A REMINDER TO CREDITORS THAT THE NEW TILA PREDISCLOSURE GOES INTO EFFECT ON JULY 30, 2009
FACTS
On May 7, 2009 the Federal Reserve Board approved final rules that revise the disclosure requirements for mortgage loans under Regulation Z, Truth in Lending. The revisions implement the Mortgage Disclosure Improvement Act, which was enacted in July 2008 as an amendment to TILA.
The Board's implementing regulations apply to dwelling-secured consumer loans for which a creditor receives an application on or after July 30, 2009.
The MDIA requires creditors to give good faith estimates of mortgage loan costs ("early disclosures") within three business days after receiving a consumer's application for a mortgage loan and before any fees are collected from the consumer, other than a reasonable fee for obtaining the consumer's credit history. These requirements apply to loans secured by a consumer's principal dwelling. The MDIA broadens this requirement by also requiring early disclosures for loans secured by dwellings other than the consumer's principal dwelling, such as a second home.
In addition, the rules would implement the MDIA's requirements that: Creditors wait seven business days after they provide the early disclosures before closing the loan; and creditors provide new disclosures with a revised annual percentage rate, and wait an additional three business days before closing the loan, if a change occurs that makes the APR in the early disclosures inaccurate beyond a specified tolerance.
The rules would permit a consumer to expedite the closing to address a personal financial emergency, such as a foreclosure. (frb5809)
CALIFORNIA COUPLE DRAW OVER 20 YEARS IN PRISON FOR MORTGAGE FRAUD
FACTS
On Monday, May 4, 2009 Esperanza Valverde was sentenced to 23 years and eight months in state prison and her husband Herman Covarrubias was sentenced to 19 years and eight months in state prison. They were also ordered to pay more than $900,000 in restitution to the borrowers. They were convicted of running a scheme that involved lying to five banks about borrowers' ability to repay $8 million in subprime loans, and lying to borrowers about the terms of the loans.
The sentencing is one of the first in the county involving subprime mortgage scams.
Valverde was convicted on 40 felony counts and her husband on 22 felony counts. They were accused of obtaining loans for 22 clients by supplying lenders with false tax returns, W-2 statements, pay stubs and employment verification letters. Valverde was the company's president and broker. Covarrubias was a broker and manager. Valverde also was a notary and handled Summit's loan signings, according to a prosecutor.
The sentences were based on formulas allowing more severe penalties for people in a position of trust, for a pattern of white-collar crime and for schemes involving more than $2.5 million.
A criminal complaint against Valverde and Covarrubias was filed in 2005 after an investigation by the California Department of Real Estate and the district attorney's office found that the company was pushing clients into unfavorable loans with excessive fees and denying them their three-day right to cancel.
A grand jury indictment was returned in 2006 and the case went to trial last year, ending with a conviction in October 2008. (sjmercnews5509)
MORAL
Notice several things here. The investigation was by the DRE. Normally, the DRE sends a letter requesting an explanation in fairness to the broker. It would appear that both these people ignored the letter and when you do that, things escalate fast. They should have seen their attorney show could have responded for them. Next, notice how the sentences for mortgage fraud are getting stiffer and stiffer. There have been at least several sentences in the past month over 20 years and note the one below where the lady in Texas was sentenced to 99 years. If you are involved in an investigation or think one is due, I suggest you see an attorney now rather than later.
ILLINOIS REQUIRES 30-60 DAY "GRACE PERIOD NOTICE" BEFORE LENDER CAN FORECLOSE
FACTS
Effective April 6, 2009, Illinois requires mortgagees to deliver a "Grace Period Notice" prior to commencing foreclosure actions on owner-occupied residential real estate. No foreclosure action may be commenced until 30 days have elapsed from the time the "Grace Period Notice" is mailed. In addition, if an approved counseling agency provides notice that the borrower is seeking counseling services, then the lender must wait an additional 30 days before commencing foreclosure proceedings. (alrgs5609)
MORAL
Before long it will take a year to foreclose if the lender is lucky.
