LEARN FROM A SPECIFIC HUD AUDIT
FACTS
SecurityNational Mortgage Co., Murray, Utah, was audited by the Department of Housing and Urban Development to determine whether it properly underwrote insured loans and whether its quality control plan met HUD requirements. SecurityNational, a Federal Housing Administration-approved direct endorsement lender, was audited because of its high default rate. The Office of Inspector General's strategic goal is to reduce fraud in single-family insurance program.
How the audit was triggered: SecurityNational underwrote 1,393 FHA-insured loans originated by SecurityNational, Mortgage Financial Group Corp., or HMS Mortgage Inc., with amortization dates beginning from Dec. 1, 2006, through Nov. 30, 2008. The original mortgage amount of these loans totaled more than $113 million. Of the 1,393 loans, 111 (7.97%) defaulted within the first two years after closing. The original mortgage amount of the defaulted loans totaled more than $19 million. In comparison, 4.92% of the FHA-insured loans nationwide defaulted within the first two years after closing.
What is HUD doing: Comparing you against the nation and see if you come up wanting. If so, you get audited.
What do you do? Keep track of the comparison ration and absolutely comply with your quality control program.
What HUD Found: SecurityNational did not follow HUD regulations when underwriting 18 FHA loans. One of the loans contained significant underwriting deficiencies because the borrower overstated their self-employment income and SecurityNational did not detect the borrower's misrepresentation.
In addition, SecurityNational did not review early payment defaults or perform timely reviews. It did not review all FHA-insured loans that defaulted within the first six months, nor did it perform its monthly quality control reviews on time. This is required as part of the quality control plan, especially when loans default in six months of origination. (Audit Report No. 2009-DE-1003, 4-28-09)
MORAL
Keep track of your defaults. Do the QCP monthly. Get the written report to management and management does the corrections as necessary.
PAY ATTENTION FOR YOUR ANNUAL VERIFICATION OR YOU MAY FIND YOURSELF LOCKED OUT OF THE FHA CONNECTION
FACTS
ML 2009-17: Accuracy of Lender Data for FHA-approved Mortgagees (05/22/09)-Short Summary
TO: ALL APPROVED MORTGAGEES
Chapter 6 of HUD Handbook 4060.1 REV-2 requires all approved mortgagees to keep the Department apprised of relevant business changes for their institution. It is incumbent upon approved mortgagees to verify the accuracy of their institution's information regularly and make changes as necessary in order to comply with these requirements.
Changes to the FHA Lender Renewal Process and the Need for Accurate Lender Data
HUD will be instituting changes in the coming months to its annual renewal process for FHA approved lenders. HUD will eliminate the paper version of the Yearly Verification Report required for all renewing FHA-approved lenders and replace it with an automated Annual Certification process completed in the FHA Connection. ONLY CORPORATE OFFICERS AND PRINCIPAL OWNERS WITH AUTHORITY TO LEGALLY BIND THE CORPORATION OR ENTITY WILL BE PERMITTED TO COMPLETE THE ANNUAL CERTIFICATION ON BEHALF OF AN INSTITUTION. Individuals not currently listed as an authorized corporate officer or principal owner in the Department's records will not be permitted to complete the Annual Certification for a renewing mortgagee.
In order to prepare for these new requirements, all FHA approved lenders must confirm or update the information stored in the FHA Connection regarding their institutions so that it is accurate and complete. This includes ensuring that all relevant home and branch office information is correct, and, that the company's listed corporate officers are current. Your FHA Connection Coordinator has the authority to verify the accuracy of the information for your institution in the FHA Connection, and to make any changes.
It is incumbent upon mortgagees to ensure that the appropriate information is stored in HUD's data systems prior to recertifying their approval. HUD requires all approved lenders to review their information as soon as possible and make appropriate changes as necessary. Please refer to Chapter 6 of HUD Handbook 4060.1 REV-2 to ensure that changes are made in accordance with FHA's requirements regarding business changes. (ml 2009-17)
MORAL
Do not do it and then do not have your FHA connection renewed and I think you will be very upset. So pay attention and see you are current with the state list of officers, and that HUD has it and that the minute book agrees with it.
UNDER CHAPTER 7 BANKRUPTCY, REPAYMENT TO A RETIREMENT PLAN CANNOT BE USED TO PASS THE MEANS TEST
FACTS
The debtor's Chapter 7 bankruptcy petition was dismissed and the debtor appealed. The debtor contended he properly included a 401(k) repayment in the necessary expenses listed in his petition and thus he was eligible to file a Chapter 7 liquidation bankruptcy.
