HUD SENDING OUT "SWAT TEAMS" TO AUDIT FHA MORTGAGE BROKERS
FACTS
In addition to HUD's normal lender monitoring procedures, FHA plans to increase unannounced on-site inspections of lenders to further reduce the risk of fraud. In Mortgage Letter 09-12, lenders are reminded HUD expects a strict adherence to FHA's underwriting standards to ensure lenders:
- Implement and maintain a comprehensive quality control plan;
- Review all loans with early payment defaults;
- Do not engage in false or misrepresentative advertising;
- Fully document the stability and amount of borrower(s) income; and,
- Do not charge excessive and unallowable fees to the borrower.
Remember, just recently, FHA reactivated its Special Work Assessment Teams (SWAT) to conduct single-focus on-site reviews of lenders whose originations are exhibiting signs of distress. These teams come on site and do not have to give the mortgagee notice before coming. (ml09-12)MORAL
Are you in compliance with HUD/FHA guidelines? Is your quality control plan updated? Have you performed your 10% audit? Has your quality control examiner given you monthly or at a minimum quarterly reports? Two of the first things HUD auditors request on site are the quality control plan and the reports to management by your quality control person. If you require an updated plan or need further explanation let us know.
A REMINDER ABOUT HECM COUNSELING FOR FHA LOANS
FACTS
Mortgagee Letter 2009-10 discusses Home Equity Conversion Mortgage counseling requirements for prospective borrowers. It clarifies and/or reiterates: (a) the Federal Housing Administration requires the prospective borrower to initiate the request for counseling; (b) requirements for lenders to provide a list of counseling agencies to prospective HECM borrowers; (c) requirement for counselors to review and document a client's unique financial situation; and (d) use of the new Certificate of HECM Counseling.
At least 10 counseling agencies must be given to the borrower. Five are mandatory.
ML 04-25 states that "before, during, or after the counseling session is completed, the lender may not contact a counselor or counseling agency to refer a client; discuss a client's personal information, including the timing or scheduling of the counseling; or request information regarding the topics covered in a counseling session."
HUD is aware of instances in which a lender, or lenders, have dialed a counseling agency's phone number and then handed the phone to the borrower to schedule counseling, or the lender entered the borrower's contact information into a web-based system which automatically put that borrower's name in a queue to be called by a counselor. These two examples run counter to HUD/FHA requirement that the borrower must take the initiative to contact a counseling agency when and if he or she is prepared to pursue the HECM. HUD checks for this in its audit procedures of HECM loans.
MORAL
Comply or risk FHA discipline including indemnifying the loan and in this type of loan HUD may seek a civil money penalty. We are already defending individuals where HUD is seeding money penalties on failure to comply issues where HUD has paid out for the loss and is seeking recovery from the loan officers and/or the principals of the corporations or LLCs.
A CONSUMER CAN SUE FOR A RESPA VIOLATION EVEN WHEN (S)HE HAS NOT BEEN OVERCHARGED
FACTS
Erick and Whitney Carter entered into a residential real estate purchase agreement for a home in Perrysburg, Ohio. The Carters were represented in this transaction by the real estate agency of Welles-Bowen Realty, Inc. WB Realty is co-owned by Welles-Bowen Investors LLC and Chicago Title Insurance Company. Based on WB Realty's referral, the Carters utilized WB Title at the close of their purchase agreement to perform real estate settlement services.
WB Title charged the Carters $946.28 for title insurance, which consisted of $696.28 for an owner's policy, $75 for a title commitment or binder, $100 for survey coverage, and $75 for an Environmental Protection Lien endorsement. Each of these charges was detailed in an Affiliated Business Arrangement Disclosure Statement, which the Carters reviewed prior to closing.
The Carters filed a lawsuit alleging that the WB Realty and Chicago Title violated sections 8(a) and 8(b) of RESPA, codified at 12 U.S.C. § 2607 (a) and (b). Specifically, the Carters alleged that WB Title violates RESPA's anti-kickback and anti-fee-splitting provisions because the entity itself does not and cannot provide settlement services. WB Title is allegedly a sham title company which does not perform any settlement work but still receives unearned revenues while the real settlement work is actually performed by Chicago Title. Further, the Carters claim that the arrangement between the defendants allows Chicago Title to provide illegal kickbacks to WB Realty in exchange for the referral of settlement work; WB Realty would receive kickbacks or splits in the form of their share of WB Title's profits, while Chicago Title would be paid for its work through its share of the ownership of WB Title.