MARYLAND MORTGAGE ORIGINATOR LAW AND MORTGAGE LENDER LAW AMENDED EFFECTIVE JULY 1, 2009
FACTS
Effective July 1, 2009 Maryland amended the Mortgage Originator Law and the Maryland Mortgage Lender Law. Mortgage loan originators are required to pass an examination prior to obtaining a license under the MOL and must be covered by a surety bond. Loan originator initial education, continuing education, renewal, and notification requirements are amended and lenders, brokers and servicers licensed under the MMLL must submit a "report of condition" to the NMLS on an annual basis. (alrgs5709)
MORAL
You need a compliance officer on laws to keep up with the compliance officer on compliance in order to be in compliance.
NINTH MEMBER OF MARYLAND MONEY STORE FRAUD PLEADS GUILTY
FACTS
William Ballesteros, a real estate agent pleaded guilty to mortgage fraud. He is the ninth person convicted in the Metropolitan Money Store mortgage fraud. He personally caused $16 million in losses to mortgage lenders.
He pleaded guilty on May 14, 2009 to conspiracy to commit mail and wire fraud in connection with a mortgage fraud scheme that falsely promised to help homeowners facing foreclosure keep their homes and repair their damaged credit. "Real estate professionals who know that mortgage fraud is occurring are obligated to report it," said U.S. Attorney Rod J. Rosenstein. "Wilbur Ballesteros was a licensed real estate agent who accepted kickbacks in return for his assistance in closing $16 million in fraudulent mortgage loans."
In May 2005, co-defendants Joy Jackson and Jennifer McCall incorporated Metropolitan Money Store, located in Lanham, Md., which offered foreclosure consultation and credit services to financially distressed homeowners.
From September 2004 to June 2007, Ballesteros conspired with others to fraudulently promise to help homeowners, who had substantial equity in their homes but were facing foreclosure because of their inability to make monthly mortgage payments, avoid foreclosure and repair their damaged credit. The homeowners were directed to allow title to their homes to be put in the names of third party purchasers (the straw buyers) for a year, during which time Metropolitan Money Store promised to improve the homeowners' credit ratings, help them obtain more favorable mortgages, and eventually return title to their homes to them. The homeowners were told that the equity withdrawn from the properties would be used to pay the mortgage and expenses on their homes and to repair their credit. The straw buyers were paid up to $10,000 to participate in the scheme and allow the properties to be put in their names.
Using the homeowners' properties, the conspirators applied for mortgages to extract the maximum available equity from the homes, and prepared and submitted fraudulent loan applications to mortgage lenders to obtain inflated loans on the target properties in the straw buyers' names. At settlements, the conspirators imposed numerous fees and required "seller contributions" which were far in excess of industry standards; they imposed fees for services which were not performed, disclosed or explained to the homeowners; and they transferred the sale proceeds out of the escrow accounts into the conspirators' business and personal bank accounts and converted a substantial portion of those funds to their personal use.
Ballesteros, a licensed real estate agent, served as a closing agent on more than 60 straw buyer properties, securing title insurance, facilitating the real estate settlements and submitting fraudulent closing documentation to the lenders, as instructed by Jackson, McCall and other MMS personnel. Ballesteros often created multiple settlement statements or altered the settlement statements for some properties to disburse the homeowners' proceeds directly to MMS employees and himself. In order to disguise some of the payments to himself, Ballesteros created a company called WB & Associates, LLC and crafted settlement statements which provided for payments to this company, which Ballesteros then disbursed to himself and other conspirators.
