Compliance

Freddie Mac could lose up to $700 million because of the failure of Taylor Bean & Whitaker — $200 million more than previously disclosed. The Florida-based nonbank sold mortgages to Freddie and as recently as 2008 accounted for 5% of its total purchase business. In a new filing with the Securities and Exchange Commission, the GSE says the bankrupt TBW owes it money for loan buybacks and on servicing-related charges. In November, Freddie said it might lose $500 million on TBW but has since updated that estimate. The government-controlled mortgage giant said its seller/servicers are not honoring buyback requests in a timely manner with $4 billion of loan repurchase requests unfulfilled at yearend. TBW failed in August of last year.

A la mode, Oklahoma City, has released "The Appraisal Fee Reference," a monthly guide to what independent appraisers charge nationwide. The software vendor/publisher says the AFR will help lenders/servicers with compliance issues especially in regard to new Federal Housing Administration appraisal guidelines. FHA now requires lenders to ensure that appraisers are paid reasonable and customary fees, independent of what might be added on by an appraisal management company. The AFR provides the median appraisal fees for each of the 3,221 counties in the 50 states, the District of Columbia, Puerto Rico and Guam.

California now has the highest risk of mortgage fraud with an index value of 222, according to a report from Interthinx. Nevada, which had the highest index for the previous five quarters, drops to second place with an index of 220, and is closely followed by Arizona with an index of 211, according to the Mortgage Fraud Risk Report for the fourth quarter of 2009. Florida remains in fourth place at 179, while Colorado is fifth at 153. The occupancy fraud risk index rose 16% since last quarter, the first significant increase in the index since the fourth quarter of 2006. The magnitude of the quarter-on-quarter increase suggests that occupancy fraud risk will be a serious issue going forward, as continuing price declines and get-rich-quick schemes lure investors back into the market and as builders face continuing difficulty in moving unsold inventory. Despite a 4% quarter-on-quarter decrease, the property valuation fraud risk index is up 40% over last year and up more than 100% from two years ago. Schemes involving short sales, real estate owned inventories, wholesale flipping, and refinancing by borrowers whose equity has been impaired by falling real estate values continue to drive this index. Interthinx analysts expect lenders to focus more closely on fraud risk mitigation as they work to emerge from the downturn. This will help guard against the potential for fraud as a large number of adjustable rate mortgage loans, especially option adjustable rate mortgages with negative amortization features which reset between now and the first quarter of 2012.

Educational Systems Federal Credit Union became the first victim of the massive fraud at CU National Corp. to settle claims with Fannie Mae, setting the stage for other CUs hurt by the $140 million scandal to come to terms with the government-sponsored enterprise. "We've been negotiating with them [Fannie Mae] since July and August of last year," said Chris Conway, president of the Greenbelt, Md.-based ESFCU. Mr. Conway has now turned his eye toward a settlement with CUMIS Insurance Society, which holds a bond with the $340 million Greenbelt, Md., credit union. Mr. Conway said he is prevented from discussing the terms of the settlement under the agreement, but said ESFCU has received all payments and the return of the 32 mortgages Fannie Mae had bought from CU National under false pretenses. He also expressed optimism that the combination of the Fannie Mae payment and an insurance payout will help his credit union recover most, if not all of the $5 million exposure they have in the case. Representatives of nearly two dozens CUs are expected to meet with Fannie in mediation over the next few months to hammer out a settlement of claims. Michael McGrath, who founded U.S. Mortgage — the parent of CU National — pleaded guilty last year to selling $140 million worth of mortgages issued by 28 credit unions to Fannie Me without the CU's authorization and pocketing the money. He will be sentenced next month.

Almost two months after National Mortgage News first reported that Lend America of Long Island was refinancing consumers but then not paying off their prior first liens, federal officials are investigating those allegations. Existence of the probe was first reported by Newsday. Lend America's top executive, Michael Ashley, could not be reached for comment. The Federal Housing Administration banned the Melville-based Lend America, a privately held nondepository, from its insurance program in November, citing numerous underwriting violations. FHA loans accounted for most of its production. In early December the company stopped originating new loans and laid off most of its workforce. NMN quoted consumers who had loans with the company as well as an attorney who represented vendors that did business with the nonbank.

