HARVARD LAW PROFESSOR ELIZABETH WARREN APPOINTED TO HEAD THE NEW CONSUMER FINANCIAL PROTECTION BUREAU TO BEGIN OPERATIONS JULY 21, 2011
FACTS
On Sept. 17, Harvard law professor Elizabeth Warren was appointed to launch the new Consumer Financial Protection Bureau. Warren also will have a broad portfolio of duties, advising President Obama on "policies and programs that are designed to protect the financial interests of middle-class families," the White House said. Obama described Warren as "a janitor's daughter who's become one of the country's fiercest advocates for the middle class" and said she would have direct access to him from her White House post.
Obama chose not to nominate Warren to a five-year term as the agency's first director. Instead, he made her an assistant to the president and a special advisor to Treasury Secretary Timothy F. Geithner, jobs that do not require Senate approval. In those roles, she will be responsible for organizing the powerful new consumer agency, which she first suggested in 2007. She'll have 10 months to set up the agency as Geithner announced Friday that it would begin operation next July 21.
"The new consumer bureau is based on a pretty simple idea: People ought to be able to read their credit card and mortgage contracts and know the deal," Warren wrote on the White House's blog Sept. 17. "The new law creates a chance to put a tough cop on the beat and provide real accountability and oversight of the consumer credit market," she wrote. "The time for hiding tricks and traps in the fine print is over."
The agency also will have the power to enforce those rules at large banks and other financial firms, such as mortgage brokers. The agency's power is concentrated in a single director.
The Treasury Department is responsible for setting up the agency. Geithner will delegate that task to his new special advisor, Warren. (lat91810)
MORAL
In plain English in this one attorney's opinion, she can make national forms so all states use the same disclosure. One of the best would be to change the Good Faith Estimate so consumers can really read and understand it. I defy a consumer to read and understand it now. Even attorneys and the mortgage brokers themselves find it difficult. In either event, watch this professor closely. There are a lot of new regulations she can put in effect starting July 21, 2011 that can affect a lot of mortgage loan officers and lenders.
MORE ON THE NEW CONSUMER FINANCIAL PROTECTION BUREAU
FACTS
Prior to the designated transfer date of July 21, 2011, the CFPB will begin to conduct research relating to consumer financial products and services, develop its nationwide consumer complaint response center, plan and take steps to implement the risk-based supervision of nondepository covered persons, and prepare for the opening of outreach offices.
Development of the supervision program for certain nondepository covered persons is particularly significant because no Federal agency previously has had the responsibility of supervising these entities, such as payday lenders, mortgage companies, debt collectors, and consumer reporting agencies.7 Prior to the designated transfer date, the CFPB will begin the significant task of building this supervision program, including hiring and training examination staff and making preparations necessary to begin a risk-based supervision program. (75 FR 57252)
MORAL
In plain English: 1-Research consumer financial products; 2-Plan and start implementation of risk-based supervision of nondepository covered persons such as mortgage brokers; 3-prepare to open outreach offices; 4-Build the program including hiring and training staff to begin the risk-based supervision program. In other words, here comes super police.
A REMINDER ABOUT THE RISKED BASED PRICING SCORE AND THE NOTICE TO BE GIVEN AS OF JAN. 1, 2011
FACTS
The Federal Reserve Board and Federal Trade Commission adopted the Risk Based Pricing Rule originally published in the Federal Register Jan. 15, 2010. Compliance is required by Jan. 1, 2011. The rule requires a creditor that uses a credit report or score in connection with a consumer's application for, or a grant, extension, or other provision of, credit that is primarily for personal, family, or household purposes, to provide the consumer a Risk-Based Pricing Notice when, based wholly or partially on the credit report or score, the creditor grants, extends, or otherwise provides credit to the consumer on material terms that are materially less favorable than the most favorable material terms available to a substantial proportion of consumers from or through that creditor.
The Fair Credit Reporting Act was added by the Fair and Accurate Credit Transactions Act and required the Agencies to adopt the rule. A Risk-Based Pricing Notice (Model Form H-1 of the Federal Reserve Board's Regulations and Model Form B-1 of the Federal Trade Commission's Regulations) must be provided if a lender uses a credit report or score and extends a loan to an individual primarily for personal, family or household use.
The rule only applies to consumer credit and a mortgage broker does not have to give the notice, only the creditor. In a transaction involving two or more borrowers, the Notice must be provided to each co-borrower. If a lender provides an adverse action notice to a borrower, the lender is not required to provide the Risk Based Pricing Notice.
A lender is not required to provide the Notice if the lender obtains a credit report or score that is a prescreened list and makes a firm offer of credit to a consumer even if the lender makes other firm offers of credit to other borrowers on more favorable material terms. (compofdocmgc910)
MORAL
This is but a very brief summary and should not be relied on totally. The regulation should be read in full. For those of you using DocMagic, there is a complete explanation on its website.