In addition to causing the equity proceeds to be sent to Jackson, McCall and companies under their control, Ballesteros also caused wire transfers and checks to be drawn from the equity of some properties to be sent to him or to WB & Associates. Jackson and McCall paid Ballesteros more than $100,000 in kickbacks to facilitate loan closings. Initially, Jackson paid Ballesteros up to $3,000 in cash for closing loans and eventually paid him by check and cashier's check. Over time, Jackson lowered the amount of kickbacks to Ballesteros to at least $1,000 for closing loans. In return, Ballesteros processed real estate closings for MMS quickly and as requested by Jackson, McCall or other MMS personnel. Moreover, when Jackson and McCall requested, Ballesteros permitted MMS employees to close at least 20 loans without him or any other closing agent being present. Thereafter, Ballesteros prepared the documents, including certifying the straw buyers' and homeowners' presence at the loan closings, and then submitted the completed loan paperwork to the lenders causing them to release the loan proceeds to a title company.
The total loss attributable to Ballesteros' conduct in the scheme, including the estimated losses to the mortgage lenders, is $16,859,950. Ballesteros faces a maximum sentence of 30 years in prison and a $1 million fine for the conspiracy. U.S. District Judge Roger W. Titus scheduled sentencing for Dec. 7, 2009 at 9:00 a.m. As part of his plea, Ballesteros has agreed to pay restitution for the full amount of the victims' losses. (usatty5409md)
MORAL
Note the federal people went back five years to get them. The federal people are looking at all the 2003-2007 stated income loans and those that did them may suffer!
MISSISSIPPI AMENDS MORTGAGE CONSUMER PROTECTION LAW
FACTS
Effective July 31, 2009 Mississippi is amending the Mortgage Consumer Protection Law. Loan originators and loan processors or underwriters acting as independent contractors are required to obtain a license. Education, bond, renewal, exemption, notification, and advertising requirements are also changed. The Mortgage Consumer Protection Law new name as of July 31 is the Mississippi S.A.F.E. Mortgage Licensing Act of 2009. (alrgs5609)
MORAL
Al these changes will slow down mortgage fraud. You will be so busy reading the new laws you will not be able to solicit new loans, let alone commit fraud.
PERTINENT PROVISIONS OF 2009 NEVADA REGULATIONS ADOPTED AS LAW
FACTS
T002-09 Education & Testing NRS 645B
* Requires courses of education and instructors to be certified by approved organizations (see NAC 645B.360) and approved by the Division, and establishes course and instructor standards;
* Requires 30 hours of pre-licensing education or testing. The education option must include 4 hours of ethics, 12 hours of federal law which includes 2 hours of nontraditional mortgage products, 4 hours of Nevada law and 10 hours of electives. Fifteen of the 30 hours must be obtained in live classroom courses. Licensees in rural communities (populations less than 60K and more than 60 miles from a city with a population of 60K) are exempted from the live requirement;
* Requires that designated qualified employees take four of their 10 hours of electives in office policy and procedures, risk management, errors and omissions, affiliated business arrangements, labor relations, general management principles, loan prequalification and loan processing;
* Requires 10 hours of continuing education taken within 12 months prior to renewal. The continuing education must include annual classes consisting of 2 hours of non-traditional mortgage products, 3 hours of federal law and 2 hours of Nevada law, and every two years, 2 hours of ethics. The additional hours may be taken as electives. Classes may be taken either through live instruction or on-line. Licensees may not take the same course for subsequent renewals unless the course has been revised.
Classes taken after 6-1-09 must comply with the required subject matter to qualify for renewals.
R058-08 General Changes to NRS 645B
* Requires persons who apply for an exemption to provide substantiation that the license of the person provides the right to make or broker mortgage loans and that the entity or agency which regulates the person will investigate complaints arising from or relating to consumers in this State;
* Requires mortgage agents that wish to hold the license as a legal entity to form an LLC or PC in their natural name and to sign a prescribed form affidavit, and requires the mortgage broker to notify the Division if the agent dies;
* Requires that the qualified employee's two years of verifiable experience required to serve as a QE be within the past 5 years;
* Deems applications for licensure to be abandoned if the applicant fails to provide requested information within 30 days of request;
* Expands "suitable books and records" that a licensee must maintain in his files;
* Prohibits renewals of licenses if licensees have not paid fees, fines or assessments;
* Revises file retention requirements for licensees;
* Requires mortgage agent applicants to be at least 18 years of age;
* Revises advertising requirements, including but not limited to, prohibiting the use of another lender's name within the advertisement without the express permission of the other lender and requiring disclosure of the licensee number;
* Removes specific private investor disclosures from the regulation and requires licensees to utilize the Division's prescribed forms. The prescribed forms are available on the Division's Web site in the "Forms" link.