A former Ameriquest Mortgage employee has pleaded guilty to stealing the personal identification information of nearly 100 victims and using that information to obtain money and other items. In his plea agreement, Jason Alan Tauer of Robbinsdale, Minn., admitted stealing the files of 93 people who had made mortgage applications to Ameriquest Mortgage where he worked as a mortgage assistant from March 15 through April 29, 2005. Tauer was indicted late last year and charged with two counts of bank fraud, one count of access device fraud and three counts of aggravated identity theft. The now-defunct Ameriquest was based in Orange, Calif.

Creditors of Taylor Bean & Whitaker are seeking permission from a bankruptcy judge for authority to sue former company insiders, including president Lee Farkas, who founded the company and made it into a top 10 ranked lender. According to a report on Dow Jones, the committee representing Taylor Bean's unsecured creditors in the bankruptcy case wants to sue Farkas and other insiders for money the company loaned them that allegedly hasn't been paid back. The creditors committee said in court filings this week that TBW's lawyers have "conflicts or other concerns that make it unable or unwilling" to pursue the suits, but the committee said the company is backing its efforts. The committee is also planning to go after Bank of America for money the bank allegedly held back after selling securities backed by TBW mortgages. Pursuit of claims against the bank's insiders could well represent the unsecured creditors' best shot at seeing a significant recovery in the bankruptcy case. Judge Jerry Funk of the Bankruptcy Court in Jacksonville, Fla., has scheduled a Feb. 19 hearing to consider the committee's request. TBW filed for bankruptcy protection last summer after trying to buy a controlling stake in its chief warehouse provider, Colonial Bank. Colonial failed shortly thereafter.

A community group says minorities in California are twice as likely as whites to have a home loan application denied to them, raising concerns that large lenders have returned to the practice of redlining. The findings are based on Home Mortgage Disclosure Act figures for the calendar year 2008. In a study titled "From Foreclosure to Re-Redlining," the California Reinvestment Coalition used HMDA figures to analyze lending patterns in five California cities. The 45-page report examined the overall drop in prime lending from 2006 to 2008 and claims that lower-cost prime loans fell dramatically in minority neighborhoods during that period as compared to white neighborhoods. Redlining, the practice of denying, discouraging or increasing the cost of banking services to residents on the basis of race or ethnicity, is forbidden by the Community Reinvestment Act of 1977.

The Department of Justice is forming a special Fair Lending Unit which is expected to aggressively pursue residential lenders and brokers that engage in what the government calls "toxic and discriminatory" loans. The new FLU "will pursue cases of reverse redlining — where predatory lenders have targeted toxic products to minority communities, resulting in unprecedented numbers of foreclosures and the resulting disinvestment and blight," DOJ assistant secretary Thomas Perez said recently. The new unit also will review Home Affordable Modification Program data to see if servicers are treating minorities fairly and providing them with access to modifications and appropriate reductions in monthly payments. The Senate confirmed Mr. Perez several months ago to run the Civil Rights Division. "It is really ramping up now that he is there," said Paul Hancock, a partner at K&L Gates. The former Civil Rights Division attorney said it is important for lenders to be prepared and develop their own defenses to the type of claims that might be coming. "We expect this is going to be a very aggressive administration and push the envelope as much as they can to challenge lenders," Mr. Hancock said.