The Carters do not allege that they were overcharged for the title insurance or settlement services. The defendants responded that WB Title is permissible as an affiliated business arrangement as defined by 12 U.S.C. § 2602 (7).
Defendants filed a Motion to Dismiss alleging that the court lacks subject matter jurisdiction because the Carters had suffered no injury-in-fact and thus have no standing to bring the lawsuit. The District Court granted the Motion to Dismiss holding that the Carters did not allege any concrete, particularized injury and thus lacked standing to bring a claim under § 2607(a) or (b). The Carters appealed.
The 6th Circuit of the United States Court of Appeals said reversed. The actual or threatened injury to the plaintiff Carters may exist solely by virtue of statutes creating legal rights, the invasion of which creates standing. The court finds that the Carters' allegation that defendants violated section 8 of RESPA is an injury-in-fact and is sufficient to survive a motion to dismiss. The plain meaning of the statutory language and the persuasive authorities examined by the court indicate that Congress created a private right of action to impose damages where kickbacks and unearned fees have occurred, even where there is no overcharge. Accordingly, the district court's determination is reversed. (Carter vs. Welles-Bowen Realty, No. 07-3965, 6th Cir. 1-23-09)
MORAL
I do not need to be personally harmed to sue you for a RESPA violation. I just have to use your services. But if I can prove you paid the company for the referral and did no work, the fact that you are an affiliated business arrangement is not going to help you.
EQUIFAX VIOLATES FAIR CREDIT REPORTING ACT THROUGH NEGLIGENCE AND GETS HIT WITH $200,000 JUDGMENT AND POSSIBLE ATTORNEY FEES
FACTS
After discovering that a thief had stolen her identity and ruined her credit, Nicole M. Robinson sought to have Equifax Information Services LLC correct the resulting errors in her credit report. Several years later, however, Ms. Robinson continued to experience credit problems resulting from Equifax's mishandling of her credit file. Ms. Robinson brought this action against Equifax for violations of the Fair Credit Reporting Act. A jury found that Equifax had violated the FCRA in numerous respects and awarded Robinson $200,000 in actual damages. The district court entered judgment in that amount and granted Ms. Robinson's request for attorney's fees in the amount of $268,652.25. On appeal, Equifax challenges the award of damages and attorney's fees.
The 4th Circuit of the United States Court of Appeals said it affirms the $200,000 judgment but the lower court needs to review the attorney fees again. The trial court found in April 2000, Ms. Robinson discovered that a woman named Nicole Antoinette Robinson had stolen her identity and opened fraudulent accounts in her name and under her Social Security number. Shortly after discovering that she had been the victim of identity theft, Robinson began the process of restoring her credit history. She filed a police report, called the Federal Trade Commission hotline and opened a case, and spent the next five months trying to correct the erroneous entries on her credit report. As a result of her efforts, by 2001 Ms. Robinson's credit report was free of all fraudulent accounts caused by the identity thief.
During this same time, but unrelated to her identity theft, Ms. Robinson lost her job and was forced to file for bankruptcy protection in May 2001. Robinson was able to obtain a discharge of her debts by September 2001. For several more years, Ms. Robinson continued to experience credit problems resulting from Equifax's mishandling of her credit file. Equifax mistakenly placed Robinson's address and social security number on three credit files established by the identity thief, each of which contained derogatory credit accounts. Equifax sent various creditors requesting Ms. Robinson's credit report her actual credit file along with one of the identity thief's files. As a result of these errors, Ms. Robinson's credit problems persisted and she experienced difficulties obtaining any type of consumer credit from 2003 until 2006. In October 2003, Ms. Robinson applied for a credit card for the first time since filing for bankruptcy protection. Her credit card application was denied in part based on derogatory information contained in one of the identity thief's files that Equifax sent the credit card company.
