Compliance

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.

The president of LGE Community CU was barred from working for any financial institution for five years under a consent order he agreed to with Florida regulators related to alleged misconduct related to a real estate transaction at his previous job heading Florida-based First Coast Community CU. Chris Leggett told The Credit Union Journal the Georgia credit union was aware of the controversy before it hired him on as CEO. Under the agreement, Leggett has also been compelled to resign his position on the board of Tallahassee, Fla.-based ATM network Credit Union 24. The order stated the Florida regulator issued an administrative complaint to remove Leggett on April 30 for allegedly being "improperly and illegally engaged in an insider real estate transaction at the credit union that ultimately resulted in a financial loss to the credit union." Leggett was the president and CEO of First Coast Community CU, based in Palatka, Fla., from November 2003 to Oct. 1, 2007.

The Government National Mortgage Association is contemplating selling the $1.3 billion residential servicing portfolio that it recently seized from Lend America of Melville, N.Y. An agency spokeswoman confirmed that GNMA recently took control of the receivables and placed it with a subservicer — Loan Care Servicing Center of Norfolk, Va. "We just completed the transfer and are performing our due diligence," she said, adding that "We cannot make a determination on the sale of servicing rights until that process is completed. Of course any final decision will be made based on what is in the best interest of taxpayers." Investment banking sources say the portfolio is suffering from higher than average delinquencies. GNMA and FHA suspended Lend America last month. The company laid off most of its work force and is no longer funding new loans.

The advocacy arm of the Small Business Administration is taking the Federal Reserve Board to task for failing to estimate the economic impact a proposed mortgage lending rule would have on community bankers and mortgage brokers. The Fed has an "obligation" under the Regulatory Flexibility Act (RFA) to estimate the costs of changing the timing of Truth in Lending Act disclosures and imposing restrictions on loan officer and broker compensation, according to the SBA Office of Advocacy. "Failure to do so not only compromises and usurps the purpose of the RFA; it also impinges on the board's ability to consider less burdensome alternatives as required by the RFA," advocacy office acting chief counsel Susan Walthall says in a comment letter to the Federal Reserve Board. Under the Fed's TILA proposal, loan officer and broker compensation based on increases in the interest rate or changes to other loan terms would be prohibited. The National Association of Mortgage Brokers has proposed an alternative to prohibiting yield spread premiums, Ms. Whitehall says. It would ensure consumers know the "lowest interest rate the creditor will accept" so they can tell if the originator has increased the rate. "Advocacy encourages the board to consider this less costly alternative," the acting chief counsel says.

Columbia, S.C.-based origination vendor Avista Solutions said it has updated its Avista Agile suite of products such that it is compliant with the changes to the Real Estate Settlement Procedures Act that go into effect on Jan. 1, 2010. The updates are available for retail, wholesale or correspondent lending channels. At the heart of the RESPA change is the consumer concern that the initial transaction outlined in the Good Faith Estimate can change by the time the loan is closed, with unexpected fees showing up on the HUD-1 Settlement Statement. The new rules require that the documents be consistent, and if there are changes, they be supported by specific documented changes in the circumstances of the loan. Avista Solutions provides side-by-side comparison screens for users to check for variances between the GFE and HUD-1. All changes of circumstance can be tracked and are available for review.

Federal Housing Administration lenders are expected to charge reasonable origination fees but in most cases they will no longer be bound to a 1% limit, according to the Department of Housing and Urban Development. As a result of a new Real Estate Settlement Procedures Act rule, "FHA no longer limits the origination fee to 1% of the mortgage amount for its standard mortgage insurance programs," HUD says in mortgagee letter 2009-53. However, the 1% limit will continue to apply to FHA-insured reverse mortgages and FHA 203(k) purchase/renovation loans. The new RESPA rule that goes into effect Friday (Jan. 1, 2010) mandates the use of a standardized Good Faith Estimate disclosure that bundles all origination charges into a single fee. The GFE does not disclose the lender's origination fee as a single line item. "FHA expects that lenders will continue to charge fair and reasonable fees for all origination services and the agency will continue to monitor to ensure that FHA borrowers are not overcharged," FHA commissioner David Stevens says in the mortgagee letter.

Document preparation vendor DocuTech has partnered with LOS Wipro Gallagher Solutions to more tightly integrate compliant documents into the lender's origination platform. The integration enables lenders to generate compliant documents and disclosures from any Web connection. NetOxygen Cirrus is WGS' Web-based LOS that enables lenders to take advantage of a streamlined service to enter, monitor and maintain loans through a scalable platform hosted by WGS. The integration with DocuTech's ConformX allows for the streamlined deployment of a more end-to end, enterprise wide LOS. This integration also provides users with internal compliance and document services, including support for disclosures.

International Document Services Inc., Salt Lake City, Utah, expects state mandated high-cost audits to become a more time-consuming concern for mortgage lenders in 2010. State-specific high-cost regulations should be a source of concern for lenders, according to IDS president Curt Doman. The company is advising lenders to test their ability to provide evidence that meets and satisfies state-specific requirements.

The Federal Housing Administration is telling consumers to continue making their monthly mortgage payments to the recently shuttered Lend America of Long Island but is warning that this advice could change. Lend America controlled the servicing rights to roughly $1.3 billion worth of FHA-backed loans. Late last month the agency suspended the company which promptly laid off most of its 650-person work force. Mortgage attorney Robert Lotstein said he has several vendor clients that are owed money by the company and confirmed earlier reports that while refinancing existing loans, the company has failed to pay off the prior lien. In a "frequently asked question" memo on the HUD website, FHA says mortgagors should continue making monthly payments to the company "until you receive notice that your loan has been transferred to a new servicer." Mr. Lotstein said he expects Lend America to file for bankruptcy protection. A company spokesman declined to comment.

Equitable Trust Mortgage Corp. has agreed to pay a $277,000 fine and reimburse 37 FHA borrowers as a part of a settlement with the Department of Housing and Urban Development. The agreement means the Baltimore-based nonbank is once again allowed to originate government-backed loans. The agency suspended ETM on Dec. 7 for improperly charging 37 borrowers excessive loan origination fees. However, in settling, the company did not admit fault or liability. In addition to paying the civil money penalty, ETM has agreed to refund the overcharges to the 37 borrowers. The individuals will receive refunds ranging from $500 to $9,135. The total amount repaid to borrowers will be $147,589, HUD said. "The settlement agreement imposes a significant penalty on ETM for violating HUD requirements, but also provides the wronged borrowers relief in these tough economic times," said FHA commissioner David Stevens.

The Federal Bureau of Investigation is conducting several joint reviews of the Troubled Asset Relief Program, according to new testimony from FBI assistant director Kevin Perkins. Mr. Perkins told a Senate panel that the investigations are being done in conjunction with the Special Inspector General for TARP, Neil Barofsky. Mr. Perkins provided no details on what the investigations entail. The FBI in Washington declined to elaborate on the matter. Mr. Perkins, late this week, said mortgage fraud continues to "pose a significant threat" to the mortgage industry as well as to investors.