MORE ON THE FINAL RULE FOR THIRD PARTY ORIGINATORS OF FHA LOANS AND THE NEW REQUIREMENTS
FACTS
1. In eliminating FHA's approval of loan correspondents, FHA--approved mortgagees assume full responsibility to ensure that a sponsored loan correspondent adheres to FHA's loan origination and processing requirements.
2. FHA-approved mortgagees net worth shall go from $250,000 to $2.5 million over the next three years (2013), 20% to be liquid.
3. The first year net worth is $1 million at least 20% is to be liquid for new mortgagees or existing mortgagees that are not defined as small businesses. Small business mortgagees must initially be $500,000. Currently approved mortgagees have one year from May 20, 2010 to comply with the new net worth requirements. As of May 20, 2013 every approved mortgagee will have a net worth of $1 million plus one percent of the total volume in excess of $25 million for the year up to $2.5 million with 20% liquid.
4. Loan correspondents maintain their approvals until the end of 2010. Thereafter they will all become third party originators (TPO's) if associated with an FHA approved mortgagee. TPO's will not be subject to the HUD lender approval process.
5. FHA approved mortgagees will assume full responsibility to ensure that their sponsored TPOs adhere to FHA origination and processing requirements. (Note there is no mention either way of whether the TPO's may use independent contractors or W-2 employees. Nor is there any mention of the TPO's doing both real estate and loans. However, the TPO's cannot double-dip on the FHA loans. So if the TPO sells or lists the property, the TPO cannot collect the real estate and the loan commission if it is an FHA loan.) Considering the way the control of commissions is going on loans I would think taking the real estate commission would be a better deal.
6. TPO's cannot be suspended, debarred, under limited denial of participation, under indictment for or have been convicted of an offense that reflects adversely upon the applicant's integrity, competence, or fitness to meet the responsibilities of an approved mortgagee. TPO's also cannot be subject to unresolved findings of a HUD investigation, or engaged in business practices that do not conform to generally accepted practices of prudent mortgagees or that demonstrate irresponsibility. Additionally, TPO's cannot be convicted of, or have pled guilty or nolo contendre to, a felony related to participation in the real estate or mortgage loan industry in violation of the SAFE Mortgage Licensing Act.
7. HUD FHA-approved mortgagees may only use their HUD-registered business names in all advertisements and promotional material related to FHA programs. This includes an alias or --doing business as (DBA) on file with FHA. If FHA does not have the name listed, do not use it in conjunction with any FHA advertising or you will be disciplined.
8. Approved mortgagees with FHA are required and it is mandatory they notify FHA of any employees that are subject to any sanction or other administrative action.
9. All loans with TPO's will close in the name of the approved mortgagee.
10. All approved mortgagees may have a Principal-Authorized relationship and the loans may be closed in either party's name. Both must be Direct Endorsement lenders. The Principal originates the loan and the Authorized Agent must underwrite the loan and the action must be recorded as such in the FHA Connection (FHA Computer Home Underwriting Mortgage System.)
11. HUD will not establish FHA requirements related to sponsor approval of TPOs.
12. Sponsoring mortgagees have the authority to establish oversight requirements to monitor the ongoing performance and financial capacity of their TPOs.
13. Sponsoring mortgagees should develop and implement measures to verify TPO compliance with all federal, state and local requirements that govern the activities of the TPOs including compliance with the SAFE Act and that none of the TPO employees are subject to CAIVERS and are not on the exclusionary list of HUD in any form.
14. Sponsoring mortgagees must monitor the loan products which should already be in place and systematically check for discipline by and state agencies of any of the TPO employees.
15. Any TPOs that become noncompliant should be dropped by the Sponsoring Mortgagee if the noncompliance is of laws and regulations and HUD should be notified.
16. TPOs cannot close loans in their own name. Must be done in the Sponsoring Mortgagee name.
17. Sponsoring mortgagees can allow TPOs to enter data into their own internal loan processing system which the Sponsoring mortgagee can then download to FHA without re-keying the data into the FHA connection. This will alleviate the necessity of repetition.
18. There are approximately 4,426 Direct Endorsement lenders now nationwide. So if you are going to be or are a TPO now, start soliciting these lenders.
19. TPOs are allowed to state that they are "authorized to originate FHA products."
20. Sponsoring mortgagees must confirm that the TPO uses its legal name and must confirm the Tax ID number of the TPO both of which must be included in the FHA loan origination system record for the subject loan.
21. Annual certifications are required by HUD that the mortgagee has not been refused a license by any state and that it has not been sanctioned by any state.
22. Mortgagee must submit annual financial statements (audited or unaudited) where it has experienced an operating loss of 20% of its net worth and until it shows an operating profit for two consecutive quarters or until the next recertification whichever is longer. (75fr20718)
MORAL
This is not all. It is just a summary of some of the more interesting items in the new final rule for Direct Endorsement Lenders and Third Party Originators. It also means the Direct Endorsement Lenders need to update their Quality Control Plans starting now. Since Loan Originators will be gone by Dec. 31, 2010 and the lenders will be alone or using third party originators, the Quality Control Plans will then be out of date one way or another. This means an audit will file a negative as to the Quality Control Plan for not updating it knowing the change took effect May 20, 2010.
