FACTS
Under sections 202 and 536 of the National Housing Act, HUD may impose sanctions, including civil money penalties, for misuse of the terms “Federal Housing Administration,” “Department of Housing and Urban Development,” “Government National Mortgage Association,” “Ginnie Mae,” the acronyms “HUD,” “FHA,” or “GNMA,” or any official seal or logo of the Department of Housing and Urban Development.
Penalties For Non- Compliance
Failure to follow HUD/FHA requirements as outlined in Mortgagee Letter 2011-17 may result in sanctions, including civil money penalties or administrative action against any person, party, company, firm, partnership or business, including non FHA-approved institutions and individuals. (ml2011-17)
MORAL
This becomes effective May 16. The direct endorsement lender will be responsible to see that its third party originators do not use the FHA or HUD lending logos at all after May 15. UPDATE YOUR QUALITY CONTROL PLANS ACCORDINGLY. YOU CAN CUT AND PASTE THIS INTO THE QUALITY CONTROL PLAN under the section entitled advertising or add it in at the back. It will be looked for if a HUD auditor comes out. ESPECIALLY IF THE AUDITOR IS FROM THE HUD ATTORNEY GENERAL OFFICE (and quite a few of the auditors do come from there).
CHANGES TO FCRA UNDER THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT
FACTS
On March 1, the Federal Reserve Board and Federal Trade Commission proposed regulations to implement the requirements of Section 1100F of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 1100F of the Dodd-Frank Act amends section 615(a) of the Fair Credit Reporting Act, which requires that an adverse action notice be provided when adverse action is taken based in whole in or in part on information in a consumer report. The proposed amendments will require creditors to disclose credit scores and information relating to credit scores to consumers in adverse action notices if a credit score was used in taking adverse action.
The Dodd-Frank Act requires that any person who takes adverse action with respect to a consumer based in whole or in part on any information contained in the credit report provide to the consumer written or electronic disclosure of:
Any numerical credit score used in taking the adverse action; AND
The range of possible credit scores under the model used, the key factors that adversely affected the credit score of the consumer in the model used, the date on which the credit score was created, and the name of the person or entity that created the credit score.
Section 1100F also amends FCRA Section 615(h) to require that any person who uses a consumer report to grant credit on terms materially less favorable than the most favorable terms available to a substantial portion of consumers, based in whole or in part, on the consumer report, to provide the credit score information described above. These disclosures would be incorporated into the risk-based pricing notices currently required by FCRA Section 615(h).
The effective date of these provisions is July 21. (docmgc42111)
MORAL
As if you did not have enough disclosures already.
YET ANOTHER PROPOSED FEDERAL RULE TO COVER ABILITY TO REPAY BY THE BORROWER AND RESTRICT INTEREST RATES
FACTS
The Federal Reserve Board again requests public comment on a proposed rule under Regulation Z that would require creditors to determine a consumer's ability to repay a mortgage before making the loan and would establish minimum mortgage underwriting standards. The revisions to the regulation, which implements the Truth in Lending Act, are being made pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposal would apply to all consumer mortgages (except home equity lines of credit, timeshare plans, reverse mortgages, or temporary loans).
Highlights of Proposed Ability-to-Repay Rules
The proposal under Regulation Z would require creditors to determine a consumer’s ability to repay a mortgage before making the loan and establish minimum mortgage underwriting standards.
The proposal would apply the ability-to-repay requirement to all consumer-purpose mortgages (except home equity lines of credit, timeshare plans, reverse mortgages, or temporary loans).
Four Compliance Options
The proposal would provide four options for complying with the ability-to repay requirement.
1. General Ability-to-Repay Standard
A creditor can meet the general ability-to-repay standard by:
· Considering and verifying the following eight underwriting factors:
o Income or assets relied upon in making the ability-to-repay determination;
o Current employment status;
o The monthly payment on the mortgage;
o The monthly payment on any simultaneous mortgage;
o The monthly payment for mortgage-related obligations;
o Current debt obligations;
o The monthly debt-to-income ratio, or residual income; and
o Credit history; and
· Underwriting the payment for an adjustable-rate mortgage based on the fully indexed rate.
