FHA ORIGINATION FEES AND NEW SELF-AUDIT MANUALS AS OF JAN. 1, 2010
FACTS
Mortgagee Letter 2009-53 clarifies how fees and charges for Federal Housing Administration-insured loans must be disclosed on the new Good Faith Estimate and HUD-1 Settlement Statement, consistent with changes to the Real Estate Settlement Procedures Act. The new forms must be used for mortgages that originated on or after Jan. 1, 2010.
Disclosure of Origination Charges
As a result of regulatory changes to 24 CR § 203.27, FHA no longer limits the origination fee to 1% of the mortgage amount for its standard mortgage insurance programs. However, the 1% limit will continue to apply to FHA-insured reverse mortgages and FHA 203(k) purchase/renovation loans
Mortgagees are instructed that the sum of all fees and charges from origination-related services must be included in Box 1 on Page 2 of the new GFE. The figure in Box 1 represents all compensation to the lender and/or broker for originating the loan and will most often exceed the specific origination fee caps set for government programs. Although the new GFE requires that lenders provide an aggregated cost for origination services, if a government program or state law required that lenders provide more detailed information to specify distinct origination fees and charges, lenders may itemize these charges in the empty 800 lines of the HUD-1, to the left of the column.
FHA expects that lenders will continue to charge fair and reasonable fees for all origination services and the agency will continue to monitor to ensure that FHA borrowers are not overcharged. Furthermore, the FHA Commissioner retains the authority to set limits on the amount of any fees that mortgagees charge borrowers for obtaining an FHA loan and the agency does intend to issue additional guidance on the subject.
Good Faith Estimate
In addition to the standard documentation requirements found in HUD Handbook 4155.2 3.C, mortgagees must now include the GFE in the case binder on the right hand side when the loan is submitted for insurance endorsement. When more than one GFE is issued, all prior GFEs must also be contained in the case binder. This additional documentation will also become a part of the pre-endorsement review conducted by FHA staff (Direct Endorsement Program) or the lender (Lender Insurance Program).
Seller Credits on the HUD-1
The new regulations, similar to previous practices, do not require or permit the presentation or disclosure of seller-paid credits on the GFE. On the HUD-1, the charge will be displayed in the borrower's column on the HUD-1 and a credit to offset charges will be listed in Section J, Summary of Borrower's Transaction on lines 204-209 with a reduction to the seller's proceeds in Section K, Summary of Seller's Transaction on lines 506-509. When the seller contributes to more than one expense, the seller credit shown on the HUD-1 must reflect the lump sum payment. (ml09-53)
MORAL
With the new laws (state and federal) and the new regulations, it is very important you update your HUD/FHA self-audit manual and your quality control plans for HUD/FHA. Update as well your California Department of Real Estate Audit manual, your California Finance Lender audit manual, your California Residential Mortgage Lending Act Manual. Additionally, you must update your Nevada Mortgage Lending Division Audit manual as well.
NEW FEDERAL LOAN RULES IN EFFECT JAN. 1, 2010
FACTS
Starting Jan. 1, 2010 if you're offered less-favorable terms than other people on a credit application because of a problem in your file, you'll be able to receive a free copy of your credit report or, possibly, a free credit score.
New rules finalized by the Federal Reserve and Federal Trade Commission generally will require lenders to provide loan applicants with a "risk-based pricing" notice and a free credit report when they offer worse terms to certain applicants compared with what they make available to others, including higher interest rates. The new policy affects applications for credit cards mortgages, auto loans, student loans and other types of debt.
Providing free reports should help applicants check the accuracy of information about them that is contained in a report. Risk-based pricing refers to the practice of adjusting the interest rate or other terms of credit based on a person's perceived lower creditworthiness. As an alternative to sending out risk-based pricing notices and credit reports, lenders can instead opt to provide applicants with a free credit score and instructions for interpreting the score. (azrep122409)
MORAL
I should live to see the day a consumer can interpret his credit score and understand the technicalities of risk based pricing.