TWO CALIFORNIA MEN ARRESTED FOR
MORTGAGE FRAUD
FACTS
Roseville police arrested EDWIN HETHERTON on June 9, and PETER SCALISE turned himself in to the El Dorado County Sheriff's Office later that day after warrants were issued for their arrest. The men were jailed on suspicion of six counts each of real estate fraud and six counts each of identity theft.
Hetherton and Scalise worked together under Hetherton's company, AZZURE FINANCIAL, and neither man was licensed with the Department of Real Estate. The two men were using another broker's license information without permission, under which they collected loan commissions, the police allege. At least six fraudulent mortgage loans in Sacramento allegedly were facilitated by the two suspects, totaling more than $2 million.(sacrob61810)
LAS VEGAS MAN INDICTED IN CALIFORNIA FOR FORECLOSURE RESCUE SCHEME
FACTS
On June 18, 2010 a seven-count indictment was unsealed charging GEORGE M. EGGLESTON OF LAS VEGAS, with WIRE FRAUD AND MAIL FRAUD IN A FORECLOSURE RESCUE SCHEME. A federal grand jury returned the indictment on June 10, 2010 and was unsealed after Eggleston's arrest on June 17, 2010. The indictment also seeks forfeiture of all property and proceeds obtained directly or indirectly in the scheme.
According to the indictment, Eggleston targeted property owners who were facing foreclosure and offered to rescue them. Using the business names of NEXXUS and GLOBAL LEGAL ASSOCIATES, he advertised on his own Web site and would also get referrals from others individuals who marketed his services. Eggleston induced property owners to enter into a contract called the Nexxus Engagement, the terms of which required property owners to sign an Offer and Agreement and pay Nexxus a monthly fee in the amount of $1,000 per month for 60 months. The terms of this agreement also required the clients to sign a Power of Attorney giving Nexxus authority to negotiate with lenders and file lawsuits on their behalf.
The indictment alleges that Eggleston told his clients that by using and managing attorneys, Nexxus and Global Legal Associates could negotiate with lenders and file lawsuits against lenders thereby stopping the foreclosure action. In fact, he did not provide the services, did not manage attorneys, and did not stop foreclosure actions. Instead he used the money from the clients for his personal expenses.
According to the indictment, Eggleston filed Chapter 13 bankruptcy petitions in the United States Bankruptcy Court for the Eastern District of California in Fresno.
The maximum statutory penalty for each count of mail fraud and wire fraud is 20 years in prison, a $250,000 fine and up to five years' supervised release following incarceration. (usattyedca61710)
MORAL
Since October 2009 it has been illegal for anyone to take an advance fee including attorneys if the fee relates to loan modifications in any way.
FORMER ATTORNEY DRAWS STATE PRISON SENTENCE OF SEVEN YEARS FOR MORTGAGE
FRAUD
FACTS
On June 10, 2010, Thomas Hastert, former attorney and real estate broker and owner of LOAN SENSE in Nevada County, Calif. was sentenced by Nevada County Superior Court Judge Robert Tamietti to seven years in state prison. After credit for time served and good behavior, its anticipated Hastert will serve only slightly more than two years of that sentence.
Hastert pleaded no contest last year to 63 counts of embezzlement and illegally selling real estate securities after being implicated in about 200 real estate loans from 2004 to 2007.
He used money from investors to give loans to people wanting to build homes in a scheme that State Deputy Attorney General Keith Lyons said was doomed to failure and showed intentional recklessness; victims said much of the money never went into legitimate loan accounts.
Hastert also allegedly set up fake straw investors to lead original investors into thinking the loans they supposedly were funding were secure.
Tamietti also ruled that Hastert owes more than $1.5 million to investors, even though he testified at a debtors exam that he no longer has any financial assets other than an estimated $6,000 in a frozen bank account. (union.com61010)
MORAL
A check on June 18, 2010 of his state bar license shows he is not eligible and not entitled to practice law since March 2009. A check of the Department of Real Estate license shows it was voluntarily surrendered on June 16, 2009. If you are a hard money investor, you should check before you invest.
TRUSTEE FOR BANKRUPT MORTGAGE COMPANY SUES FORMER EXECUTIVES AND ACCOUNTANTS FOR FRAUD
FACTS
The trustee handling CAMERON FINANCIAL'S CHAPTER 7 BANKRUPTCY is alleging that the company's two former top executives and their accountants engaged in fraud, negligence and misrepresentation in their financial dealings. TRUSTEE JERRY NAMBA filed an adversarial proceeding in February 2010 against E. SHANNON FARIES AND CAREY FIERRO, co-owners of the now-failed San Luis Obispo company, and an Irvine-based accounting firm, Kushner, Smith, Joanou and Gregson.
According to the trustee's complaint, Faries, who was Cameron Financial's president, and Fierro, who was its chief executive officer, took more than $5 million in investment property held on the books of Cameron Financial.