In January 2004, after discovering the company's errors, Ms. Robinson contacted Equifax. The company properly combined two of Ms. Robinson's files into a single file, suppressed fraudulent information, and "cross blocked" fraudulent information so that it could not return to the file. When Equifax attempted to correct these mistakes, however, the company exacerbated matters further by placing Ms. Robinson's identification information on another one of the identity thief's files. As a result, Ms. Robinson's credit problems continued and she was not able to obtain a home loan over the course of the next couple of years. In January 2005, Ms. Robinson tried to secure a home loan from a mortgage company, but she was turned down because Equifax sent the mortgage company one of the identity thief's files. Chagrined that Equifax had not yet corrected all of the errors in her credit report, Ms. Robinson contacted Equifax's director of consumer affairs on Feb. 9, 2005, who removed Ms. Robinson's identification from one of the identity thief's files. Several months later, in May of 2005, yet another error occurred when Equifax, responding to a request to place a fraud alert on Ms. Robinson's account, inadvertently placed her Social Security number and address on another of the identity thief's files. (2nd error by Equifax)
Ms. Robinson applied for another home loan in January of 2006. Yet again, Equifax sent the mortgage company her correct file along with one of the identity thief's files. After contacting Equifax to fix this most recent error, Ms. Robinson applied for another mortgage in July 2006. ONCE AGAIN, EQUIFAX SENT ANOTHER ONE OF THE IDENTITY THIEF'S FILES TO THE MORTGAGE LENDER. (3rd error by Equifax) To make matters worse, Ms. Robinson had to spend hundreds of hours out of work trying to correct Equifax's mistakes. The stress of these problems weighed on Ms. Robinson and the physical and emotional toll she experienced was apparent to others, particularly her family and co-workers. During this period, Ms. Robinson frequently experienced headaches, sleeplessness, skin acne, upset stomach, and hair loss.
On Nov. 22, 2006 -- following several years of struggling with Equifax to correct her credit report -- Robinson filed an action against the company in the United States District Court for the Eastern District of Virginia, alleging violations of the FCRA and seeking actual and punitive damages.
Following deliberations, the jury awarded her $200,000 in actual damages. She asked for an award of attorney's fees and costs, and the court granted her approximately 90% of her fee request, in the amount of $268,652.25. The 4th Circuit affirmed the damages and sent the case back to reconsider the attorney fees which it considered too high. (
MORAL
It takes Equifax three times and causes misery for a number of years and then does not want to acknowledge its mistakes caused a human being misery. The human being goes to trial. But then, "I am Equifax. I do not need to be punished for hurting someone." Keep in mind, the three bureaus do make mistakes. But to take years and three times to fix it?
USE THE NEW I-9 FORM ON ALL NEW EMPLOYEES OR BE SUBJECT TO PENALTIES UP TO $11,000
FACTS
As of April 3, 2009 all businesses hiring new employees must start using the new I-9 form to establish a person's right to work in the United States. You can verify your form if the revision date on the bottom left side is 2/2/09. The employer is legally responsible for establishing the validity of the documents. The penalties that can be imposed on the employer range from $100 to $1,100 for simple failure to comply and go up $250 to $11,000 if the violation is knowingly done by the employer. This is per employee and individuals as well as the company can be held personally liable.
The employer signs the I-9 as well as the (potential) employee) under penalty of perjury that (s)he has examined the documents that allow work in the United States and they appear to be genuine.
MORAL
If the offense is severe enough the government can even criminally prosecute the individual that signed the I-9 on behalf of the employer as well as the employer. Fill it out right the first time.
CHASE INDIRECTLY GIVES ARIZONIANS AND OTHERS THE OPPORTUNITY TO SELL HOMES AND DO PURCHASE MONEY MORTGAGES
FACTS
Chase Bank opened a Phoenix homeownership center on March 31, 2009. It is apparently the first of its kind in Arizona and has seven advisers who will specialize in helping troubled borrowers modify their loans. The new center is the 24th Chase facility across the nation that's now open specifically to help distressed homeowners, including nine in California and five in Florida. Chase representatives also will make house calls to borrowers or meet them at another Chase office if it's more convenient.
