ESTATE OR MORTGAGE LOAN INDUSTRY:
(i) During the 7-year period preceding the date of the application for licensing and registration; or
(ii) At any time preceding such date of application, if the felony involved an act of fraud, dishonesty, or a breach of trust, or money laundering. (ml1038)
MORAL
If this does not tell you why you need us to come in and audit you for HUD/FHA compliance, nothing will and you will be at risk of losing HUD approval and of indemnifying an awful lot of FHA insured loans.
HUD/RESPA CONSIDERING REGULATING WAREHOUSE LENDING
FACTS
HUD is considering issuing guidance under RESPA to address possible changes in warehouse lending and other financing mechanisms used to fund federally related mortgage loans. HUD is seeking information on how funding mechanisms have evolved in recent years, and especially on how warehouse lending currently operates within residential real estate mortgage transactions. Based on information received in response to this solicitation, HUD will decide what, if any, additional guidance is needed on the scope of RESPA as applied to current mortgage funding practices. All responses are due by Dec. 27. Among other questions, HUD/RESPA is seeking answers to the following questions:
(1) What are the general characteristics of warehouse lending in the context of mortgage loan financing? Specifically:
(a) How does a warehouse lender provide funding to loan originators (e.g., through a line of credit; by funding individual loans; any other method)? If funding is provided through a line of credit, what characteristics indicate a bona fide warehouse line of credit? With regard to each type of funding provided, what criteria does the warehouse lender use to determine that it will provide funding to a loan originator?
(b) What mechanisms are used by the warehouse lender to assure repayment of the funding provided to the loan originator? For example, what security is taken or other evidence of the debt obligation is accepted, and what kinds of agreements are made concerning liability for repayment?
(c) Does ownership of a mortgage loan that is originated by a loan originator who is funded by the warehouse lender ever transfer to the warehouse lender? If ownership does transfer, how does the transfer occur (e.g., through purchase or assignment), and for typically what period of time? Additionally, how is the transfer of ownership accomplished (e.g., does physical possession change)?
(d) If ownership of loans is transferred to the warehouse lender, are the loan originators ever obligated to repurchase the loan under a repurchase agreement? If so, how often is a repurchase agreement used in such transactions? Is the obligation to repurchase a loan subject to such an agreement absolute or conditional? If conditional, please describe the typical conditions that apply.
What repurchase agreement terms are necessary to ensure that the arrangement between the warehouse lender and loan originator is truly only a financing mechanism for the loan originator’s business? Specifically, what agreement terms are necessary to conclude that the arrangement is a mechanism for financing a loan originator, as distinguished from a method of funding an individual loan (e.g., the lack of conditions on the loan originator’s obligation to repurchase the loan)? Are there factors beyond the repurchase agreement between the parties that HUD should consider in determining the real interests of the parties with regard to each loan transaction? If so, please identify any such factors.
(e) To what extent is the warehouse lender involved in the loan-level credit approval decision with respect to each mortgage loan application? What level of scrutiny do warehouse lenders engage in with regard to individual loan files on originated loans? When does this review take place in the transaction (e.g., before a funding commitment; after a funding commitment but before settlement)?
Does the warehouse lender establish underwriting criteria that must be accepted by the loan originator? Do the criteria vary based on fluctuations in the market? Do the criteria change at the discretion of the warehouse lender?
Do warehouse lenders approve the funding of individual loans before settlement?
Does the size or creditworthiness of the loan originator influence the level of scrutiny of individual loans?
(f) How has warehouse lending evolved since HUD issued its regulations on table funding and secondary market transactions in 1994?
(2) What particular characteristics distinguish warehouse lending from retail lending? What is the role of warehouse lending within the primary mortgage market versus the secondary market?
(3) What distinguishes the funding of a mortgage loan from a sale of the mortgage loan in the secondary market? For example, what characteristics indicate a bona fide transfer of the loan obligation, such that the transaction would be a secondary market transaction that is not covered by HUD’s RESPA regulations? What are the basic mechanics for the sale of a loan by a warehouse lender into the secondary market? Specifically, what are the mechanics for identifying, locating, and transferring mortgages to secondary market participants, and what are the respective roles of each of the parties involved in these activities?
Do warehouse lenders sell directly to the secondary market? Do warehouse lenders utilize loan originators in the sale of loans into the secondary market? If so, how?
Do warehouse lenders participate in purchasing loans in the secondary market? If so, do warehouse lenders purchase loans from loan originators with whom they have a warehouse lending relationship? Do the criteria for purchase from a loan originator within the warehouse lending relationship differ from the criteria for purchase from a loan originator without this relationship?