Faries, who received an annual salary of about $90,000 in 2007, also gave himself an additional $754,000 in 2007, shortly before the company filed for Chapter 7 bankruptcy, according to the trustee. The company also paid his personal federal income tax bill in 2005 and 2006 of more than $1 million, the complaint alleges. Fierro is alleged to have taken an $800,000-plus bonus for himself in 2007 and had the company pay his personal federal income taxes of an estimated $1.3 million in 2005 and 2006.
Namba alleges the transfers were meant to hinder, delay or defraud one or more of the creditors and alleges that the partners' actions contributed to the insolvency of the company. Namba is seeking to recover Faries' and Fierro's transfer of real estate or funds they've taken out of the company.
Faries--now a manager of Harbor Lending Inc. in San Luis Obispo--and Fierro have not responded to the trustee's allegations to date. Namba alleges that Fierro left the country in 2009 but more recent records show they are trying to find him in Grover Beach. Namba is seeking a default judgment. (slotrib61710)
MORAL
Suing and getting a judgment against someone that does not have any money seems to be a sham victory. How is the trustee going to collect? Against what?
THREE PEOPLE INDICTED FOR MORTGAGE FRAUD IN BAKERSFIELD
FACTS
An indictment unsealed Monday June 14, 2010 accuses ERIC RAY HERNANDEZ; HIS WIFE, MONICA MARIE HERNANDEZ; AND EVELYN BRIGGET SANCHEZ, of conspiracy to commit mail fraud, wire fraud, bank fraud and 15 counts of mail fraud. The Hernandezes were also charged with money laundering. The scheme cost lenders more than $2.5 million, according to the U.S. Department of Justice.
The June 10 indictment has allegations that the three individuals provided bogus information--false pay stubs, letters from tax accountants and bank statements--to support home loan and refinance applications. The indictment said more people might be charged.
All three defendants pleaded not guilty in court. Eric Hernandez was arrested and remains in custody; Monica Hernandez was arrested and released on her own recognizance. Sanchez was arrested and released on her own recognizance.
If convicted, the defendants face a maximum penalty of 30 years in prison, five years of probation and a $1 million fine.
ERIC HERNANDEZ worked as a loan officer at NETWORK SOURCE FUNDING, a Bakersfield mortgage brokerage, roughly between October 2005 and August 2006, and then at New Millennium Lending from about August 2006 to May 2007, the indictment states. Sanchez, it says, worked as a loan processor at Network Source from about May 2005 to August 2006, then worked at New Millenium from about August 2006 to May 2007. It says Monica Hernandez, also known as Monica Marie Duarte, processed loan transactions with her husband and Sanchez. All three defendants lived in Bakersfield. Network Source Funding and New Millenium both appear to have closed.
The indictment lists seven Bakersfield addresses it says were examples of properties where false information was used on loan applications. A spokeswoman for the U.S. Attorney's Office said most if not all of the homes in the case were in foreclosure. (bksfldcal61710)
MORAL
As you can readily see the step up in enforcement is dramatic. If you have been involved in any questionable mortgages you really should see an attorney now to prepare rather that weight for the ball to drop.
NINE INDICTED IN SUPERSEEDING INDICTMENT
FACTS
The wife of a former Chico mortgage broker now in federal custody, as well as six local residents and men from Elk Grove and Sacramento, were indicted on June 17, 2010 on charges connected with a multi-million dollar "builder bailout" scheme. The U.S. Attorney's Office said a grand jury also amended an indictment against the alleged ringleader of the scheme, GARRETT GRIFFITH GILILLAND.
His wife, NICOLE MAGPUSA, also now in federal custody, was named along with WILLIAM E. BAKER, identified as a Chico homebuilder, and SHANE BURRESON, OF ORLAND, identified as president of NORCAL INNOVATIVE INVESTMENTS, a company established by Gililland.
Additionally named are LEONARD WILLIAMS OF SACRAMENTO, a licensed real estate salesman; CHRISTOPHER M. CHIAVOLA OF CHICO; BRANDON RESENDEZ OF CHICO; NICHE FORTUNE OF CHICO; KEISHA HAYNIE OF CHICO; AND REMY HENG OF ELK GROVE. According to court records, Haynie is also a licensed real estate salesman.
CHICO HOMEBUILDER TONY SYMMES WAS INDICTED in the scheme earlier this year and in May stipulated to single counts of mail fraud and money laundering.
Symmes and Gililland were charged with conspiring to sell 62 Chico homes Symmes was unable to sell at market prices to "straw buyers." The homes were appraised at higher than market value and proceeds from loans secured at the inflated prices were distributed to participants in the scheme, allegedly including those indicted today. This is a Second superseding indictment for Garret Gililland, etc. al. (chicoent61710)
MORAL
Life gets busier and busier and Mr. Gililland is beginning to become quite a legend although not in the right way. Remember, they are all innocent until proven guilty except for Mr. Symmes who has allegedly pleaded guilty to one count of mail fraud and money laundering.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