CALIFORNIA DRE DENIES UNCONDITIONAL REAL ESTATE SALES LICENSE TO SOMEONE THAT COMMITS BATTERY TO A SIGNIFICANT OTHER OR SPOUSE
FACTS
In plaintiff's petition for writ of administrative mandamus challenging a denial of his application for an unqualified real estate salesperson license by the Commissioner of the California Department of Real Estate, judgment in favor of the Commissioner is affirmed where: 1) plaintiff's conviction for domestic violence is a crime involving moral turpitude; 2) the conviction was substantially related to the qualifications, functions and duties of a real estate salesperson license; and 3) substantial evidence supports the Commissioner's finding that plaintiff was only partially rehabilitated. (donley v. davi,, 12-18-09, 3rdappdistsaco c058979)
MORAL
The commissioner offered him a restricted license in the first instance. Based upon the facts he should have taken it and saved the money on the writ. He would then only have to wait the next two years and apply for the unrestricted then. As it is he lost and based upon the facts it was a reasonable assumption that he would lose.
CALIFORNIA REVERSE MORTGAGE ACT EFFECTIVE JAN. 1, 2010
FACTS
The Reverse Mortgage Elder Protection Act of 2009 prohibits a lender or any other person who participates in the origination of the mortgage from participating in, being associated with, or employing any party that participates in or is associated with any other financial or insurance activity, as provided, except as specified. The new law also prohibits a lender or any other person who participates in the origination of the mortgage from referring a prospective borrower to anyone for the purchase of other financial or insurance products, except as specified. The law requires the lender to provide the prospective borrower with a list of not fewer than 10 nonprofit counseling agencies in the state that have been approved by the U.S. Department of Housing and Urban Development for counseling. The new law also requires a lender to provide a borrower with a checklist specifying issues the borrower should discuss with a reverse mortgage counselor or, if the borrower seeks counseling prior to requesting a reverse mortgage loan application; the law requires a mortgage counselor to provide the checklist. The counselor must sign the checklist, if the counseling is done in person, and the prospective borrower, with a copy provided to the borrower. The law prohibits approval of the loan application until the signed checklist is provided to the lender.
Other interesting notes are the interest rate can vary during the loan based on change in value of the property; reverse mortgages can become due and payable on fixed maturity dates (meaning you can limit the length of the note and do not have to wait until move out or death; can mature the note on other events that jeopardize the security (such as waste?); HUD restrictions apply that require you update your quality control plan when the mortgage is FHA; Warning message to borrower in 16 point type plus 12-point checklist in at least 12 point type. (cc1923.2, 1923.5, 1632; 12 usc1715z-20(n)(o))
MORAL
The reverse mortgages are good for you. Especially on purchase but be sure you have the right notices and the correct checklists and in the property font size. Otherwise you may find it costly. If you are FHA approved you must update your QCP to cover this issue. As written I do not believe your QCP is in compliance any longer based upon 12 USC §1715z-20. Good Luck! You may want us to come in and audit before HUD does it for you.
TWO INDICTED IN MARYLAND FOR MORTGAGE FRAUD
FACTS
A federal grand jury has indicted Dema Daiga of College Park, Md., and Oluseun Oshosanya of Laurel, Md., for wire fraud and aggravated identity theft arising from a scheme to defraud a mortgage lending company of approximately $664,493.
According to the 12-count indictment, Daiga worked at times as a mortgage loan broker and had assisted with property appraisals. Oshosanya also worked in the mortgage lending field. From August to Dec. 16, 2008, the defendants allegedly recruited straw purchasers to apply for mortgages. These straw purchasers lacked the income and assets to qualify as borrowers or make the monthly mortgage payments. The defendants allegedly: filled out mortgage loan applications on behalf of the straw purchasers with false information about the straw purchasers' employment histories, earnings and assets; provided telephone numbers that were under their control to any person calling to confirm the false information regarding the straw purchaser's employment and earnings; generated fake monthly bank account statements to make it appear that the straw purchasers had sufficient assets to make the down payments, when instead, the defendants paid the down payments; on at least two occasions, used stolen information about another person's identity to apply for mortgage loans; caused appraisals to be performed that inflated the property values; and instructed the title companies to send a substantial part of the loan proceeds to the defendants, or to businesses that they controlled.
Five of six Baltimore properties purchased under this scheme swiftly went into default, resulting in a loss to a Beltsville mortgage lending company of approximately $664,493.
