Compliance

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.

The Senate late Thursday afternoon passed the Dodd-Frank Wall Street Reform bill by a 60-39 vote, clearing the way for the president to sign the historic measure next week.

The United States District Court for the Northern District of Ohio denied certifying a Real Estate Settlement Procedures Act class action lawsuit on March 11, 2010. The Carter v. Welles-Bowen Realty, Inc., case No. 3:05 CV 7427, consolidated No. 3:09 CV 400, 2010 WL 908464 (Northern District of Ohio) is a case where the plaintiffs asserted that Welles-Bowen Realty, Inc was engaged in operating illegal affiliated business arrangements (aka sham AfBAs) which is a violation of RESPA Section 8(a) and 8(b) (12. U.S.C. 2607 (a) and (b))

The Securities and Exchange Commission recently charged a New York-based investment adviser and three of his affiliated firms with fraudulently managing investment products tied to the mortgage markets as they came under pressure in 2007.

A group of investors is suing Fortuno, Inc., a Lodi, Calif.-based buyer of foreclosed homes and its outside marketing executives, alleging they illegally "enticed" the group to invest in the purchase and re-sale of REOs in Ohio and Michigan with the promise of high returns upon flipping the properties.

A group of investors is suing Fortuno, Inc., a Lodi, Calif.-based buyer of foreclosed homes and its outside marketing executives, alleging they illegally "enticed" the group to invest in the purchase and re-sale of REOs in Ohio and Michigan with the promise of high returns upon flipping the properties.

The Federal Deposit Insurance Corp. has filed a $300-million negligence lawsuit against four former executives at IndyMac Bank FSB, accusing them of granting loans to homebuilders who were unlikely to repay the loans.

A New Jersey loan modification company and its owners have agreed to a judgment of $5,051,253 to settle civil charges they defrauded homeowners who sought help in avoiding mortgage foreclosure.

Three anti-government zealots were indicted by a federal grand jury in connection with an alleged scheme to extort money from public officials and top executives of Mid-Hudson Valley Federal Credit Union, after the lender foreclosed on one of their homes.

Mortgage fraud is a serious problem - still. Of course, credit standards are much higher today than a few years ago, and it is difficult for a borrower to obtain a mortgage by fibbing about his income or otherwise doctoring his loan application. But where there is a will to defraud, fraudsters will find a way.