2. Qualified Mortgage
A creditor can originate a “qualified mortgage,” which provides special protection from liability
The Board is soliciting comment on two alternative definitions of a “qualified mortgage.”
Alternative 1
· Alternative 1 would operate as a legal safe harbor and define a “qualified mortgage” as a mortgage for which:
The loan does not contain negative amortization, interest-only payments, or a balloon payment, or a loan term exceeding 30 years;
o The total points and fees do not exceed 3 percent of the total loan amount;
o The income or assets relied upon in making the ability-to-repay determination are considered and verified; and
o The underwriting of the mortgage (1) is based on the maximum interest rate that may apply in the first five years, (2) uses a payment scheduled that fully amortizes the loan over the loan term, and (3) takes into account any mortgage-related obligations.
Alternative 2
· Alternative 2 would provide a rebuttable presumption of compliance and would define a “qualified mortgage” as including the criteria listed under Alternative 1 as well as additional underwriting requirements from the general ability-to-repay standard. Thus, under Alternative 2, the creditor would also have to consider and verify:
o The consumer’s employment status,
o The monthly payment for any simultaneous mortgage,
o The consumer’s current debt obligations,
o The monthly debt-to-income ratio or residual income, and
o The consumer’s credit history.
3. Balloon-Payment Qualified Mortgage
· A creditor operating predominantly in rural or underserved areas can originate a balloon payment qualified mortgage.
· Under this option, a creditor can make a balloon-payment qualified mortgage with a loan term of five years or more by:
o Complying with the requirements for a qualified mortgage; and
o Underwriting the mortgage based on the scheduled payment, except for the balloon payment.
4. Refinancing of a Non-Standard Mortgage
· A creditor can refinance a “non-standard mortgage” with risky features into a more stable “standard mortgage.”
· Under this option, a creditor complies by:
o Refinancing the consumer into a “standard mortgage” that has limits on loan fees and that does not contain certain features such as negative amortization, interest-only payments, or a balloon payment;
o Considering and verifying the underwriting factors listed in the general ability-to-repay standard, except the requirement to consider and verify the consumer’s income or assets; and
o Underwriting the “standard mortgage” based on the maximum interest rate that can apply in the first five years.
Other Protections
The proposal would also:
· Implement the Dodd-Frank Act’s limits on prepayment penalties,
· Lengthen the time creditors must retain records that evidence compliance with the ability-to repay and prepayment penalty provisions, and
· Prohibit evasion of the rule by structuring a closed-end extension of credit as an open-end plan.
The Board is soliciting comment on the proposed rule until July 22. General rulemaking authority for TILA is scheduled to transfer to the Consumer Financial Protection Bureau on July 21. Accordingly, this rulemaking will not be finalized by the Board.
MORAL
Do you know how much work it takes to remember all this? When the rules are all in your underwriter will have to be a genius with a very long memory. You notice how the “Board” is putting forth a rule that it cannot finalize? Do you think the Board wants to unduly pressure the new Consumer Protection Financial Bureau that becomes effective the DAY AFTER THE COMMENT PERIOD ENDS? Who sits on the Board? The FIVE MEGABANKS? Do you think that along with honest mortgage brokers they want to put wholesale lenders and small banks out of the mortgage business?
A REMINDER ABOUT THE TRUTH-IN-LENDING ACT AND RESCISSION
FACTS
In Melfi v. WMC Mortgage Corp. under TILA, “technical deficiencies do not matter if the borrower receives a notice that effectively gives him notice as to the final date for rescission and has the three full days to act.” 568 F.3d 309, 312 (1st Cir.2009), cert. denied, 130 S.Ct. 1058 (2010); see also Palmer v. Champion Mortg., 465 F.3d 24, 28–29 (1st Cir.2006). In that case, notice was adequate because the loan date was stamped at the top of the sheet even though the proper space on the form was left blank, and the three-day period was specified even though that date was also not put in the proper blank. Melfi, 568 F.3d at 310, 312.