Both defendants face a maximum sentence of 20 years in prison and a $250,000 fine for wire fraud; and a mandatory minimum sentence of two years in prison for aggravated identity theft in addition to any sentence imposed for the wire fraud. (usattymd122809)
MORAL
They stole identities? While working as a mortgage loan officer? Now you know why the FTC demands you have the Red Flags Identity Theft manual in place by June 1, 2010. If you do not have it you can purchase one from us.
CALIFORNIA FATHER AND SON INDICTED BY ORANGE COUNTY DA FOR MORTGAGE FRAUD
FACTS
The Orange County District Attorney has charged James Merritt Eaton, his son Brian Chandler Eaton and Michael John Bell with one felony count of conspiracy to defraud another of property, 17 felony counts of grand theft by false pretense, and two felony counts of identity theft. The father and son are an appraisal team charged with conspiring to commit fraud for allegedly inflating property values in California, Arizona and Nevada in order to get more business from lenders. The Eatons and Bell ran Irvine-based Landmark Equities Group, which often worked with subprime lender Quick Loan Funding, according to the district attorney. Landmark Equities Group, the appraisal company, allegedly had branch offices in Dublin, Calif., Las Vegas and Scottsdale, Ariz. If convicted, each faces up to 18 years in state prison. According to the DA, the trio inflated property values to get more business from lenders like Quick Loan. The events allegedly took place between 2005 and 2007. (ocr122209)
COLORADO AG SUES COUPLE FOR MORTGAGE FRAUD AND IDENTITY THEFT
FACTS
On Dec. 14, 2009, Colorado Attorney General John Suthers announced that attorneys from his office's Consumer Protection Section have filed a lawsuit against Donald Sterling Whitlock and Erin Reese Whitlock who are suspected of defrauding consumers through the use of fake commercial lending companies and committing multiple identity thefts involving numerous victims.
"The suit alleges that the Whitlocks perpetrated an elaborate, nationwide scheme designed to not only steal money from the victims, but also to steal their identities and personal information," Mr. Suthers said. "The civil lawsuit we filed is just an initial step to shut down the fraudulent companies the Whitlock used to further their scheme. This step also will enjoin the defendants from continuing their illegal enterprise. We will continue to pursue other courses of action and work with our partners in law enforcement across the country to address this matter."
According to the complaint, filed in Denver County District Court, the couple used at least 15 business entities, including AIG Real Estate, Allstate Real Estate and GE Capital Real Estate, to defraud consumers. None of the businesses were affiliated with the real companies. The couple is suspected of using their fraudulent companies starting in April 24, 2007 to deceive consumers and convince them to provide substantial upfront fees to secure loan commitments for real estate developments. The couple is suspected of then transferring their victims' "commitment fees," which ranged from $15,000 to $35,000, into their own bank accounts. No loans were ever made.
The Whitlocks also are suspected of using the personal information of victims, including their Social Security numbers and information from their passports and driver's licenses, to continue their fraudulent operation. According to the complaint, the Whitlocks used the victims' personal information to form companies through the Colorado Secretary of State's Office, open bank accounts and obtain credit.
The lawsuit, filed in Denver County District Court, seeks the dissolution of the Whitlocks' fraudulently created Colorado companies, civil penalties, restitution for their victims and injunctions barring future fraudulent activities. (Codeptoflawag121409)
MORAL
Good luck getting the money back. However, from the way the Attorney General wrote the article it would appear there may be a criminal investigation under way.
MASSACHUSETTS AG INDICTS SIX FOR MORTGAGE FRAUD
FACTS
On Dec. 22, 2009, Attorney General Martha Coakley's Office announced that a Suffolk County Grand Jury has returned indictments against three real estate investors, two local mortgage brokers and a former local attorney for their roles in a complex scheme in which fraudulent documents were used to defraud homeowners and mortgage lenders in real estate transactions involving 26 distressed properties in the Greater Boston area.
The defendants are real estate investors Joshua Brown of Brockton, Mass.; Brian Frank of New Hartford, N.Y.; John Sweetland of Yorba Linda, Calif.; mortgage brokers Linda Defeo of Springfield, Mass.; Brian Arrington of Boston; and former attorney Bruce Namenson of Walpole, Mass.
Authorities allege that Brown, Frank and Sweetland fraudulently obtained approximately $12.5 million in loans from more than a dozen financial lending institutions to purchase multi-family homes, from which they made approximately $2 million dollars in proceeds.