CALIFORNIA MAN SENTENCED TO NINE MONTHS IN PRISON FOR PERJURY BEFORE A GRAND JURY RELATED TO MORTGAGE LOANS
FACTS
On Sept. 20, United States District Judge William B. Shubb sentenced John B. Ngo of San Ramon, Calif., to nine months in prison, to be followed by two years of supervised release. Ngo pleaded guilty on Dec. 17, 2007 to one count of making a false declaration before the grand jury.
Ngo, a former employee of Long Beach Mortgage (formerly a subsidiary of Washington Mutual Bank), falsified documents and processed numerous fraudulent loan packages for residential properties located in the Sacramento and Stockton areas. Ngo admitted to lying under oath before the grand jury when he denied that he had received thousands of dollars in kickbacks from a mortgage broker involved in the scheme. (usattedca92010)
MORAL
I would suggest Ngo did not retain a lawyer before appearing in front of the Grand Jury. Any competent attorney would have informed him to come in the hall and talk before answering any questions. Further, not to lie before a grand jury. Exercise your Fifth Amendment right not to answer on the grounds it might incriminate you but never lie. The Fifth Amendment protects witnesses from being forced to incriminate themselves. To "plead the Fifth" is to refuse to answer a question because the response could provide self-incriminating evidence of an illegal conduct punished by fines, penalties or forfeiture.
FLORIDA REQUIRES NOTICE TO BORROWERS WHEN THERE ARE MATERIAL CHANGES IN THE MORTGAGE LOAN TERMS
FACTS
As of Oct. 1, Florida requires that borrowers be notified when there are "material changes in the terms of a mortgage loan previously offered to the borrower within three business days after being made aware of such changes by the mortgage lender but at least three business days before signing of the settlement or closing statement." (FL Stats. Ann. §494.004)
MORAL
Start using the new form or start getting sued, disciplined by Florida or both.
MASSACHUSETTS MAN LIES TO THE FBI ABOUT MORTGAGE LOAN AND GETS FOR TWO YEARS PROBATION
FACTS
On Sept. 22, Paul L. Plahn of Taunton, Mass., was sentenced in federal court to two years' probation for making false statements to a federal agency about his supposed victimization in a mortgage fraud scheme. He had previously pleaded guilty on June 23, to one count of making materially false statements to a federal agency.
Plahn had developed an elaborate scheme to deceive his wife and extended family about their deteriorating financial status and avoid losing their Hanover house in foreclosure. In April 2008, Plahn told an agent from the Federal Bureau of Investigation that he was a victim of unscrupulous mortgage lenders and foreclosure rescue services. Among other things, Plahn told the agent that he was assisting in a “sting” operation being conducted by the Massachusetts State Police investigating mortgage fraud and provided the agent with a letter on State Police letterhead thanking Plahn for his efforts. In fact, there was no sting operation and Plahn had fabricated the letter. (usattyma92210)
MORAL
Now what made him think the agent would not check with the state police. We have assisted many of loan officers and brokers and borrowers accused of mortgage fraud. Above all we have always informed our clients never lie to a federal agent. That in and of itself is a federal offense as you see here. Just tell the agent you would like to have your attorney present. The agents are very pleasant about it and will then give you their business card and request you have your attorney contact them and end the conversation at that point. This is your safest course of action.
SAN FRANCISCO MAN CHARGED IN $25 MILLION MORTGAGE FRAUD PONZI SCHEME
FACTS
On Sept. 17, Maher Talal Muhawieeh was charged for perpetrating a Ponzi scheme over the course of almost three years. According to court documents, Muhawieh allegedly took in more than $25 million from a total of at least 80 victims.
According to information in the indictment, Muhawieh told potential victims various lies to get them to lend him money. For example, Muhawieh represented to victims that their funds would be used to purchase and to renovate specific residential properties in San Francisco that would then be sold at a profit. Muhawieh claimed he would make regular and high rates of return for the lenders with limited risk. Muhawieh also represented to victims that their funds were secured by deeds of trust on the residential properties that he represented would be purchased and renovated with the lenders’ funds.
The indictment alleges that Muhawieh operated a Ponzi scheme whereby he used the lenders’ funds to reimburse earlier lenders. In addition, Muhawieh allegedly used the lenders’ funds for a variety of unauthorized activities such as personal expenses and investing in retail businesses located in San Francisco. Unbeknownst to the victims, Muhawieh provided multiple deeds of trust for the properties that purportedly served as collateral for the lenders’ funds; as a result, the deeds of trust did not provide the lenders with adequate security.
Muhawieh is charged in the indictment with 12 counts of wire fraud. The maximum statutory penalty for each count of wire fraud is 20 years’ imprisonment, a fine of $250,000 or twice the gain or loss, supervised release of three years, and restitution to victims of the alleged scheme. (usattyndca91710)
MORAL
He is innocent until proven guilty but did you invest any money with Mr. Muhawieh?