Is there a need to clarify the secondary market exemption as set forth in 24 CFR 3500.5(b)(7)? If so, how should the exemption be clarified?
(4) What role does a warehouse lender play in a table funded transaction? Does a warehouse lender fund loans at settlement contemporaneously with assignment of the loans to the warehouse lender by the loan originator, or contemporaneously with receiving some other evidence of a debt obligation from the loan originator?
(5) What, if any, characteristics distinguish a table funded transaction completed by a mortgage broker from a loan made by a mortgage banker who has an advance commitment to sell the loan after settlement?
(6) Does a warehouse lender fund mortgage loans within the meaning of ‘‘settlement service’’ as that term is defined in section 2 of RESPA and 24 CFR 3500.2?
(7) What factors determine who is identified as the payee on the mortgage loan note?
(8) Have concerns about protection under bankruptcy laws influenced changes in how warehouse lenders operate in relation to loan originators? If so, what concerns, and what changes have resulted?
(9) What do warehouse lenders regard as being their obligations for providing the disclosures required under RESPA? For example, in a mortgage loan transaction that involves a warehouse lender, what is the warehouse lender’s obligation with regard to providing a good faith estimate disclosure to the borrower?
(10) Do consumers or others have concerns with regard to mortgage industry participants’ current interpretation of HUD’s secondary market exemption, including the impact that such interpretations may have on consumers regarding coverage of RESPA disclosures and Section 8 protections against kickbacks and referral fees? (75 FR 71724, 11-24-10)
MORAL
You may not think this is important to comment on. But remember what happened to the mortgage brokers recently. If the retail bankers, such as JP Morgan Chase, Bank of American, Wells Fargo and other retail mortgage lenders remove wholesale lenders by removing their warehouse lines, then two distinct industries are removed from the market place leaving only retail lenders. If you would like to retain us to follow this, comment on it or act for you in Washington, let us know.
OWNERS AND OFFICERS OF CORPORATIONS MAY BE VICARIOUSLY LIABLE FOR EMPLOYEE'S VIOLATION OF FAIR HOUSING ACT
FACTS
Emma Mary Ellen Holley is African American, her husband David Holley is Caucasian and their son, Michael Holley is African American. The Holleys allege that in October 1996, they visited Triad Realty's office in Twenty-Nine Palms, Calif. In mid-November 1996, the Holleys located a home on their own that happened to be listed by Triad. Agent Terry Stump informed them that the asking price for the house was $145,000. The Holleys offered to pay the asking price and to put $5,000 in escrow.
One of the salespeople did not want to do business with the Holleys based upon racial prejudice and discouraged the sale. The Holleys discovered this later after building their own home and after the owner of the home they wanted to buy found out. The owner of the home they wanted to buy sold it for $20,000 less than the asking price which the Holleys had offered through Triad. Eventually they sued the salesperson and the broker owner of the Triad Corp. individually and the case was dismissed as to the broker owner as an individual sine he was the sole shareholder and officer of Triad. The district court granted the broker owner Meyer summary judgment on that claim, finding that, during the relevant time, the real estate license was issued to Triad, with Meyer as the designated corporate officer of Triad. The Holleys appealed.
The 9th Circuit Court of Appeal said the designated officer-broker responsibilities under Triad's corporate license, by mandate of state law, required him to direct and control the conduct of Triad salespersons with respect to the sale of homes and the provision of brokerage services relating to the sale of homes. If Meyer was indeed an officer of the corporation and the designated officer/broker of Triad Realty at the time of the alleged conduct, it is difficult to see how he could be excused from the obligation imposed by the FHA to prohibit discrimination in the housing field. Meyer was (1) an officer of Triad Realty at the time of the alleged discriminatory acts; (2) the designated broker of the corporation who enabled it to engage in the business of selling real estate; and (3) the sole shareholder of the corporation at the time of the alleged discrimination, Meyer can’t be individually liable for damages resulting from the alleged FHA violations. (Holley v. Crank, et al, 258 F.3d 1127; 200)
MORAL
An old case by nine years but it shows that the designated officer can be personally liable for the transgressions of the salespeople and/or loan officers. Do you have E&O insurance? If not I trust you have a good attorney. Especially with the lawsuits that are floating around now by the investors, suing, threatening to sue and serving subpoenas to see if they can find some reason to sue for bad loans they find. Thus far we have numerous demands, lawsuits and subpoenas served on our clients due to failed S&L’s trustees checking the portfolio of loans still in house, trustees in bankruptcy checking their in house loans of the debtors and even current investors checking loans they bought to get back to the broker and the wholesale lenders. This includes IndyMac, Downey, First Magnus, and others. So do not let your E&O coverage lapse.