MORAL
You might want to think about this when a consumer attempts to rescind more than three days after being given the disclosures. Remember though this is the 1st Circuit and California is in the 9th Circuit. Therefore check with your attorney to see where the lawsuit may be filed for purposes of jurisdiction.
ARIZONA ALLOWS MORTGAGE BROKER LICENSES TO BE CONVERTED TO COMMERCIAL MORTGAGE BROKER LICENSES
FACTS
The state of Arizona added provisions allowing for a mortgage broker license to be converted to commercial mortgage broker license. (ALRGS41211)
MORAL
If you can convert you may want to look into commercial mortgage loans secured by real property.
CALIFORNIA MORTGAGE LOAN OFFICER ARRESTED FOR MORTGAGE FRAUD
FACTS
An investigation by the Humboldt County District Attorney's Office into mortgage fraud has resulted in the arrest of a Fortuna based real estate loan officer. On April 15, Delores Reeves of Fortuna, was arrested in her place of business, iServe Residential Lending, and taken into custody on probable cause for grand theft by means of fiduciary trust, grand theft by means of an assumed character, elder abuse, identity theft and fraud.
On March 17, the Fortuna Police Department received a citizen report that alleged that Reeves sought money from local investors for fictitiously created home loans. The report claimed that Reeves used fraudulent deeds of trust to mislead investors into believing their principal was secure, and then kept investors’ funds for personal use.
The Humboldt County District Attorney's Office was asked by the Fortuna Police Department to conduct an investigation into these allegations. A subsequent investigation revealed that Reeves appeared to have forged loan documents and intentionally misrepresented the value of real estate in order to secure loans from unsuspecting victims. Investigators sought an arrest warrant and search warrants for her business and residence. (dahumbcty41811)
MORAL
Remember a person such as Reeves is innocent until proven guilty in a court of law. What is noteworthy is a check of the Department of Real Estate website shows her real estate salesperson license is not broker activated, meaning she is not supposed to be doing any real estate activity that requires a license unless her license is activated by a licensed real estate broker. Further when doing mortgage loans she is required to have an NMLS identifier which is then activated by the DRE and there does not appear to be such a number on her license when checking the DRE website.
CONNECTICUT MAN PLEADS GUILTY TO MORTGAGE FRAUD
FACTS
On April 21, Steven J. Kottage of Weston, pleaded guilty before United States District Judge Mark R. Kravitz in New Haven to two counts of conspiracy stemming from mortgage fraud schemes in which he participated.
Kottage conspired with others to commit wire fraud by making materially false statements to H&R Block Home Mortgage, Inc., including a false loan application, W-2, employment verification, and pay stub, in connection with a mortgage on a home on Fire Island, N.Y. Kottage admitted that he conspired with others to commit bank fraud by submitting a materially false loan application to Washington Mutual to refinance a condominium in Hillsboro Beach, Florida. A co-defendant, Mary Ellen Durso, served as the straw owner for the condo in order to obtain the fraudulent loan proceeds for the benefit of Kottage and another co-conspirator. Through both schemes, Kottage and others defrauded Wells Fargo and Freddie Mac of more than $600,000.
Judge Kravitz has scheduled sentencing for July 11, at which time Kottage faces a maximum term of imprisonment of 30 years on each count. He also will be ordered to pay restitution in the amount of at least $616,547.93. Kottage is currently detained.
On Dec. 14, 2010, Durso pleaded guilty to one count of conspiracy and five counts of filing false tax returns. On March 9, she was sentenced to three years of probation, the first six months of which she must serve in home confinement. (usattyct42111)
MORAL
Even the straw buyers get convicted. Although in this case she apparently filed five false tax returns as well.
