Compliance

Wells Fargo Home Mortgage says it is ready to implement the new RESPA disclosure rule and urged the Department of Housing and Urban Development to stay with the Jan. 1 effective date. "We have already programmed the mandated RESPA changes into over 40 computer systems and have no choice but to proceed with implementation of the new forms on the Jan. 1 effective date," WFHM co-president Michael Heid says in a letter to HUD. As previously reported, HUD has decided to stay with original effective date despite pressure from Congress and major trade groups to postpone the change. "We fully appreciate that there are challenges involved in transitioning to the new RESPA rule, but I want to personally assure all mortgage professionals that we will continue to make every effort to assist them throughout this process," said HUD assistant secretary David Stevens. "Even after Jan. 1, HUD will continue to help lenders, brokers and other settlement service providers in complying with the rule," he added.

The House Financial Services Committee has approved an amendment to the Consumer Financial Protection Agency bill that eases some of the regulatory burden on community banks and makes the measure easier for midsize and small banks to accept. For banks with $10 billion in assets or less, consumer compliance examinations and enforcement authority would be delegated to the banks' primary regulator. CFPA examiners would still examine larger banks. The amendment, sponsored by Reps. Brad Miller, D-N.C., and Dennis Moore, D-Kan., also applies to credit unions with less than $1.5 billion in assets. The Independent Community Bankers of America welcomed the Miller/Moore amendment. It "recognizes that community banks are responsible lenders that didn't cause the financial crisis," ICBA president Camden Fine said. However, ICBA has concerns about the new regulatory agency's broad rulemaking authority to ban abusive lending products and practices. The bill only gives the federal banking regulators an advisory role in the process. ICBA wants the banking regulators to have more authority in approving consumer protection regulations, possibly joint rulemaking authority, according to ICBA's top lobbyist Steve Verdier. "The rulemaking authority ought to be cut back to where the agency [CFPA] is implementing statutes written by Congress or the rulemaking should be assisted by the prudential regulators. They would understand the safety and soundness implications," Mr. Verdier said. The committee's markup of the CFPA bill resumes on Tuesday (Oct. 20) afternoon.

The Los Angeles and Miami areas saw the most reported fraud for the first half of 2009, according to the Financial Crimes Enforcement Network's updated Suspicious Activity Report Activity Review. According to FinCen's updated SAR report, Los Angeles and Miami each saw 6,300 SAR subjects. Following these, the urban areas with the largest number of mortgage fraud SAR subjects were New York with 4,500, Chicago with 3,200 and the District of Columbia with 2,200. Ranked by total reported subjects, the top 10 states included California, Florida, New York, Illinois, Georgia, Texas, Arizona, Michigan, Virginia and New Jersey. From Jan. 1 to June 30, filers submitted 32,926 mortgage loan fraud SARs, less than a 1% increase over the 32,660 SARs filed in the same period in 2008.

A federal grand jury in West Palm Beach, Fla., returned a 15-count indictment against eight individuals who have been allegedly involved in making false statements to banks to obtain mortgage money to purchase five properties in Wellington, Fla. . The defendants include licensed mortgage brokers, title agents and straw buyers. According to Jeffrey H. Sloman, acting U.S. attorney for the Southern District of Florida, the indictment alleges that the defendants and straw buyers engaged in a scheme which resulted in property being sold twice in one day and nearly doubling the value of that property during that one day. A total of more than $8.5 million in mortgage money was obtained through this alleged scheme. The defendants charged in this alleged scheme are Rony Alberto Aguilar-Hecker, Reinaldo Perez-Sanchez, Pablo Atouro Aponte-Torres, Fabio Salazar, Roger Omar Nunez-Murillo, Idalmis C. Arias, Ericson Perez and Juan Carlos Lopez. At press time, they could not be reached for comment.