The defendants are charged as follows:
* Joshua Brown: Larceny over $250 (78 counts); Making or Publishing False or Exaggerated Statements (26 counts); Attempt to Make or Publish a False or Exaggerated Statement (2 counts).
* Brian Frank: Larceny over $250 (78 counts); Making or Publishing False or Exaggerated Statements (26 counts); Attempt to Make or Publish a False or Exaggerated Statement (2 counts).
* John Sweetland: Larceny over $250 (33 counts); Making or Publishing False or Exaggerated Statements (11 counts); Attempt to Make or Publish a False or Exaggerated Statement (3 counts).
* Brian Arrington: Larceny over $250 (24 counts); Attempted Larceny Over $250; Making a False or Exaggerated Statement (13 counts).
Linda Defeo: Larceny over $250 (10 counts); Making a False or Exaggerated Statement (6 counts); Attempted Larceny Over $250.
* Bruce Namenson: Larceny over $250 (18 Counts); Making or Publishing False or Exaggerated Statements (9 Counts); False Written Reports by Public Officer or Employee (4 Counts).
The Attorney General's Office began an investigation in April 2008, after receiving complaints from homebuyers. Investigators discovered that Brown operated Boston Equity Investments, while Frank operated Freedom Equity Investments in Hillsborough, N.J. Authorities allege that FEI recruited persons interested in investing in multi-family homes through BEI. These investors unknowingly assisted BEI commit this fraud. In addition, Sweetland operated Boston Investment Marketing, another BEI recruitment wing in Canton, which would identify potential investors. BEI advertised itself as a real estate investment company, although BEI and its employees were not licensed real estate brokers. BEI advertised online and at real estate conventions in several states.
Authorities allege that Brown, Frank and Sweetland identified owners of multi-family properties who had properties for sale for long periods of time. They would approach the property owners and convince them to give BEI an "option" to sell these properties at prices below the current list price. BEI simultaneously recruited homebuyers to buy the same properties as investments, promising them that in return for their purchasing properties through BEI, BEI would renovate, rent and resell the properties. BEI told the homebuyers that their investments would help revitalize neighborhoods in the Greater Boston area. BEI acquired inflated property appraisals for the sellers' properties. The appraisals were consistently well above the list prices that the sellers could not sell the homes for.
Authorities allege that BEI obtained false purchase and sale agreements between the homebuyers and sellers. Unbeknownst to the homebuyers and lenders, BEI arranged for the sellers to receive much less money for the property sales than the maximum amount of financing that BEI was able to fraudulently extract from the lenders in the homebuyers' names. In the end, authorities allege, at the home sale closings, BEI would, unbeknownst to the homebuyers and lenders, pocket the difference, which was usually between $50,000 and $100,000 and sometimes as much as $150,000.
Investigators also discovered that Brown, Frank and Sweetland conspired with mortgage brokers Linda Defeo and Brian Arrington to submit loan applications to financial lending institutions with false information in order to secure 100% financing. Authorities believe that BEI, with Arrington's assistance, inflated borrowers' incomes and savings, misrepresented where and for how long the borrowers had been employed (if the borrowers were employed at all), and falsely stated that the borrowers intended to use the properties as primary residences instead of as investment properties (many of the borrowers lived out of state). BEI also allegedly deposited money into some of the homebuyers' bank accounts to make it appear as if they qualified for mortgage loans. Several homebuyers acquired mortgage loans through Defeo and Arrington to buy several properties through BEI. In these instances Defeo and Arrington, in conspiracy with BEI, did not disclose the homebuyers' new debts to the lenders thereby misrepresenting the extent of the homebuyers' debts on their loan applications. Defeo and Arrington allegedly rushed the homebuyers through the loan application process and told them that they did not have to disclose all of their debts to the lenders.
BEI allegedly submitted the inflated property appraisals and false purchase and sale agreements to the lenders through Arrington and Defeo. Arrington and Defeo, on behalf of BEI, did not disclose to the lenders that BEI had an option to sell the properties at lower prices. In these agreements, the sellers agreed to receive far less for the sales of their properties than the amounts the financial institutions were lending to the borrowers to purchase the properties. Instead, on the homebuyers' loan applications, Arrington and Defeo falsely claimed that there were true, contracted purchase and sale agreements between the homebuyers and sellers for the larger amount of money. The lenders relied on these misrepresentations submitted in the loan applications and other documents to approve loans for the homebuyers.
