Compliance

It is no understatement to comment that the Internet has transformed the mortgage lending industry in many ways. The point-of-sale has been influenced tremendously, with borrowers quickly becoming accustomed to rate shopping during the refinance boom and lenders providing an ever-increasing number of online tools to cement relationships.

Less competition and more work for the ones that are left. Problem is that many of the loan officers were classified as independent contractors when they did not meet the criteria under federal or state law. Especially in California.

Scrutiny of so-called free credit report services is increasing as the Federal Trade Commission, in keeping with its consumer protection mission, has intensified its ongoing scrutiny of credit-related services due to concerns that, among other things, scores can affect would-the ability to get a loan.

On July 29, 2010 Arizona Attorney General Terry Goddard announced he filed a lawsuit against THE GUARDIAN GROUP LLC for engaging in allegedly deceptive mortgage loan reduction services that have cost more than 2,500 consumers millions of dollars.

After three long years the wait is over. The Inland Real Estate Group of Cos. in Oak Brook, Ill., is discussing the settlement of the Inland Western Retail Real Estate Trust Inc. lawsuit, which was filed in 2007 shortly after the merger of Inland Western Retail Real Estate Advisory Services Inc., related property managers and Inland Western.

Adding to the injunction filed in Clark County, Nev., last week, another lawsuit has been filed in Los Angeles County on behalf of three local individuals who placed deposits towards condominiums at the Cosmopolitan of Las Vegas.

Congress passed H.R. 4173 on July 15. Although it's formally known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, I like to think of it as "FrankenDodd" because this monster tops out at more than 2,300 pages and will require several hundred new rules to fully implement. It will be at least three years before everything is finalized, and it will take a decade or two to judge whether its purpose—to overhaul the financial services industry so as to prevent another economic collapse—was successful.

Efforts are being made to proactively protect homes in default and foreclosure by sharing valuable information regarding appraisal fraud in short sale transactions.

Bank of America has agreed to pay $600 million to settle several class action lawsuits filed by Countrywide Financial Corp. shareholders over the lender's subprime program, according to a report in The Los Angeles Times.

Thirteen former officers and directors of New Century Financial Corp., have agreed to pay more than $90 million to settle all civil claims in a series of federal and private lawsuits stemming from the collapse of the once high flying subprime giant.

Fraudsters in today's mortgage market are "quite entrepreneurial," coming up with new ways to scheme against borrowers, according to speakers at the SourceMedia Second Annual Best Practices in Loss Mitigation Conference in Dallas.The beginning of foreclosure rescue fraud starts typically when a servicer publishes a public notice concerning the homeowner. In a modification scheme, they offer a "modification for money and they never deliver."

Thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Acts, the federal government is making it virtually impossible to be a mortgage broker. By extending the application of the Truth in Lending Act to include mortgage brokers (formerly limited to "creditors") and clearly defining, and otherwise limiting, how brokers can be compensated (YSP is dead), the act is forcing brokers to rethink the way that they do business. For mortgage brokers to survive, they need access to wholesale lenders and must establish relationships with select retail lenders. For lenders to survive, they need to meet strict quality and delivery guidelines that insulate mortgage securitization issuers from the act's risk retention requirements. These guidelines include, but are not limited to, increased underwriting obligations, changes to the HOEPA thresholds, additional disclosure requirements and asset verification and validation requirements. These strict quality guidelines are necessary to insure that the assets that are purchased by mortgage securitization issuers adhere to the risk retention safe harbor requirements, and in return, the issuer can confidently provide liquidity to the lender, that is necessary to keep funding loans that the brokers are selling.

Although there has been a lot printed and the act itself will not really take effect for six-to-18 months when the regulations are due to be published, here is a further summary. The more you read about it, the more you will absorb and be comfortable with.

Mortgage fraud, recognized as an impediment to lender-servicer efforts to maximize portfolio recovery, is on the rise and expected to get worse, especially in property valuations.

From industry insiders to straw buyers, nearly 500 people have been arrested in a nationwide mortgage fraud takedown that reflects the coordinated efforts of law enforcement to address the growing problem of crime in the housing industry.

"Mortgage fraud ruins lives, destroys families, and devastates whole communities," Attorney General Eric Holder said recently at a press conference to discuss the results of "Operation Stolen Dreams." Launched on March 1, 2010, the multi-agency initiative has led to a total of 485 arrests. More than 330 convictions have been obtained, and nearly $11 million has been recovered. Losses from a variety of fraud schemes are estimated to exceed $2 billion.

An FBI special agent describes some common mortgage fraud scams.

- Application Fraud

U.S. District Judge J. Frederick Motz has sentenced Timothy Reed, 45, of Beltsville, Maryland, to 51 months in prison followed by five years of supervised release for mail fraud arising from the fraudulent purchase of 25 properties in Maryland, the District of Columbia, and Virginia using false mortgage and settlement documents. Judge Motz also ordered that Reed pay $4,196,967 in restitution.

According to Reed’s plea agreement, Reed and others allegedly paid over 15 straw purchasers $10,000 per property to purchase houses for Reed and others. Reed created false mortgage and settlement documents, many of which misrepresented the straw purchasers’ income and assets. Reed and others also created false invoices to claim that their company, Brotherly Investment Group, performed “renovations” on some of the properties. Using these false invoices, Reed and others were “repaid” at closing for the purported renovations. Reed was an organizer and leader in this scheme.

From 2006 to 2008, Reed and others received approximately $3,830,418 in fraudulent funds as part of this scheme. Many of the purchased properties have been foreclosed upon.

Countrywide Financial Corp. gave 'Friends of Angelo' loans with preferential terms to roughly three dozen employees of Fannie Mae, according to newly released documents.

The financial reform bill protects consumers from the home-lending abuses that led to thousands of foreclosures in Silicon Valley by establishing the Bureau of Consumer Financial Protection. The provisions establishing the Bureau grant the Bureau rule making authority and provide the Bureau with supervisory authority over nondepository-covered persons. This includes any person that engages in offering or providing a consumer financial product or service and any affiliate of such person if the affiliate acts as a service provider to such person.

Now that congress has passed the Dodd-Frank Wall Street Reform bill, attention has quickly turned to the implementation date of the regulatory provisions, which impact every mortgage securitizer, lender, servicer and loan broker.Not only are questions popping up about effective dates, but how long it will take to get the new Consumer Financial Protection Bureau up and running. Sen. Jack Reed, D-R.I., told reporters that Congress needs to focus "relentlessly" on the regulatory process. "I would urge my colleagues beginning probably no later than September to hold hearings on the status of the regulations."

The Federal Housing Finance Agency thinks California Attorney General Jerry Brown is all wet when it comes to the Property Assessed Clean Energy program and how government assisted energy upgrades made by consumers should be treated in the pecking order of lien priority.