After a five-day trial, the owner of USA Properties, William E. McKanry of Warrenton, Mo., was convicted of multiple conspiracy and fraud charges involving the multimillion-dollar sale of 12 local properties. Sentencing has been set for Dec. 22. According to Michael W. Reap, acting U.S. attorney for the Eastern District of Missouri, William E. McKanry, along with his son, William C. McKanry, who owned and operated USA Title, sold 12 real estate properties in Missouri through Paula Enders, a licensed mortgage broker operating through the brokerage company Foundation Mortgage. On the applications, Enders falsified that the source of the downpayments, settlement charges and subordinate finances were to be made by the buyer of these properties, when they were actually made by William E. and William C. McKanry, the sellers of the properties. All closings were made at USA Title and documents falsely showed the buyer as making cash payments that were actually made by the McKanrys. Since the closing on the 12 properties, 11 ended up in foreclosure and were resold for a loss. William C. McKanry pleaded guilty in June to related charges and is scheduled for sentencing Oct. 15. Enders pleaded guilty in December 2008 and is scheduled for sentencing Oct. 22.

New Financial Accounting Standard Board rules that go into effect Jan. 1 could force bank issuers and servicers to consolidate "hundreds of billions of dollars" of private-label residential and commercial mortgage securities on their balance sheets, according to industry trade groups. The Mortgage Bankers Association and Commercial Mortgage Securities Association warn that such a consolidation of securitized assets would "artificially increase" bank risk-based capital and loan loss reserve requirements at the worst time - forcing some to raise additional capital. Anything regulators can do to delay implementation "will serve to postpone the pro-cyclical, anti-consumer, anti-affordable housing impacts" of the FAS rules 166 and 167, MBA and CMSA say in a joint comment letter to the federal banking agencies. The groups say FASB is reacting to credit card issuers that provided credit support for their securities to shield investors from losses and prevent rating agency downgrades. They argue, "There is no business case for sponsors to provide credit support" for static pools of securitized mortgages. "MBA and CMSA recommend that the agencies take the time to study the risks inherent in each of the major securitization structures so that the regulatory capital treatment is more precisely aligned with the risk of the reporting bank." Capital One Financial Corp., McLean, Va., is urging the regulators to delay the capital impact of consolidation for six months. The American Bankers Association wants a one-year delay. The banking agencies have suggested a phase-in over four quarters would reduce the costs and burdens.

Kristen Anne Way, a former loan officer from Houston, was found guilty on a variety of charges stemming from her involvement in a mortgage fraud scam. Way was found guilty of conspiracy to commit wire and mail fraud, wire fraud, conspiracy to commit money laundering, engaging in a monetary transaction in criminally derived property and money laundering. According to Tim Johnson, U.S. attorney for the Southern District of Texas, Way was a loan officer at Consumer Direct Mortgage in 2005 and 2006 when she participated in the submission of fraudulent loan applications and packages to residential mortgage lenders across the country. Way and her co-conspirators allegedly misrepresented the credit worthiness of individual borrowers who were recruited to purchase multiple properties to the mortgage lenders. Additional misrepresentations were made regarding the purchase of these properties as primary residences when in fact the borrowers intended to purchase the properties as investments. Fraudulent loans in excess of $24 million were obtained during the entire length of the scheme. Way has been permitted to remain on bond pending her sentencing, which is set for early next year.

The House Financial Services Committee will start a marathon markup session this Wednesday (Oct. 14), voting on two contentious measures that would create the much talked about Consumer Financial Protection Agency and impose a new regulatory regime on derivatives. The committee is expected to take up the derivative bill first. The markup of the CFPA bill (H.R. 3126) could extend into the following week. Committee chairman Barney Frank, D-Mass., has been working with community banks to address their concerns about the new agency. Despite strong opposition from the America Bankers Association, Financial Services Roundtable, American Financial Services Association and Chamber of Commerce, Rep. Frank is expected to have the votes to pass the CFPA bill out of committee. Late last week President Obama said the CFPA will have the power to set "clear rules" for mortgage and credit card lenders and enforce them. The president said the Chamber of Commerce and financial firms are lobbying against the CFPA bill to "maintain the status quo and maximize their profits at the expense of American consumers." He stressed that the new agency will not restrict consumer choice and financial innovation as opponents have claimed.