MAINE UPDATES MORTGAGE LOAN FEES ON CONSUMER LOANS
FACTS
The Maine Department of Professional and Financial Regulation has adjusted volume fees for non-bank mortgage lenders to $35 per $100,000 of the original unpaid balances arising from consumer credit transactions during the previous calendar year. (alrgs91310)
MORAL
Not only do you get more regulations from state and federal, not only do you get your fees and commissions decreased, you now get your cost of doing business increased. I thought it was supposed to be the other way round for capitalism.
MASSACHUSETTS DEVELOPER INDICTED FOR MORTGAGE FRAUD
FACTS
On Sept. 13, Mansfield developer Michael David Scott pleaded not guilty in US District Court in Boston to federal charges related to an alleged mortgage fraud scheme involving about three dozen condominiums in Dorchester and Roxbury.
Scott was released on $250,000 bail and required to turn over his two passports, one from the United States and the other from his native country of Trinidad and Tobago.
The arraignment comes less than three weeks after he was charged with 62 counts of wire fraud, bank fraud, and money laundering in an alleged mortgage scheme that involved the purchase of condos through fraudulent documents between 2006 and 2008. According to prosecutors, buyers were assured they would not have to finance the homes, that the mortgages would be covered by payments from tenants, and that they would share in the profits when the properties were resold. Many of the units eventually went into foreclosure.
On Sept. 13, Judge Marianne Bowler required Scott to agree to a $250,000 “unsecured’’ bond, which is a pledge to return to court or risk forfeiture of the money, but does not require a cash deposit. Scott’s lawyer said his client did not have the financial resources to post cash. Bowler gave Scott 10 days to offer proof that he is unable to provide $50,000 toward his bail as a condition of his release.
Three others have been charged separately in the alleged plot, including a real estate lawyer, a Virginia-based recruiter of buyers, and a former Bank of America branch manager. (boston.com91410)
MORAL
You may remember I wrote about this in the last e-Alert for the month of August. Now three weeks later arrested again for more mortgage fraud. I know you are innocent until proven guilty but rumor was he was offered a “deal” by prosecutors and turned it down. Well, good luck because it sounds like an awfully long prison sentence if convicted.
THREE DAYS LATER SCOTT CHARGED IN SUPERSEDING INDICTMENT
FACTS
Michael David Scott, along with Virginia residents Jerrold Fowler and Thursa Raetz, have been charged in a superseding indictment. This one lists multi property mortgage fraud scheme in Boston where the developer is charged with 22 counts of money laundering and additional mortgage loans.
The superseding indictment alleges that from September 2006 to April 2008, Scott, Fowler, and Raetz committed fraud in connection with the purported sale of condominium units in Roxbury and Dorchester. According to the charges, Scott arranged to purchase multi-family dwellings and then sold individual units in the buildings to straw buyers recruited by Scott, Fowler and Raetz.
Scott, Fowler and Raetz allegedly promised straw buyers that they would not have to make down payments, pay any funds at the closing, or be responsible for mortgage payments, but would share in profits when the units were resold. The straw buyers’ financing for the purchases was obtained by submitting mortgage loan applications that falsely represented key information, such as the buyers’ income, assets, down payment, and intention to reside in the condominiums. In most instances the lenders (nine mortgage companies and one bank) were led to believe that the straw buyers had made substantial down payments and paid substantial sums at closings.
Each count of bank fraud carries a sentence of up to 30 years in prison, followed by five years of supervised release and a fine of $1 million; each wire fraud count carries a sentence of imprisonment up to 20 years, followed by three years of supervised release and a $250,000 fine; the money laundering counts each carry a maximum punishment of 10 years in prison, followed by three years of supervised release and a fine of $250,000. (usattyma91610)
MORAL
I have seen this happen multiple times when the person pleads not guilty or turns down a plea bargain. The government ups the ante and adds on more charges.
VIRGINIA MAN DRAWS 27 MONTHS IN FEDERAL PRISON FOR MORTGAGE FRAUD
FACTS
On Sept. 17, Jorge Cidar Mendez Chavez of Ashburn, Va., was sentenced to 27 months in prison, followed by three years of supervised release, for conspiracy to commit bank fraud. Chavez was also ordered to pay restitution in the amount of $1,688,400.
Chavez, a real estate agent, served an important role in a mortgage fraud conspiracy, which continued for approximately 18 months from the summer of 2007 through the end of 2008. It involved at least seven properties and fraudulent loans of almost $6 million. Chavez helped straw buyers provide false information to federally insured financial institutions and private commercial lenders. The false information included false employment, salary and asset information. Chavez created, maintained or controlled two businesses—Intellitech-US and Cercig Inc.—to corroborate the false information. Chavez also worked with Fidelino Ferrufino, an individual who recruited straw buyers in an unrelated conspiracy. Ferrufino was convicted after a three-week trial in August 2010. His sentencing is scheduled for Oct. 22. (usattyedva91710)
MORAL
And the chase goes on. This gentleman was creative for a year and a half. He is now creative for two years and three months since there is no parole in the federal system.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