However, there is a string attached to this seemingly gratuitous help for borrowers. The effort is reserved for Chase, Washington Mutual and EMC mortgage customers.
Usually, Chase will begin the process by cutting interest rates to as low as 2%, David Schneider, a Chase executive vice president in charge of the centers said. If that's not enough, the bank might extend the term of the loan or reduce the balance.
He said many mortgage problems are caused by household income disruptions, not just job losses but the scaling back of bonuses and overtime pay, along with furloughs.
Chase predicts the program will help 400,000 families nationally over the next two years. But officials declined to provide an estimate for Arizona, the program's expected success rate, nor the number of Chase, Washington Mutual and EMC loans in Arizona. (azcentralcom33109)
MORAL
How does this help you? If the loan is reduced, the house is more salable. If more salable, the borrower gets out from under the loan and you as a real estate agent get the listing and/or selling commission or both plus the new purchase money loan for the buyer. Now that is something to think about marketing. Additionally, you now know where Chase at least states it will go in modifying the existing loan! Chase requests helpful papers including W-2 forms, recent pay stubs, bank statements, tax returns and papers showing monthly expenses and provide
FORMER PRESIDENT OF CALIFORNIA INLAND EMPIRE MORTGAGE COMPANY GUILTY OF $23 MILLION MORTGAGE FRAUD SCHEME
FACTS
John Richard Varner, former president of Mortgage One Corp. in Hesperia, Calif., has been convicted of four federal charges related to a scheme to defraud the Department of Housing and Urban Development and private lenders by fraudulently obtaining federally insured loans and selling those notes to private lenders.
He was found guilty on April1, 2009 of one count of conspiracy to defraud HUD, one count of bank fraud and two counts of subscribing to false income tax returns. As a result of the convictions, Varner faces a maximum statutory sentence of 41 years in federal prison.
Following the reading of the jury's verdicts after a nearly four-week trial, United States District Judge Virginia A. Phillips revoked Varner's bond and remanded him into custody after hearing from prosecutors that Varner is realistically facing a sentence of more than 12 years in prison, and after learning that he remained in the real estate industry following his arrest in this case in 2007.
Varner becomes the 15 defendant convicted in a wide-ranging investigation into fraud related to HUD-backed mortgages. Varner was at the center of a scheme that was run out Mortgage One, which was based in Hesperia, and M-1 Capital Corp., which was based in Riverside and Rancho Cucamonga.
From 1997 until 2002, the two companies were in the business of approving, funding and then selling home mortgage loans, typically obtaining mortgage insurance of the loans from the Federal Housing Administration. Mortgage One and M-1 Capital obtained FHA mortgage insurance for their loans without HUD review due to their status as HUD-approved direct endorsement lenders. They obtained and kept DE status by submitting false documents, including bogus audits, to HUD.
Varner and his co-defendants defrauded HUD by submitting fraudulent loan application documents in order to qualify the loans for FHA insurance. The loans went to borrowers who either did not meet the FHA requirements to qualify for the mortgages and/or were only straw buyers. Mortgage One and M-1 Capital sold the funded loans to banks, such as Firstar Bank NA and Chase Manhattan Mortgage Corp., using the same fraudulent documents. More than 1,000 of the 3,813 FHA-insured loans approved by Mortgage One and M-1 Capital went into foreclosure and, as a result, HUD and private lenders lost at least $23 million.
Varner was found guilty of filing false tax returns for the years 1999 and 2000 when he failed to report income that he used for personal expenses such as a Corvette, a $153,000 RV, jewelry and more than $150,000 deposited into a personal investment account.
Varner is scheduled to be sentenced by Judge Phillips on June 15, 2009 and is realistically looking at 12 years in prison per prosecution and that is reason bail was revoked and he was taken into custody.
CALIFORNIA WOMAN ARRESTED ON SUSPICION OF KILLING HER HUSBAND AND FOR BEING INVOLVED IN SEVERAL MORTGAGE FRAUD SCENARIOS WITH FIVE OTHERS
FACTS
Carol Laverne Harris stands accused in the August slaying of her husband and also faces mortgage fraud charges. She was arrested in September with five other suspects four weeks after her husband, Karl Johnson, was shot in their Modesto, Calif. home. She remains jailed on $2 million bail.