Twelve individuals, including mortgage brokers, loan officers and attorneys, have been charged with engaging in a scheme to defraud various lending institutions by using fictitious identities and documents to obtain more than $9 million in residential mortgages. According to Preet Bharara, U.S. attorney for the Southern District of New York, the defendants and others purchased dozens of residential properties throughout New York City and Long Island with fraudulent mortgages. These mortgages, which amounted to 100% of the purchase price of the residences, were allegedly obtained using names of fictitious individuals or individuals whose identification information was misappropriated or misused. The defendants, who could not be reached for comment, are charged with providing lenders with false IDs, false employment, income and rental information and fraudulent bank statements. Most of the loans are now in default. The New York defendants charged include: Jeffrey Larochelle, a loan processor from Bay Shore; Eric Finger, an attorney from Mineola; Foriduzzaman Sarder (Jackson Heights); Sakat Hossain (Jackson Heights) and others. One defendant is a resident of Mississippi.

Eric Wayne Moen, a former real estate agent from Park Rapids, Minn., pleaded guilty in federal court to defrauding GreenPoint Mortgage by conspiring to secure a $640,000 mortgage under false pretenses. According to B. Todd Jones, U.S. attorney for the District of Minnesota, Moen conspired with Kevin Ray Winkelmann to falsifying a mortgage loan application in order to secure a loan Winkelmann could use to purchase a house. Moen and Winkelmann generated fraudulent employment verification for Winkelmann for the application when he was not in fact employed. Based on the fraudulent application, GreenPoint wired $642,000 to a title company as part of the real estate closing process. Winkelmann was sentenced in March to six months in prison for his role in the scheme. Sentencing for Moen has not yet been scheduled.

Joshua Gervolstad, a former mortgage broker from Redding, Calif., pleaded guilty to mail fraud in connection with a mortgage fraud scheme. According to Lawrence G. Brown, U.S. attorney for the Eastern District of California, Gervolstad, who was a mortgage broker, submitted inflated appraisals and false lien documents for use in closing purchase transactions involving five different real properties located in Redding and Lodi. The closing statement for each property contained fraudulent papers requiring the payoff of a lien to an entity called TPG Investments. In each case, the lien did not exist. In reality, Gervolstad controlled TPG Investments and used its bank account to divert mortgage loan funds to himself and others. His scheme caused $1.8 million in fraudulent payouts for liens that didn't exist, affecting mortgages with a total value of $5.4 million. At least three properties were foreclosed on. Gervolstad is scheduled for sentencing on Dec. 14.

Ricky Dean Unruh of Wichita, Ks., and Steven Ray Spencer of Carl Junction, Mo., pleaded guilty in federal court to their roles in a $1.2 million mortgage fraud scheme. According to Matt J. Whitworth, U.S. attorney for the Western District of Missouri, the mortgage fraud schemes involved a total of 20 houses with home mortgage loans ranging from approximately $200,000 to $500,000. The amount of loan proceeds returned to the borrowers ranged from less than $30,000 to more than $100,000. Some of the home purchasers subsequently defaulted on the loans and the homes have been foreclosed or are in the process of being foreclosed. Unruh and Spencer each admitted that they participated in a conspiracy to obtain mortgage loans via false loan applications. The other members of the conspiracy, who have also pleaded guilty, include Charles M. Davis, Scott Allen Kassebaum and Kassebaum's wife, Cheryl Joan Kassebaum. Sentencing will be scheduled after the U.S. Probation Office completes a pre-sentence investigation.

U.S. District Judge J. Frederick Motz sentenced Osman Sharrieff Al-Bari of Washington, D.C., to 78 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. According to Rod J. Rosenstein, U.S. attorney for the District of Maryland, Al-Bari led a scheme in which he, his sister Jamilah Al-Bari, Terrence White, Timothy Reed and others paid straw purchasers to purchase houses for them. Many of the loan applications for the straw buyers misrepresented their income and assets. Al-Bari, White and Reed also created false invoices to claim that their company, Brotherly Investment Group, performed "renovations" on some of the properties. Using these false invoices, the conspirators were "repaid" at closing for the purported renovations. In total, the conspirators received $3.8 million in fraudulent funds. Many of the purchased properties have been foreclosed upon. Al-Bari is responsible for $2.5 million in losses from the scheme. Jamilah Al-Bari, White and Reed have all pleaded guilty to mail fraud in connection with their participation in this scheme and are scheduled for sentencing in the next two months.