R053-08 General Changes to NRS 645E
* Requires that the qualified employee's two years of verifiable experience required to serve as a QE be within the past 5 years;
* Deems applications for licensure to be abandoned if the applicant fails to provide requested information within 30 days of request;
* Expands "suitable books and records" that a licensee must maintain in his files;
* Revises file retention requirements for licensees;
* Revises advertising requirements, including but not limited to, prohibiting the use of another lender's name within the advertisement without the express permission of the other lender;
* Establishes limitations on insider loans.
R123-08 Qualified Employees NRS 645B
* Requires all non-owner qualified employees to hold a mortgage agent license by no later than October 31, 2009. QE's must submit applications to become licensed mortgage agents. There is no automatic licensing for current QE's. Processing the application may take up to 3 months to complete, so QEs should immediately apply. Application forms may be found on the Division's website, www.mld.nv.gov. QE's who are not licensed as mortgage agents by the end of October 2009 will not be able to act in either capacity until their licenses are issued.
* Requires QEs to be present at the licensed location the majority of the time the office is open.
* Requires QEs to be residents of Nevada or reside in a border state within 35 miles of the border and within a commutable distance of the licensed office.
R056-08 Insider Loans NRS 645B
* Establishes lending limits for loans made by mortgage brokers to a director, officer, mortgage agent or employee of a mortgage broker (insider loans);
* Requires mortgage brokers to note insider loans on monthly activity reports and on delinquency reports;
* Removes the ability of investors to waive specific items for loans made to insiders.
R069-08 & R070-08 Hearing Procedures NRS 645B & NRS 645E
* Establishes Rules of Practice for administrative hearings
R067-08 Investor Standards NRS 645B
* Establishes minimum net worth and income standards for non-institutional investors in mortgage loans;
* Requires investors to complete prescribed forms regarding their suitability to invest. The prescribed forms are available on the Division's Web site in the "Forms" link.
R055-08 Financial Statements NRS 645B
* Requires licensees who maintain investor trust accounts to submit, with their annual CPA prepared audited financial statement, audits of their trust accounts in a format substantially in the same format and inclusive of the same information as the Division's prescribed forms;
* Requires licensees who maintain investor trust accounts to submit self- prepared financial statements twice a year utilizing prescribed formatting.
MORAL
If you are doing private investor loans or insider loans be absolutely certain you read the exact regulation changes. This is a brief summary. If any of this affects your business you should read the regulation itself. If you need a copy let me know.
OKLAHOMA WOMAN HAS NEW METHOD OF MORTGAGE FRAUD
FACTS
On May 8, 2009, DAWN QUIROGA, formerly of Edmond and now from Broken Arrow, Okla., pled guilty to money laundering and failure to file a tax return stemming from a mortgage fraud Ponzi scheme, announced John C. Richter, United States Attorney for the Western District of Oklahoma.
In June of 2006 Quiroga began soliciting investors for a business she called Buyers Solutions Marketing LLC. Quiroga told investors that BSM was a down payment assistance program providing short-term, high interest loans for people to use as down payments when purchasing homes and that their investments would fund the down payments in return for receiving certain returns once the loans were repaid. Numerous investors relied on Quiroga's statements and wired money to her to invest in BSM.