TWO IN FLORIDA PLEAD GUILTY TO MORTGAGE FRAUD
FACTS
On April 20, Christopher Michael Paladino and Patrick Michael Micheletti, both of Melbourne, pleaded guilty to an information charging them with conspiracy to commit wire fraud. Paladino and Micheletti each face a maximum penalty of 20 years in federal prison and a fine of $250,000 or two times the gross gain or loss attributable to their conduct, whichever is greater.
Paladino and Micheletti conspired together from December 2006 through September 2007 to defraud certain financial institutions by submitting false loan applications to purchase six homes in Melbourne and Palm Bay, Fla. The loan applications contained false information about their employment, income, and the fact that they intended each home to be their primary residence. The loan applications were approved, the loan money was wired from the financial institutions to the closing agents, and Paladino and Micheletti purchased the properties. Each property has since gone into foreclosure. (usattymdfl42011)
MORAL
Notice that stating it was going to be there primary residence when it was not true was sufficient to get them convicted of a felony for filing a false loan application.
A REASON WHY YOU WANT TO CHECK OUT THE TITLE COMPANIES YOU USE, ESPECIALLY IN MARYLAND
FACTS
Daniel E. Fink Jr. of Baltimore, operator of Homemaxx Title & Escrow LLC, a title company that conducted residential real estate closings with offices in Middle River and Parkville, Md., pleaded guilty today to wire fraud in connection with a scheme to defraud lenders and homeowners of more than $2.2 million.
From February 2003 to July 2004, (NOTICE HOW THE GOVERNMENT WENT BACK EIGHT YEARS TO PROSECUTE?) Fink defrauded lenders, a title insurance company, and homeowners to obtain more than $2.2 million. Fink made arrangements for Homemaxx to act as the title company for real estate settlements and refinancing transactions. Lenders deposited funds in Homemaxx escrow accounts that Fink controlled. As part of the scheme, Fink caused title insurance to be issued to individuals purchasing or refinancing real estate, but concealed facts that negatively affected the buyers’ title in the real estate transactions. Fink also made misrepresentations to lenders in connection with transactions in which Fink acted as a party to the real estate transaction and handling the settlement on behalf of Homemaxx. For example, in a number of transactions, Fink represented to lenders that he was purchasing property and obtained a loan for that purpose. In fact, Fink purchased only the ground rent connected to that address and used the remainder of the loan for his personal benefit.
In addition, despite Fink’s representations to lenders that escrow funds were properly distributed after settlement, Homemaxx failed to pay outstanding first mortgages on real estate transactions or to properly record deeds. Fink also improperly transferred substantial amounts of money from a Homemaxx escrow account into other accounts, and used the money intended to be disbursed pursuant to real estate closing documents for personal expenditures unrelated to real estate transactions.
Among other personal expenditures, Fink used the money to buy personal gifts for women, including over $200,000 of escrow money to purchase a property in Florida for a female acquaintance, and $59,728 to purchase a new 2004 Mercedes CLK 500 for a woman Fink knew from the Gentlemen’s Gold Club. Fink also used $61,965 to buy a 2003 Hummer H2, repeatedly spent the proceeds of his scheme at the Gentlemen’s Gold Club, on gambling, and on trips to Paradise Island, Bahamas.
In April 2004, Fink was confronted by representatives of the title insurance company about substantial amounts of money missing from the Homemaxx escrow account. Fink later fled the Baltimore area and used aliases to engage in real estate transactions in Florida. On March 26, 2009, a federal grand jury in Baltimore returned an indictment charging Fink with wire fraud and money laundering in connection with the scheme. Fink was arrested in Florida on Feb. 15, 2010.
Fink is required to pay restitution in the full amount of the victims' losses, estimated to be at least $2.2 million. Fink faces a maximum sentence of 20 years in prison and a $250,000 fine for wire fraud, although IF THE COURT ACCEPTS THE PLEA, FINK IS EXPECTED TO BE SENTENCED TO FOUR YEARS IN PRISON. U.S. District Judge J. Frederick Motz has scheduled sentencing for June 17. (usattymd4811)
MORAL
Now you know why you want to check out all third party vendors you use if they are not major players!