An investigation showed that Harris allegedly conspired with several others to buy the home on Lincoln Oak Drive and to secure inflated loans under false pretenses, investigator Glenn Gulley of the Stanislaus County district attorney's office allegedly wrote in an arrest warrant affidavit.
In bankruptcy filings in 2008 Harris allegedly claimed a $64,800 yearly salary from New Life Community Church in Berkeley. The address she listed for the church is for San Pablo Park. Approximately $16,000 flowed through the church to Harris when a 27-year-old student bought the house in October 2006, Gulley purportedly said in the affidavit.
Imal Anwary, who made about $15 per hour as a part-time bank teller, claimed on a loan application a yearly salary of $154,000 for work as a finance company's marketing officer, Gulley said. The loan that Anwary received to purchase the house also provided $20,000 to a notary public and $23,000 to men who lined up Anwary as a straw buyer, Gulley said.
The suspects one month later had a scheme to resell the home to Harris, according to the court document. By March 2008, they had lined up a phony appraisal valuing the house at $121,000 more than Anwary paid despite the declining real estate market. Harris bought it for $605,000, while a home that was "larger and in better condition" next door sold the same week for $350,000, Gulley said. Proceeds from Harris' loan paid off loan officers and a man who lied about Harris working for him so she could qualify, Gulley said. Harris is alleged to have purchased at least four homes by using four different names and all four homes have gone to foreclosure," Gulley said in the affidavit. Harris has allegedly used the names Nigelia Syeed, Carol Hughes and Carol Willoughby, according to the affidavit and three bankruptcies filed in May, August and October.
Also arrested were Anwary; loan officers Abida Sultana Khan and Gwendolyn Cecilia May Stone; and real estate agent Ahmad Seyar Ayub. (modbee4309)
MORAL
The person you feel sorry for in this story is the student. Someone should have told Ms. Harris a divorce is cheaper than a large amount of time in prison for killing someone. Our family law attorney would have been happy to represent her in a dissolution. But not now. Divorce by death is too final. Remember, everyone is presumed innocent until proven guilty by a court of law. But it sure is expensive proving innocence.
MARYLAND NOW ENFORCING HIGHER PRICED MORTGAGE LOAN REGULATIONS
FACTS
The Maryland Commissioner of Financial Regulation adopted new duties and obligations residential mortgage lenders, brokers, Servicers, and originators that went in effect on Nov. 3, 2008. The Commissioner will enforce those provisions of the regulations related to higher-priced mortgage loans effective with applications on or after March 16, 2009. A higher-priced mortgage loan is defined as a loan that the annual percentage rate exceeds the average prime offer rate by: 1.5% or more for loans secured by a first lien; or 3.5% or more for loans secured by a subordinate lien. Mortgage originators licensed in the State of Maryland should make themselves familiar with the new regulation and the effects on borrowers. Read it carefully and comply. For Lenders read:
MORAL
Your document software should have it, but, if you do not press the right buttons you will not get it and then Maryland will give it to you in the "ear."
PENNSYLVANIA NEW DISCLOSURE MORTGAGE BROKERS MUST USE
FACTS
As of March 20, 2009 the Pennsylvania Department of Banking requires licensees to issue a one page disclosure form prescribed by the Department within three business days after the application is received or prepared by the licensee. This form must be signed and dated by the borrower.
MORAL
This is in addition to the TILA disclosure after application, in addition to the GFE within three days after application and in addition to the other disclosures throughout the loan up to and including the HUD-1 the day before closing and the day of closing. Aren't disclosures wonderful?