Lisa Torres, formerly of Johnston, R.I., pleaded guilty to a $1.7 million mortgage fraud scheme in which she purchased properties that had recently been foreclosed upon, and then used the names of straw purchasers in sham sales to finagle mortgage financing. According to Peter F. Neronha, U.S. attorney for the District of Rhode Island, between October 2007 and June 2008, Torres purchased nine residential properties in Providence. She then enlisted the aid of others, some willing participants, others unwitting dupes, to arrange sham sales of the properties at inflated prices in order to obtain mortgage financing. The loan proceeds went to Torres, the purported seller of the properties, so she profited the difference between what she had paid for the properties, about $1.1 million, and what she purportedly sold them for, about $1.7 million. Torres is currently serving a federal prison sentence for obstruction of justice, conspiracy and making false statements, a case that was prosecuted in U.S. District Court, Massachusetts. She is due to be released on Jan. 26, 2010. Sentencing for the fraud scheme has not yet been scheduled.

The SAFE Act is putting nondepository mortgage lenders at a disadvantage to banks when it comes to hiring new loan officers, according to Scott Stern, chief executive of mortgage cooperative Lenders One. The Secure and Fair Enforcement for Mortgage Licensing Act passed by Congress in July 2008 requires LOs joining an independent mortgage company to go through prelicensing and continuing education requirements mandated by the states. "It is a huge barrier to hiring new loan officers," Mr. Stern said, because LOs hired by banks don't face prelicensing and continuing education requirements and don't pay licensing fees. Like stockbrokers, he said there should be one nationally recognized prelicensing course and one nationally recognized continuing education course for all loan officers. "We believe all lenders that meet with consumers should be licensed," the Lenders One CEO said. Mr. Stern is forming an advocacy group called the Community Mortgage Lenders of America that has membership commitments from 140 mortgage banking companies and community banks. He has lined up BuckleySandler LLP to serve as regulatory counsel for the new trade group and the Glaser Group to be its Washington lobbying arm.

Jerald Allen Teixeira, a former loan officer from Bakersfield, Calif., has pleaded guilty to wire fraud in connection with a scheme to defraud mortgage lenders. Teixeira was formerly a loan officer at Tower Lending, a mortgage brokerage company that was affiliated with Crisp & Cole Real Estate and was owned by Crisp & Cole's owners. As part of his plea agreement before U.S. District Judge Oliver W. Wanger, he agreed to cooperate in the government's ongoing investigation. According to Lawrence G. Brown, U.S. attorney for the Eastern District of California, Teixeira admitted that he and others executed a scheme to defraud lending institutions by submitting materially false and fraudulent statements in mortgage loan applications and related documents to obtain loans from the lenders for borrowers' purchases of real property. Teixeira also obtained loans to finance the purchase of approximately 11 real properties with a total purchase value at the time of $4.4 million. In order to qualify for these loans, he knowingly made misstatements or omitted relevant information. Teixeira is scheduled for sentencing on March 22, 2010.