Security Atlantic Mortgage of New Jersey, one of 15 lenders subpoenaed by the government two weeks ago, is telling mortgage brokers that it has stopped taking new applications while transferring unclosed loan files to Real Estate Mortgage Network, a nearby lender. The 17-year old company said it made the decision to shut its pipeline in "the wake of unfavorable publicity created by the recent unorthodox HUD press conference and the concerns this press conference has raised with our lenders and investors." As National Mortgage News Online went on deadline, company officials had not returned telephone calls about the matter. SAM said REMN is "actively recruiting" its existing operational staff, including underwriters and closers to fill positions in a new operations center." In an announcement on its website, SAM said it funded more than 17,000 loans, many of them in "government-designated disadvantaged neighborhoods, representing nearly 60% of our production." It added that "it has always been our mission to serve those qualified families most in need of the FHA program." In mid-January HUD subpoenaed 15 mortgage companies, seeking out possible fraud in an effort to stem losses on FHA loans. While publicizing the subpoenas, the agency noted that they had not yet found any evidence of wrongdoing at the firms, and were singling out those with the highest default rates, including SAM.

Orange County prosecutors arrested two Ladera Ranch men - and issued a warrant for a third - accusing them of defrauding more than 400 homeowners in an alleged $1.25 million loan modification scam, according to a report in The Orange County Register. Christopher Lee Diener, 42, Terrence Green Sr. 43, and Stefano Joseph Marrero, 40, are each charged with a felony count of conspiracy and 97 felony grand theft counts, according to the Orange County District Attorney's office. Messrs. Diener and Green were taken into custody and are each being held on $1.5 million bail. They will be arraigned by midweek, at the latest. The business partners are accused of getting upfront fees from homeowners, and falsely promising they can get them loans with cheaper payments in less than 90 days and offering a 100 percent money-back guarantee, prosecutors said.

The Department of Housing and Urban Development on Monday stopped three lenders from originating Federal Housing Administration loans and suspended another as part of a continuing effort to weed out firms that do not follow its underwriting rules. The HUD Mortgagee Review Board permanently withdrew FHA approval from Strategic Mortgage Corp., Oklahoma City, ProMortgage Inc., Claremore, Okla., and Americare Investment Group Inc., Arlington, Texas. FHA also suspended Home Mortgage Inc., of Burr Ridge, Ill., for six months. Strategic Mortgage had a 14.7% early default and claim rate and FHA said it charged borrowers impermissible or excessive fees and submitted a false certification to HUD. The MRB also levied a $71,000 civil money penalty against the Oklahoma City company. ProMortgage had a 7.3% early default and claim rate and HUD said it failed to comply with numerous FHA requirements such as reviews of early defaulted loans, verifying borrower income and reporting employee compensation on appropriate forms. The MRB levied a $124,000 CMP against the firm. HUD terminated Americare for failing to make monthly payments on a settlement involving a $124,000 civil money penalty.

The Department of Housing and Urban Development wants Mortgage Counseling Services of Georgia to indemnify it against potential losses on FHA loans it originated, citing the lender for quality control violations. In a newly released audit, HUD's Office of Inspector General said MCS "did not follow HUD requirements when underwriting eight of 16 FHA loans. HUD insured the eight loans that unnecessarily placed the FHA insurance fund at risk for more than $433,000." HUD said it is recommending that FHA take "appropriate action" against the company "for its noncompliance in closing two loans." A woman working at MCS said she could not comment and referred calls to company CEO Mary Ann White. Ms. White had not returned a telephone call as National Mortgage News went to press. HUD presented the lender with its final audit results in late November, noting that company officials generally disagreed with its findings.

The reporting of suspected mortgage fraud by financial institutions appears to be leveling off, according to new figures released by the Financial Crimes Enforcement Network, a division of the Treasury Department. During the first six months of 2009, firms reported 32,926 suspected cases of mortgage fraud, a slight 1% increase from the same period a year earlier. Still, FinCEN notes that mortgage fraud cases "remain at a historically high level" after six straight years of double-digit growth. The department also says the reporting of mortgage fraud by depositories (as opposed to nonbanks) is continuing to rise. "FinCEN remains focused on its proactive efforts to assist state, local and federal investigators in efforts to use SARs to crack down on mortgage fraud and foreclosure rescue scams, and to identify other emerging trends and patterns," said FinCEN director James H. Freis. "Fraudulent and criminal activity is seldom static and predictable."