The 9th Circuit U.S. Court of Appeals said affirmed. A debtor cannot deduct repayments of a loan from his 401(k) retirement plan in determining his eligibility to file a Chapter 7 bankruptcy. The debtor's obligation to repay a loan from his or her retirement account is not a debt under the Bankruptcy Code because plan has no right to sue a member for the amount of the advance; it is simply offset against future benefits. (in re Egdbjerg, No. 08-55301, 5-29-09).
MORAL
Bankruptcy can be a viable option depending on the circumstances. One is to make sure you fit the mold to get rid of all the debts so you can get your fresh start. The second is if you want to keep something like your home and there is a possibility of removing the second mortgage so it becomes unsecured and leaving you with only the first mortgage on the property. If this latter works then loan modification can also be sought.
DO NOT STRIP HOME IN ARIZONA IF YOU LOSE IT TO FORECLOSURE OR YOU CAN GO TO FEDERAL PRISON
FACTS
Former owners of foreclosed homes are stripping the houses and to the annoyance of neighbors who watch helplessly as property values fall. In Arizona Northeast Valley one resident was stunned when a former neighbor brought in a crane in May 2009 to remove a hot tub from the backyard of his foreclosed home.
A task force led by the FBI has targeted distressed-property owners who rip out cabinets or lighting and plumbing fixtures to sell as the banks foreclose on their homes. The FBI Mortgage Fraud Task Force has arrested five people. But the problem appears to be widespread, and law enforcement is limited in its jurisdiction.
However, "When a homeowner is still shown as having possession of (their) home and they choose to remove items that diminish the home's value, the bank that will take possession in the future can choose to deal with it as a civil matter.
"If there is proof that the bank owns the home on a particular date and the previous homeowner returns to remove fixtures after that date, it rises to the level of a criminal nature." (azrep53009)
MORAL
If you are going to "remodel" like this then it sounds like it should be done before you lose title to the property. However, remember, there is a "waste" clause in most mortgages that allows the lender to sue you.
CALIFORNIA POLICE OFFICER ARRESTED FOR MORTGAGE FRAUD
FACTS
Hidayatullah Ali Khalil, a three-year veteran of the Elk Grove Police Department, allegedly lied on his mortgage and refinance applications to obtain loans with cash equity totaling tens of thousands of dollars, according to an affidavit in Sacramento's federal court. He was among three people who appeared before U.S. Magistrate Judge Gregory G. Hollows on felony charges of mortgage-related fraud. His brother, Amanullah Khalil, and sister-in-law, Muzdha Khalil, were accused of a separate "equity stripping mortgage fraud scheme," according to court documents.
All three entered not guilty pleas and are free on $75,000 unsecured bonds. None of the allegations against Ali Khalil was related to the officer's duties as an Elk Grove police officer, according to the department. Khalil has been placed on paid administrative leave pending the outcome of an internal investigation.
Ali Khalil has been a peace officer for six years, previously serving as a deputy with the Santa Cruz County Sheriff's Department. "My client maintains he has committed no crimes whatsoever. He's distinguished himself as a peace officer" said his attorney.
According to the affidavit, Ali Khalil bought two residential homes in September 2005. He refinanced each of the properties twice within months of the original closings. The affidavit states that he inflated his income in the four transactions, sometimes saying that he earned more than twice his actual salary. He allegedly listed each property as his primary residence and failed to disclose that he owned the other property. Authorities said in the affidavit that his false statements "made qualifying for the refinancing easier, and was material to the bank in approving the loan application." On one occasion, Ali Khalil was able to obtain $14,000 in cash from the refinancing and on another occasion, $90,256. He transferred a portion of the money to his brother, Amanullah Khalil, the affidavit states. Both homes had gone into foreclosure by 2008.
In a separate affidavit, authorities allege that Amanullah and Muzdha Khalil defrauded the bank of about $427,000 by exaggerating their income on loan applications. They allegedly lied on mortgage and refinance applications to obtain loans with cash equity totaling tens of thousands of dollars, according to an affidavit in Sacramento's federal court. (sacrob52909metro)
MORAL
If, but only if the above is true the officer has ruined a career he has spent six years building. I trust he has a very good attorney because federal felonies generally stay felonies even if reduced to misdemeanors. Mortgage fraud convictions are the primary target and the "bad guys for everything in the housing market." If you have been involved see your attorney. There are potential ways to mitigate the problem legally.