An Indianapolis man was sentenced to 30 months in prison, followed by three years of supervised release, for participating in a large city-based mortgage fraud scheme. According to Timothy M. Morrison, U.S. attorney for the Southern District of Indiana, Jerry J. Jaquess admitted that, through his real estate company Homevestors LLC, he and others entered into contracts to purchase 186 duplexes in the Windsor Village neighborhood on the east side of Indianapolis. On each of the properties, Jaquess entered into a land contract immediately preceding the closing showing that Homevestors was purchasing the property for $50,000. Prior to finalizing the purchase agreements, Jaquess caused three of the Windsor Village properties to be listed on a Multiple Listing Service showing a list price of $120,000. Jaquess did not own the properties at the time they were listed. A few days after these properties closed, Jaquess and his associates were responsible for these three sales at $120,000 apiece to be placed on the MLS, showing these properties as comparables on appraisals to be prepared for all of the remaining Windsor Village properties, thus making it appear that each of those properties were worth $120,000. Jaquess attended the closings as the seller and took the downpayment checks to the closings. He signed the loan closing documents on behalf of Homevestors, including false HUD-1 Settlement Statements. After closing, Jaquess received checks to Homevestors for the amount of the fraudulent loan proceeds. In addition to the prison time, Chief Judge David F. Hamilton ordered Jaquess to pay more than $820,000 in restitution.

First American CoreLogic, Santa Ana, Calif., is offering current and potential clients a "2X mortgage fraud guarantee." The guarantee claims users will identify twice the level of potential fraud using First American CoreLogic's fraud detection technology than when using technology from any other fraud solutions vendor, or the trial period will be free. The guarantee states lenders will save twice as much in fraud losses and that the savings will be at least twice as much as the cost of the solution. First American CoreLogic will work with clients to develop either a production trial or retrospective testing program for measuring its patented pattern-recognition anti-fraud technology. If the fraud-detection technology doesn't identify a minimum of twice the loss savings over products from its competitors and deliver a 200% return on investment during the measurement time period, the cost of scoring the loans will not be charged.

Industry insiders who commit fraud are being blacklisted as quick as a Nolan Ryan fastball, panelists at the New England Mortgage Bankers Conference in Providence, R.I., said. Freddie Mac now has nearly 2,000 names on its exclusionary list, while the Department of Housing and Urban Development's Office of the Inspector General suspended or disbarred more than 1,000 people from dealing with the Federal Housing Administration last year alone, they reported. "I'd like to say there are just a few bad apples in our industry," said Kathy Cooke, Freddie Mac's fraud investigation manager. "But there are a lot of bad apples, and they make the entire industry look bad." Michael Motulski, assistant regional inspector for audit in HUD's six-state New England region, said "fraud for housing" constitutes 20% of the cases investigated by the HUD inspector general, while "fraud for profit" accounts for 80%. But in all cases, an industry professional is involved, he added, either by assisting a borrower in the latter or being one of the perpetrators in the former. Mr. Motulski, who works civil cases, said that in addition to the administrative actions taken against appraisers, brokers, realty agents, closing attorneys and other industry insiders, the IG's office made 1,524 arrests in fiscal 2008, gained 1,180 indictments and earned 969 convictions. "We go after folks," he said. "Up to and including monetary penalties, we get people out of our programs." As far as industry insiders are concerned, fraud has changed from a matter or opportunity to one of desperation, added Diane DeChellis, the special agent in charge of the New England region's IG office. "It's not just lifestyle anymore," she said. "It's almost a survival thing right now."

Following months of development a group of Fortune 100 executives have launched Working Equity Inc. and its signature insurance product, which is aimed at providing homeowners with a form of future home value protection. The product, Equity Protection, is tied to the First American CoreLogic Inc. Index. It is priced two ways: as lifelong protection for 1% of the home's value, or as a monthly payment option at $20 for every $100,000. Working Equity Inc. co-founder Craig Schmeizer told MortgageWire the company is in the process of negotiating with five major insurers he would not disclose, who are expected to serve as reinsurers. "Reinsurance is helpful in the event the market has a significant shock, but the nature of the product does not create risk of that to our business for ... years. We do fully manage the primary risk on the product. We actually retain and manage the risk as an insurance company would. We only use reinsurance as a supplement to our ability to support risk." He added, "Our reserves, such as the fees and premiums we collect, are maintained in a reserve managed by Merrill Lynch, so it is managed by a third party." Mr. Schmeizer said the insurance provides homeowners the type of protection available to lenders through mortgage insurance. Anyone can purchase it independent of his or her mortgage, he said. The concept was originally introduced in military housing where it has been successfully used for years, he said.