SIX PEOPLE PLEAD GUILTY THREE TO FIVE YEARS AGO IN MISSISSIPPI AND STILL HAVE NOT BEEN SENTENCED
FACTS
Six people who pleaded guilty three to five years ago have yet to be sentenced in two related mortgage fraud cases totaling about $5.8 million. A 5TH CIRCUIT COURT OF APPEALS ruling in 2008 involving the former husband of one of those defendants is at the center of the delay. In that precedent-setting ruling, the court said a loan-by-loan inquiry should be done to determine the actual loss on each loan and that amount should be used in determining the sentence range. With the ruling, THE GOVERNMENT IS NOW FORCED TO DETERMINE THE ACTUAL LOSS AMOUNT INSTEAD OF JUST USING INTENDED LOSS OR STATING AN OVERALL LOAN AMOUNT.
That process is complex because in some cases, the lenders are no longer in business or loans have been sold to other companies. The decision meant the government had to determine such things as the fair- market value of the property on each loan, whether the property was sold and whether the lender received any collateral provided. The issue also DELAYED THE SENTENCING OF A RIDGELAND-BASED MORTGAGE BROKER AND TWO ASSOCIATES FOUND GUILTY IN MARCH 2010 OF OBTAINING ABOUT $9 MILLION IN FRAUDULENT HOME LOANS.
A jury convicted Mark Calhoun, owner of Silver Cross Financial Group, on 36 of 38 counts. His associates, J. Larry Kennedy (father) and Keith Kennedy (son), who operated Loan Closings and Title Services Inc. of Jackson, were convicted on all counts.
Calhoun and the Kennedys were scheduled for sentencing in July 2010. They are now set for a sentencing hearing on May 23. In the case involving the six defendants, the parties agreed during a status hearing before U.S. District Judge Henry Wingate this week that the six will be sentenced Nov. 1. The defendants are former BRANDON REAL ESTATE BROKER JASON ELLIS, JONI LYNN GOSS OF MADISON, FORMER GREENVILLE LAWYER BOBBY F. FISHER AND FORMER RIDGELAND REAL ESTATE BROKER JOHN WILLIAM EMORY III, ALL OF WHOM PLEADED GUILTY IN 2006; MATT HOWARD OF CANTON, WHO PLEADED GUILTY IN 2007; AND MICHAEL PERSAC OF MADISON, WHO PLEADED GUILTY IN 2008. (clarionledger.com42211)
MORAL
At that rate, if the government ahs to compute the actual loss on all loans. The defendants could die of old age before they are sentenced. Lenders have gone out of business. The government has to go back to the date of loss to compute fair market value and what the property sold for and subtract from the loan amount. It is an accountant’s nightmare and the government would need an accountant, an appraiser and the sales records of the property if it went REO.
LAS VEGAS MAN ARRESTED FOR MORTGAGE FRAUD
FACTS
On April 21, Alex Soria, a former longtime Las Vegas mortgage officer, was arrested on an 11-count indictment charging him with fraud, theft, and other federal charges. He is accused of defrauding distressed homeowners trying to refinance or adjust home mortgages, and of unlawfully collecting Social Security disability benefits for 20 years. His mortgage license expired in April 2009 according to U.S. Attorney Daniel Bogden but he continued to tell homeowners he could help them obtain financing through federal programs.
He pleaded not guilty before a U.S. magistrate judge in Las Vegas who allowed him to remain free without bond pending trial June 27. The indictment alleges Soria fraudulently collected about $17,000 from 15 homeowners. It says he was a mortgage officer for 38 years before his license lapsed. (ap42211)
MORAL
And so it continues. More mortgage fraud arrests. More indictments. Remember to consult your attorney before the arrest and before anything happens. If anyone has been involved in stated income loans I highly recommend they see their attorney before anyone else.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