The state has closed the loan modification businesses of two Southern California men for allegedly lying to consumers about being supervised by attorneys, according to a report in The Orange County Register. The two operated firms under the trade names Guardian Credit Services, Green Credit Solutions, Green Credit Services, Erickson Law Group, Green Credit Law and PacWest Funding. The state bar, which acted with the Orange County Superior Court in the case, has worked with other state and local officials to crack down on companies promising homeowner aid but not delivering it, the newspaper said. The bar alleges Curtis Melone of Huntington Beach and Christopher Fox of Redondo Beach promised to help homeowners facing foreclosure keep their homes but did nothing. An attorney for the men was not immediately available for comment.

An Anchorage, Alaska-based title agency has settled Real Estate Settlement Procedure Act Section 8 kickback allegations made against it by the Department of Housing and Urban Development and the Alaska Division of Insurance. According to the settlement agreement posted on the HUD website, the regulators had alleged Alyeska Title Guaranty Agency had a sham employment agreement with Kirk Wickersham, the owner of FSBO System Inc., also of Anchorage. Mr. Wickersham was a "title marketer" for Alyeska, marketing the agency's services to FSBO. It is alleged the employment agreement was actually a way to pay referral fees to Mr. Wickersham, who supposedly did not provide any actual services for the payment. The relationship was terminated one year ago, on Jan. 14, 2009, and Alyeska has no other such relationships, the settlement agreement said. In the agreement Alyeska said it denied any RESPA or state law violations, and that entering into the agreement was not an admission of guilt. The agreement required Alyeska to pay $50,000 to both HUD and Alaska DOI ($25,000 each), within 30 days of the effective date; plus an additional $50,000 within one year. The agreement states the payments are not a civil money penalty or fine. There is a third payment totaling $55,000 that is scheduled to be made within two years. This payment will be waived if there are no further RESPA or state law violations and Alyeska remains in compliance with the settlement agreement. Mr. Wickersham is not a party to the agreement. He could not be reached for comment at deadline.

First Catholic Federal Credit Union, Taylor, Mich., has filed suit in federal court to terminate a mortgage servicing contract it has with CUSO Mortgage, claiming CUSO violated its agreement with the credit union by, among other things, failing to file Form 1098s with the Internal Revenue Service for its borrowers. "That's only one of the allegations," said Charles Holzman, a Southfield, Mich., attorney for Holzman Ritter & Corkery, which is representing the credit union in the case. He said the CU hopes to resolve the dispute with a minimum of public attention. In its lawsuit, the $146 million First Catholic claims it should not have to pay a 2% (of outstanding principal balance) termination fee for the servicing contract because the company (a subsidiary of Wescom Central CU of Pasadena, Calif.) failed to live up to the contract. The 2% termination fee is currently being held in an escrow account. Among other things, the suit claims that CUSO Mortgage, which provides servicing for as many as 100 credit unions, has failed to pay delinquent taxes for previous tax years. First Catholic claims its employees have had to perform many of the servicing chores that CUSO was supposed to handle. It is asking the court to release the 2% payment, and to order the transfer of the mortgages to a new servicer hired by the credit union. Representatives from CUSO Mortgage declined to comment.