Almost immediately after BSM came into existence, it became clear that BSM could not make any money on down payment assistance loans. Nevertheless, Quiroga continued to solicit investors falsely claiming that BSM was successful when, instead, BSM became a Ponzi scheme where money from new investors was used to make payments to prior investors over a period of about two years. During that time period, Quiroga also funneled large amounts of money out of BSM to buy personal items such as new cars, a new home, and furnishings and electronics for the home. As a result, dozens of investors lost money through this fraud scheme.
In addition to pleading guilty to money laundering, Quiroga also admitted that she failed to file an income tax return for calendar year 2007 when she had earned over $2.5 million in gross income.
At sentencing, Quiroga faces up to 10 years in prison and a fine of $250,000 on the money laundering count and up to a year in prison and a fine of $25,000 on the tax charge. (usatwdok5809)
MORAL
Novel approach but as usual it did not work since people were not getting repaid.
HOUSTON MAN GUILTY OF MORTGAGE FRAUD
FACTS
On May 13, 2009, Clarence Lewis III was found guilty by U.S. District Judge Lynn Hughes of engaging in a mail and wire fraud conspiracy and four counts of wire fraud following a bench trial.
Lewis held a mortgage broker license and operated Motown Mortgage Group in addition to holding a realty broker license and operating Lewis & Associates Realtors.
He and his co-conspirators recruited individuals with good credit to apply for the mortgage loans, many of who were promised money for signing loan documents and attending the real estate closing at the title company where the mortgage notes were signed. Lewis further induced them to act as borrowers by stating he would make sure the mortgage notes were paid and he would ensure the property was managed until it could once again be sold. From January 2002 to Jan. 16, 2008, Lewis is alleged to have obtained more than $12,000,000 in fraudulently obtained loans.
Some loan documents were altered and others were fabricated in an effort to support the false and misleading statements on the loan applications. Motown Mortgage Group ordered appraisals on these properties and represented to the lenders that each appraisal was conducted by an independent licensed appraiser when, in fact, many of the appraisals were prepared by an unlicensed individual who had unlawfully appropriated the license of two appraisers and used their licenses without their knowledge.
Lewis negotiated the sales price with sellers of the property which involved increasing the sales price rather than lowering it. The sales price included funds which were transferred to Lewis' assumed name bank account, Astro Construction. Lewis was found guilty of conspiracy to commit mail and wire fraud and as well as four counts of wire fraud. Each count carries a possible maximum penalty of up to 20 years imprisonment and up to $250,000 fine. Lewis was taken into custody after the court rendered its verdict. Sentencing is scheduled for Aug. 17, 2009. (usattysdtx51309)
MORAL
There will probably be a forfeiture hearing. Restitution will undoubtedly be ordered. He can no longer vote or hold many licenses. Note the government went back to 2002 loans over seven years ago. The government has 10 years to file an indictment in most cases. So think about that 10-year statute of limitations and ongoing investigations in all states.
TEXAS WOMAN DRAWS 99 YEARS IN PRISON FOR MORTGAGE FRAUD
FACTS
On March 23, 2009, Kandace Yancy Marriott of Gun Barrel City, Texas was sentenced to 99 years in state prison for her role in a mortgage fraud scheme. Evidence presented at the punishment stage showed Marriott received monthly mortgage payments from her clients, failed to remit those payments to the mortgage lender, embezzled the homeowners' funds, and caused her clients to default on their home loans. Marriott's conviction stems from her involvement in a complex mortgage fraud scheme that defrauded the federal government. The scheme's principal operators were the defendant and her husband, Darrell L. Marriott, who sold manufactured homes through their company, One Way Home & Land. However, the defendants' daughter, Kally Marriott, and Kandace Marriott's sister, Karen Hayes, have also been indicted for their role in the scheme. All four defendants face separate charges for related criminal conduct in Kaufman County, Texas.
State investigators found the defendants illegally forged home buyers' signatures, inaccurately completed loan applications, and falsified supporting documents, including the buyers' rent payment verification statements, proof of employment and Social Security Administration benefits data.