After the homebuyers purchased the properties, BEI intentionally did not fulfill the promises it made, including renovating and reselling the properties. The homebuyers and lenders were left with properties not worth the loans the borrowers obtained to purchase the properties. The homebuyers' credit was ruined, and they were severely financially injured. Almost all of the homes were foreclosed at a great loss to the homebuyers and lenders.
The lenders required that the homebuyers bring cash, sometimes tens of thousands of dollars, to the real estate closings. Former attorney Bruce Namenson, in conspiracy with BEI, misrepresented on closing settlement statements that the home buyers brought cash to the closings, when he and BEI knew that the borrowers did not do so. Namenson allegedly, in conspiracy with BEI, sent a business associate to several states to obtain homebuyers' signatures on documents critical to the real estate closings. Later, Namenson allegedly notarized the documents claiming that the homebuyers had signed the documents in Namenson's presence in Massachusetts. In addition, the lenders required that Namenson purchase title insurance for the closings. Namenson represented to the lenders that he was using the borrowers' money to do so. Authorities believe that Namenson did not purchase title insurance and retained the borrowers' premiums for himself instead.
A Suffolk County Grand Jury returned indictments against all six defendants on Dec. 21, 2009. (agabomas122209)
MORAL
The authorities are coming down "hot and heavy." Find your attorney first before the authorities find you.
WOMAN TO BE TRIED IN LAS VEGAS FOR THEFT OF ESCROW FUNDS
FACTS
A Hudson, N.H. woman is set to stand trial in Las Vegas on charges that she stole $550,000 from a lending company while working as an escrow officer several years ago. Sheila K. Jones has pleaded not guilty to charges of felony theft and insurance fraud and is free on $10,000 bond pending the Jan. 19, 2010 trial. Conditions of the bond agreement did not prevent her from leaving Nevada, where she lived before moving to Hudson this past summer.
Jones is accused of stealing the $550,000 from an escrow account that she opened to hold proceeds from the sale of a $650,000 Las Vegas home. She is also accused of lying to an insurance company by telling them the deed had or would be paid off, according to an indictment handed down by the Clark County District Attorney. The alleged theft occurred between Dec. 8, 2006, and March 29, 2007.
Jones and her lawyer said it wasn't Jones who committed the thefts, but employees who were working for her. Jones owned an escrow company, but handed control of the company to employees after the sudden death of her 21-year-old daughter, she said. Jones' lawyer, T. Augustas Claus of Las Vegas-based Legal Resource Group, said one of Jones' employees has already pleaded guilty to stealing and is in jail. He said it is unfortunate that the state doesn't think that is relevant to the case.
Peter Dustin, a fraud investigator with the Las Vegas Metropolitan Police Department, said the case against Jones, who has several aliases, is significant as far as one-time thefts go but doesn't rise to the level of some of the major mortgage schemes that have taken place in the last few years in Las Vegas, where the housing market collapse and foreclosure crisis have led to a dramatic increase in mortgage fraud.
In early 2008, Las Vegas police dubbed the mortgage fraud case as the largest to date for their financial crimes unit, according to The Las Vegas Review-Journal. Las Vegas police arrested Jones in January 2008. At the time, she was using the alias Sheila K. Williams. Jones was indicted in October 2008, but the trial has been postponed twice. (nashuatel122309)
OREGON NEG AM LOAN RESTRICTIONS IN EFFECT ON JAN. 1, 2010
FACTS
Effective Jan. 1, 2010, Oregon imposed restrictions on negative amortization loans. Mortgage bankers, brokers and loan originators are prohibited from negotiating or making a neg am loan without regard to the borrower's ability to repay the loan. Restrictions exist on prepayment penalties on negative amortization loans to the first 24 months of the loan and prohibit a lender from collecting any prepayment penalty on an existing negative amortization loan in return for or as a consequence of refinancing the loan.
MORAL
If you are doing negative amortization in Oregon after Dec. 31, 2009 read the new law first or you may get into serious trouble otherwise.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