SOUTH DAKOTA AMENDS MORTGAGE LENDING LAW TO REQUIRE LICENSING NOW RATHER THAN REGISTRATION
FACTS
South Dakota passed a bill amending the Mortgage Lender Business Statute. Loan originators are required to obtain a license rather than a registration. Loan processors and underwriters who act as independent contractors must obtain a loan originator license. In addition, all licensees are required to use the Nationwide Mortgage Licensing System for initial licensing and renewal, the surety bond is now based upon the total dollar amount of loans originated, requires a "report of condition", and establishes grounds for the denial of a loan originator license. The new law for the most part is effective July 1, 2009. Certain provisions regarding the denial of a loan originator license do not become effective until July 31, 2010 and Dec. 31, 2010. (alreg33009)
MORAL
Remember to track the law changes. Because of the fallout, laws are changing fast and dramatically. Failure to keep track of the changes can cost you a lot of money if you violate them.
TEXAS LOAN OFFICER CONVICTED OF MORTGAGE FRAUD
FACTS
Brandon Alanzo Crenshaw of Houston, a former loan officer for Motown Mortgage Group and Central Capital Financial Group, has pleaded guilty on April 1, 2009 to conspiring to commit wire and mail fraud and laundering the proceeds of the fraud through a financial institution for his role in a mortgage fraud scheme.
Crenshaw admitted to conspiring with others to defraud residential mortgage lenders by misstating facts relevant to the lending decisions over a three and one-half year period beginning in late 2003. Crenshaw worked as a loan officer at two Houston area mortgage broker firms, Motown Mortgage Group and Central Capital Financial Group, where fraudulent loan applications and other fraudulent documents were prepared to induce mortgage lenders to provide 100% financing for homes the borrowers falsely claimed were to be their primary residences. Crenshaw purchased homes using false and fraudulent information concerning his assets and liabilities and he recruited others to do the same.
Crenshaw admitted to recruiting individuals to apply for mortgage loans for residences in the Houston area while he served as a loan officer at Motown Mortgage Group and Central Capital Financial Group. The loan applications contained materially false information including employment and income information. False appraisals inflating the price of each of the two properties were also submitted to the lender. Once the loans were funded, Crenshaw received money for his role in these transactions. Crenshaw also admitted to having purchased two properties himself in March 2005 providing the lender false information about his place of employment and his monthly income as well as falsely claiming each of the two residences was to be his primary residence.
The conspiracy to commit wire and mail fraud conviction carries a maximum penalty of 20 years imprisonment and a $250,000 fine. The conspiracy to commit money laundering through financial transactions involving criminally derived funds conviction carries a maximum penalty of 10 years and a $250,000 fine or twice the amount laundered whichever is greater. Sentencing has been set for Nov. 6, 2009. (usattytx4109)
MORAL
Note that the prosecutor went back to loans that occurred in 2003 and that claiming the residence will be owner occupied was charged as one of the felonies.
UTAH ATTORNEY GENERAL CHARGES OWNER OF MORTGAGE COMPANY WITH FRAUD
FACTS
On March 27, 2009 the Utah Attorney General's Office charged the CEO of Utah Financial Inc., Midvale, Utah and his wife with 18 second-degree felony counts for allegedly running a lucrative mortgage fraud scheme. Utah Financial president Brendan Tyler Cassity and Olivia Cassity were both charged with 18 counts of communications fraud, one count of racketeering and two counts of money laundering.
The court documents appear to state the Cassitys allegedly prepared their own appraisals using the name of a separate licensed appraiser and substituting photos of more lavish homes as part of those appraisals to inflate the values of the real estate described in the appraisals. They then allegedly used straw buyers to obtain loans far in excess of the true value of the properties. Equity was then allegedly skimmed from the properties in order to gain tax advantages and buy other properties. The alleged scheme may have netted several million dollars.
The Attorney General's Office has asked a judge to freeze the assets of the defendants and is seeking criminal forfeiture of their business and their home in Salt Lake City. Prosecutors requested bail be set at $500,000 for each defendant.
Each second-degree felony is punishable by one-to-15 years in prison. Remember, all persons are innocent until proven guilty. (utahagprrel32709)
MORAL
Where are they going to get the money to make bail, if the judge freezes all the assets? With such a great paper trail, I wonder how anyone thinks it would not be discovered. Especially, in a foreclosure setting. Did any of you out there fund loans from Utah Financial Inc.?
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE.