INDIANA CHANGES MORTGAGE LICENSING LAW
Indiana amended the Loan Broker Act. Loan originators are required to obtain a license not a registration. Loan broker's surety bond will be based upon the total dollar amount of residential mortgage loans originated in the previous year and licenses will be renewed annually. There will be a background check every three years. Review the new law carefully for new advertising and recordkeeping requirements.
MORAL
A major part of the fallout as you can see is changes that control mortgage brokers and loan officers more severely.
NEVADA AMENDS MORTGAGE LOAN LAWS EFFECTIVE MAY 29, 2009
FACTS
License numbers of brokers and nontraditional mortgages
NRS 645B.950 requires a mortgage broker to include his license number on each loan secured by a lien on real property for which he engages in activity as a mortgage broker. If a mortgage broker fails to comply the Commissioner of Mortgage Lending may impose an administrative fine of not more than $10,000 and may place conditions on the license of the mortgage broker or suspend or revoke the license. In addition, a mortgage broker who fails to comply is guilty of a misdemeanor.
NRS 668.115 requires a financial institution that offers nontraditional mortgage loan products to make certain written disclosures to a borrower with respect to a nontraditional loan secured by a lien on real property. The disclosures must be written in language that is easy to understand and printed in at least 10-point type or font. In addition the financial institution is to certify to the Commissioner of Financial Institutions that the disclosures have been made. The financial institution may contract with nonprofit or government-operated consumer credit counseling or housing counseling agency or a nonprofit or government-operated legal services agency to make the required certifications. A financial institution that fails to comply is guilty of a misdemeanor.
Loan Modifications and Foreclosure Consultants license and compliance issues
NRS 645F 300-645F.450 defines the term "loan modification consultant." Existing law does not currently require a foreclosure consultant to be licensed. The Commissioner of Mortgage Lending is to adopt separate regulations for the licensing of a person who performs any of a variety of specified services for compensation, a foreclosure consultant and a loan modification consultant.
Such persons must execute a written contract with a homeowner before providing certain services for compensation. The Commissioner will adopt regulations describing the information that must be contained in such a written contract.
A person who performs certain services for compensation such as a foreclosure consultant and a loan modification consultant must deposit any money received as compensation for the performance of certain services in a trust account. These same persons must maintain certain records regarding such trust accounts and prohibits withdrawals from such trust accounts until the completion of certain services as agreed upon in a written contract for the performance of such services. The Commissioner will determine what must be in the contract. The Commissioner or his authorized agents may inspect and audit the records associated with the trust accounts.
The Commissioner will adopt regulations to establish rates to be paid by a person who performs certain services for compensation, a foreclosure consultant and a loan modification consultant for supervision and examinations by the Commissioner or the Division of Mortgage Lending of the Department of Business and Industry.
The definition of "homeowner" is revised as it applies to services performed by foreclosure consultants by expanding the definition to include any record owner of residence, rather than only the record owner of a residence in foreclosure at the time the notice of the pendency of an action for foreclosure is recorded or the notice of default and election to sell is recorded.
The violation of certain provisions by such persons shall be deemed to constitute mortgage lending fraud.
"Loan modification consultant" means a person who, directly or indirectly, makes any solicitation, representation or offer to a homeowner to perform for compensation, or who, for compensation, performs any act that the person represents will adjust the terms of a mortgage loan in a manner not provided for in the original or previously modified mortgage loan. Such an adjustment includes, without limitation:
1. A change in the payment amount;
2. A change in the loan amount;
3. A loan forbearance;
4. A change in the loan maturity; and
5. A change in the interest rate
Some parts of the NRS 645F law are effective May 29, 2009 and some July 1, 2009. So be careful.
MORAL
Review the new laws carefully. Especially 688.115 and prepare the disclosure property. Or, get in serious trouble. Read loan modification consultant very carefully. A violation could be mortgage fraud. This could be a felony. I recommend a very careful review of these code sections. Watch the Commissioner of Mortgage Lending's website for the new regulations.
OKLAHOMA CHANGES MORTGAGE LICENSING LAWS
FACTS
Effective July 1, 2009 Oklahoma has repealed the Mortgage Broker Licensing Act and replaced with the Secure and Fair Enforcement for Mortgage Licensing Act. Mortgage lenders, brokers, loan originators and loan processors or underwriters acting as independent contractors are required to obtain a license under the new law, unless exempt. Mortgage lenders, brokers and loan originators currently licensed under the old law will begin transitioning to the new licensing no later than July 31, 2010. The SFEMLA has new requirements with respect to licensing. This new law for the most part retains existing requirements with respect to business practices but the SFEMLA requires all application forms, solicitations and advertisements to contain the NMLS unique identifier of the person originating the mortgage loan.