CALIFORNIA WOMAN INDICTED FOR SUBMITTING STATED INCOME LOANS TO BANKS
FACTS
On Nov. 9, a federal grand jury indicted MONICA ELIZABETH FROMMER of Sherman Oaks for her role in a $2 million mortgage fraud scheme in which she allegedly filed fraudulent loan applications that in some cases falsely claimed she and her husband earned nearly $50,000 per month.
She was indicted on charges of bank fraud, loan fraud, wire fraud and making unlawful monetary transactions. Frommer surrendered to federal authorities on Nov. 23. Frommer pleaded not guilty to the 12 counts in the indictment. Frommer is currently scheduled to go on trial on Jan. 11, 2011.
According to the indictment, from mid-2004 through mid-2007, Frommer submitted at least six fraudulent mortgage loan applications to National City Bank and Washington Mutual Bank. On these loan applications, which were stated income applications, Frommer allegedly falsely inflated her income, claiming that she and her husband earned as much as $47,500 per month.
The indictment also alleges that Frommer caused phony bank records to be submitted to a lender to verify assets that she claimed to possess. As a result of the fraudulent loan applications, the two victim banks funded loans totaling approximately $2 million.
The indictment alleges that Frommer used most of the mortgage loan proceeds to finance residential construction and to repay earlier mortgage loans. Frommer also used proceeds of the fraud for her own personal benefit and to finance vacations for her family.
If convicted of the dozen charges in the indictment, Frommer would face a statutory maximum SENTENCE OF 290 YEARS IN FEDERAL PRISON. (usattycdca112310)
MORAL
The government went back SIX YEARS TO CATCH HER LOANS. If convicted, 290 years is a long time. If you did stated income loans see your lawyer now.
MISSOURI HAS NEW RULES FOR MORTGAGE LOAN ORIGINATORS AND BROKERS
FACTS
The Missouri Division of Finance extends emergency guidelines for mortgage loan originators; mortgage loan brokers and associated fees; notice requirements; full in-state service office requirements; and annual reporting requirements. (alrgs102710)
MORAL
If you are licensed here keep up with the regulations, or the state may hold up your license.
NEW JERSEY ISSUES BULLETIN ON MORTGAGE ORIGINATOR PAYMENT
FACTS
The New Jersey Department of Banking and Insurance has issued a bulletin on payment of compensation to licensees or former licensees, specifically relative to entities and individuals whose license applications are still pending. The clarification is that compensation for mortgage solicitor or mortgage loan origination activity is based on when the activity took place in full while the person paying or receiving the compensation was duly authorized under a then-existing license or registration or an applicable Order of the Commissioner. The Department construes the law as allowing compensation to be paid or received as noted above, regardless of the date on which the actual payment or receipt of such compensation occurs. (alrgs102810)
MORAL
If you are going to pay the mortgage originators do it legally or you may wish you had.
OREGON SUES AMERICAN TEAM MORTGAGE FOR ADVANCE FEE VIOLATIONS
FACTS
American Team Mortgage, of Mission Viejo, Calif., may have unduly charged 32 Oregon homeowners more than $80,000 in mortgage modification fees, according to John Kroger, the state’s top law official. Kroger charged American Team Mortgage with “repeatedly violating Oregon’s Unfair Trade Practices Act and Mortgage Rescue Fraud Protection Act,” according to a release.
The lawsuit, filed in Marion County Circuit Court, alleges that most of those fees were charged in advance of providing services to clients in violation of Oregon law. The company may have only actually obtained loan modifications for two Oregon clients, according to the suit.
Kroger said AMERICAN TEAM MORTGAGE WENT OUT OF BUSINESS IN JUNE 2010, leaving dozens of Oregon modification-seekers on the hook for refunds. At least one client lost his home to foreclosure while others face the same fate. .
The state’s lawsuit would PERMANENTLY BAN AMERICAN TEAM MORTGAGE AND HUFSTEDLER FROM PERFORMING LOAN MODIFICATIONS AND FORECLOSURE COUNSELING IN OREGON. THE LAWSUIT FURTHER SEEKS FULL RESTITUTION FOR OREGON CONSUMERS. (prtlandbusjl112210)
MORAL
I trust he knows a good Oregon lawyer. If not, I can recommend two firms we use there.
HAPPY HOLIDAYS TO YOU AND YOUR FAMILY
MAY THE NEW YEAR BE BRIGHTER FOR YOU ALL
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