The scheme involved predominantly low-income purchasers whose residential loans were guaranteed by the U.S. Department of Housing and Urban Development. When the unqualified buyers defaulted on their home loans HUD had to cover the default costs. Investigators believe the defendants' scheme cost the taxpayers more than $3 million. (agtx32309)
MORAL
Stay out of Texas if you are going to commit mortgage fraud.
UTAH LICENSEES HAVE UNTIL JANUARY 1, 2011 TO COMPLY WITH THE SAFE ACT
FACTS
Existing mortgage licensees will be required to comply with the SAFE Act by the end of 2010. The Utah State Legislature passed Senate Bill 31, allowing the Division to transfer individuals onto the Nationwide Mortgage Licensing System by January 1, 2011.
MORAL
Looks like more than one state is applying for an extension to comply with the SAFE Act.
VIRGINIA EXECUTIVE PLEADS GUILTY TO FRAUD
FACTS
On May 7, 2009, Stacy Lynn Chamberlain, of Unionville, Va., pled guilty to one count of mortgage fraud and one count of wire fraud. She is facing a maximum exposure of 50 years in prison and $1,250,000 in fines when she is sentenced on July 28, 2009.
In early 2004, Chamberlain planned to purchase a $489,900 house in Jarrettsville, Md., without putting any money down. This required her to obtain a first mortgage loan for $440,910 and a second mortgage loan for $48,990. Chamberlain had bad credit and so could not qualify for such a loan, so she purchased the house in the name of RLS, a nominee straw purchaser. RLS had her own financial difficulties and could also not qualify for such a loan so Chamberlain created fraudulent income and employment information for RLS that would elevate her creditworthiness to A+ level so that Fremont Savings and Loan, the lender, would not verify the information as closely.
In reliance on the allegedly false statements, Fremont approved both loans and then sold the $440,910 first mortgage loan to Deutsche Bank and the $48,990 second mortgage loan to CitiFinancial. Within a short time after the loans were made, Chamberlain stopped making the monthly payments and both loans went into foreclosure.
Chamberlain acknowledged that she had also defrauded a Richmond mortgage company, Premier Mortgage and its investors out of money and their intangible rights to the honest services of their employees by means of materially false and fraudulent pretenses, representations, and promises. The total approximate loss to these victims was $1.4 million. Chamberlain also admitted that in order to obtain employment and a partnership relationship with Premier Mortgage, in Glen Allen, Va., she misrepresented her academic credentials and previous loan production and performance levels. In reliance on these misrepresentations, Premier entered into a contractual relationship with the defendant and provided her with substantial funds. After Chamberlain established the relationship and obtained money and property from Premier, she then further misappropriated funds that she used for personal expenditures. (usattyedva5709)
MORAL
She sure was a busy little beaver. Two problems. She bought the house in 2004. Why didn't she make payments and sell in 2005? The market was still swinging up because of stated income loans.
WASHINGTON STATE REVERSE MORTGAGE ACT BECOMES EFFECTIVE JULY 26, 2009
FACTS
Effective July 26, 2009 the Washington State Reverse Mortgage Act goes into effect. The Reverse Mortgage Act governs the making of proprietary reverse mortgage loans. A proprietary reverse mortgage loan is defined as any reverse mortgage loan product that is not a HECM loan or other federally guaranteed or insured loan. A number of requirements and restrictions with respect to proprietary reverse mortgage loans are established, including requirements and restrictions with respect to: disclosures; loan maturity; appraisals; prepayment penalties; right of rescission; payment advances; annuities; and borrower counseling. Lenders licensed under the Consumer Loan Act must meet minimum net worth requirements, maintain an irrevocable letter of credit, and obtain mortgage loan product pre-approval prior to offering proprietary reverse mortgage loans.
MORAL
In other words, if you are not doing FHA reverse mortgages, forget it!
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE.