MORAL
Like I have been saying all states are changing their laws and the new requirements are more severe than the old. That is the bad news. The good news? Less competition means more loans for those that are left.
UTAH MAN CHARGED IN REAL ESTATE INVESTMENT FRAUD SCHEME INVOLVING OVER $100 MILLION
FACTS
A federal grand jury returned a three-count indictment on May 26, 2009 charging Claud R. Koerber, a.k.a. Rick Koerber, with mail fraud, wire fraud, and tax evasion in connection with an alleged fraudulent investment scheme he devised to get money from investors. Koerber was involved with several businesses in Utah, including Founders Capital, Franklin Squires Investments, and Franklin Squires Cos., during the course of the scheme which the indictment alleges operated from sometime in 2004 to about Dec. 31, 2008.
The indictment alleges that in 2004, Koerber created and presented a series of seminars designed to encourage individuals to make money through a real estate program that he named the "Equity Mill." The indictment alleges Koerber accepted money from individuals and companies through Founders Capital by means of representations that Founders Capital would use the money to make hard money or bridge loans to other entities associated with Founders Capital.
Koerber, as a part of his seminars, encouraged first line investors "to act and think like a bank," according to the indictment, by obtaining money from other people to place with Founders Capital. It was suggested that first line investors could pay 3% per month to second line investors, and in turn, second line investors, also taught to think and act like a bank, could pay 1% per month to third line investors.
Koerber represented to investors that Founders Capital provided an opportunity for families to loan their funds directly to Founders Capital in exchange for an aggressive interest payment and a high degree of liquidity. Founders Capital would then re-loan the money to parties that met Founders Capital's lending criteria, Koerber said. The indictment alleges Koerber represented to investors and potential investors that the funds loaned to Founders Capital were secured by real property of greater or substantially similar value. The indictment alleges the money invested through the program would be used as "short term" financing to acquire and improve real property investments prior to obtaining more permanent cost effective financing.
The indictment alleges that Koerber told investors that when individuals or families make loans to Founders Capital, typical interest rates on the loaned funds would range between 1% and 10% a month, and that typical levels or security or collateralization ranged between 50% and 150%.
In fact, the indictment alleges, Koerber knew that those representations were false, or that Koerber made them false by using some of the money for purposes other than real estate bridge loans and to purchase real property. Furthermore, the indictment alleges, most of the money placed with Founders Capital was not secured or collateralized by real estate, and was diverted by Koerber for other purposes.
The indictment alleges Koerber used investor funds for personal housing, expensive automobiles, investments into restaurants, and investments into other businesses. For example, Koerber spent $850,000 on restaurants, loaned $800,000 to an associate for a restaurant, and spent more than $1 million on expensive automobiles. In addition, the indictment alleges, Koerber spent more than $5 million on making movies.
Koerber operated Founders Capital and other related entities as a Ponzi scheme to convince earlier investors that their funds were earning money and to convince potential investors that the program was working and earning money. The Ponzi payments created the false impression that the businesses were profitable, investments were safe, and interest was being paid. At no time during the operation of the scheme, according to the indictment, did the Founders Capital or Franklin Squires entities operated by Koerber as a part of his Equity Mill scheme make a profit. Koeber obtained approximately $100 million in investor funds and over $50 million of those investor funds were used to make Ponzi payments.
The number of victims involved in the alleged fraud scheme has not been determined, although it could be in the hundreds. Determining the number of victims is difficult because of the different tiers of investors involved. Authorities believe most victims live in Utah.
Count one of the indictment, mail fraud, charges Koerber with using the mail to send a letter addressed "To Our Lenders" which contained many of the false and fraudulent representations of the scheme. The potential penalty for one count of mail fraud is up to 20 years in federal prison and a fine of $250,000.
Count two of the indictment charges Koerber with transferring $1 million of investor money to a Founders Capital account. The potential penalty for wire fraud is up to 20 years in federal prison and a fine of $250,000.
Count three of the indictment, tax evasion, alleges Koerber had a taxable income of $900,000 for 2005 and owed federal tax in excess of $250,000 but failed to file an income tax return for the year. The indictment alleges Koerber caused various business entities under his control to pay personal expenses on his behalf. The potential maximum penalty for the tax count is up to five years and a fine of $250,000.
Defendants charged in indictments are presumed innocent unless or until proven guilty in court. (usattyutah52609)
MORAL
Why would people be so gullible to think they could make a return of 120% per year or 10% per month? Their own greed did them in.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE.