The HUD Inspector General has subpoenaed 15 Federal Housing Administration direct-endorsement lenders as part of an investigation into why these firms have the highest default and claim rates in the nation. "We are not making any accusations at this time." said Department of Housing and Urban Development IG Kenneth Donohue. "We have no evidence of wrongdoing, but we will aggressively pursue indicators of fraud." Despite the subpoenas, the targeted lenders will continue to originate FHA-insured mortgages. This investigation is "focusing on many of the worst performers in the FHA portfolio," said FHA commissioner David Stevens at a Washington press conference. The FHA chief said he supports the IG's effort to determine why these lenders have such a high claim rate on mortgages that are only 30 months old. "I will be interested to see what comes out of the audit work," said Mr. Stevens. The lenders issued subpoenas include: First Tennessee Bank N.A., Memphis; Alethes LLC, Lakeway, Texas; Security Atlantic Mortgage, Edison, N.J.; Pine State Mortgage of Georgia; Birmingham Bancorp Mortgage, West Bloomfield, Mich.; Alacrity Financial Services, Southlake, Texas; Assurity Financial Services, Englewood, Colo.; D and R Mortgage Corp. Farmington, Mich.; Webster Bank, Cheshire, Conn.; Mac-Clair Mortgage Corp., Flint, Mich.; Americare Investment Group, Inc., Arlington, Texas; 1st Advantage Mortgage, Lombard, Ill.; American Sterling Bank, Independence, Mo.; Sterling National Mortgage, Great Neck, N.Y.; and Dell Franklin Financial, Columbia, Md. These lenders have originated at least 1,000 FHA loans and their claim rates exceed their peers by 200%, HUD said. FHA streamlined refinancings or loans approved by automated underwriting systems are excluded from the claims rate.

A U.S. district court judge has ruled in favor of Wells Fargo Bank NA and dismissed a lawsuit by the City of Baltimore seeking reimbursement for expenses and loss of revenues due to foreclosures and vacant homes. The city alleged that Wells Fargo targeted minority neighborhoods with subprime loans, which lead to foreclosures and deterioration of inner city neighborhoods. Judge Frederick Motz noted in his opinion that the bank is responsible for only a "negligible portion" the city's vacant properties and other factors such as high unemployment, drug use and violence also are factors. The city's allegations of a "casual connection between Wells Fargo's alleged misconduct and the damages the city claims is not plausible," the judge ruled. The opinion says the number of vacant homes in Baltimore range from 16,000 to 33,000 and the city has identified only 401 vacant properties involving Wells Fargo loans. "From the beginning, we have consistently maintained that Baltimore's economic problems could not be attributed to the small number of foreclosures Wells Fargo has done in Baltimore," said Cara Heiden, co-president of Wells Fargo Home Mortgage. "We are pleased the court's decision rejects the city's claim and reflects this point of view." Judge Motz has opened the door for the city to file an amended complaint that seeks damages for "specific houses that became vacant allegedly because of Wells Fargo's lending activities." No comment from the city was available at press time.

Suffolk Federal Credit Union of Long Island, one of the biggest victims in the U.S. Mortgage/CU National Mortgage fraud case, has filed suit against The CUMIS Group Ltd. in federal court, the latest effort by a CU to prevent the credit union insurer from voiding coverage in the $140 million scandal. The $840 million credit union says it lost $42 million when CU National's president Michael McGrath fraudulently sold 189 of the real estate loans it was servicing to Fannie Mae without the credit union's authorization, and CUMIS, a unit of CUNA Mutual Group, has denied its bond claim. "They have directly told us they are not going to pay the claim," said Patrick Boyle, a New York attorney representing Suffolk FCU. The latest suit comes as CUMIS has asked the federal court in Wisconsin for a declaratory judgment voiding bond claims by 26 credit unions in the case. Two other credit union victims of the fraud, Educational Systems FCU, in Greenbelt, Md., and TCT FCU, in Ballston Spa, N.Y., have also filed suit challenging the CUMIS denial of the bond claims. At least two other credit union victims, Picatinny FCU and Sperry Associates FCU, are suing Fannie Mae. In its suit, Suffolk FCU said under its bond CUMIS agreed to indemnify the credit union for "all losses arising from the dishonest acts of employees, officers and directors" and "its servicing contractor, CU National." The credit unions are continuing to negotiate with Fannie Mae over return of the mortgages and of the funds, a source told The Credit Union Journal. Several have petitioned Congress to intervene because Fannie Mae is currently being run under conservatorship by the federal government. CUMIS officials did not immediately respond to a request for comment.