Compliance

Anthony Affatati of Parkland, Florida, pleaded guilty to charges related to two separate fraud schemes, one of them a multi-million dollar mortgage fraud scheme. According to documents filed with the court and statements made during the plea, Affatati became involved in mortgage fraud and purchased his Parkland home through a straw buyer who provided false financial information to the mortgage lender to secure the loan on Affatati's behalf. In a separate case, Affatati also pleaded guilty to conspiracy to sell fraudulent securities to the public. Sentencing has been set for Jan. 8, 2009.

Riccardo White pleaded guilty in federal court in White Plains, N.Y., to charges relating to his participation in a scheme to defraud homeowners in the New York metropolitan area and mortgage brokers across the country. According to Michael J. Garcia, U.S. attorney for the Southern District of New York, White and his co-conspirators engaged in a scheme to defraud homeowners around the New York metropolitan area through misrepresenting the terms of mortgages. White contacted homeowners and offered them mortgages with low interest rates and attractive rate caps. The terms of the mortgages obtained by homeowners from White and his co-conspirators were materially different from those White and his co-conspirators offered. The loss to the homeowners defrauded by the scheme was more than $1.3 million. White also participated in a scheme to defraud residential mortgage brokers throughout the country. He and his co-conspirators contacted residential mortgage brokers and sold them lists of names containing individuals purportedly interested in obtaining mortgages, as well as services associated with those lists. In actuality, the lists that they provided to the mortgage brokers were not lists of people interested in obtaining mortgages and the services the defendants promised to provide were not provided. The loss to the residential mortgage brokers defrauded by the scheme was more than $350,000. White is scheduled for sentencing on April 3, 2009.

August Blass, a former wholesale mortgage executive, has started a company that will provide quality control, risk assessment, and fraud prevention services to banks and lenders. The Walnut Creek, Calif., company, National Loan Auditors Inc., said Monday that it will "assist loan modification professionals, review loan documents for errors or misrepresentations and help in reducing the high foreclosure rates that have overcome the real estate market." Mr. Blass is a former Western regional correspondent manager for Wholesale Lending Online in Millbrae, Calif. In the 1990s he wrote "Internet Strategies for the Mortgage Banking Industry," published by Faulkner & Gray, which is now part of NMN's publisher SourceMedia Inc. "There is a need in the current market to provide an in-depth look at loan portfolios and financial documents to find potential errors and expose hidden liabilities," Mr. Blass said in a press release Monday. National Loan Auditors "will help financial institutions save millions in foreclosure dollars by providing them with an accurate report of which loans present the most risk."

The National Association of Mortgage Brokers has vowed to pull out all the stops in an effort to kill the final rule implementing changes in the Real Estate Settlement and Procedures Act. "We are not going to stand for this," President Marc Savitt said at the NAMB West regional conference in Las Vegas. The West Virginia broker wouldn't reveal the group's exact strategy but said "nothing is off the table," including legal action against the Department of Housing and Urban Development. "We have several ideas up our sleeves but we'll wait for the new administration to take over before we do anything," Mr. Savitt said. NAMB has numerous issues with the new RESPA regulations, but its main complaint is the method HUD has chosen to disclose yield spread premiums - first as a borrower paid item and then as a broker credit back to the borrower. "We thought that dog was dead but it came back to life," Mr. Savitt said, referring to the fact that the disclosure plan first surfaced in 2002. The final RESPA rule takes effect Jan. 1, 2010.

There will not be a recovery in the home market until all the "five timers" are out of their homes, said Bob Simpson, the president of IMARC, a Newport Beach, Calif.-based mortgage fraud investigations firm. The fact that those who owe five times more than what they make are still in their homes means the bottom has not been reached, he said, speaking at NAMB/West in Las Vegas after having made similar comments at the SourceMedia Mortgage Fraud Conference. The "five timers" need to turn in their house keys and move into something they can afford. "You're not qualified" is a phrase mortgage originators have to start using again, Mr. Simpson said. At NAMB/West, he made an analogy to the markers casinos give to high rollers. In the lending industry, those markers have now gone bad. The origination process was not about cost but about monthly debt service; originators sold payments. Compounding the problem, Mr. Simpson said, is lenders no longer required borrowers "have skin in the game" in the form of a downpayment. He added that he was not a fan of downpayment assistance programs. There need to be barriers to homeownership and the borrower's ability to save is important, Mr. Simpson said.

The Home Valuation Code of Conduct is "potentially the most dangerous regulation" with the effect of cutting the mortgage broker out of the origination process, declared Dave Biggers, the chief executive of appraisal technology firm a la mode, Oklahoma City. While the intent of the HVCC, which is actually a legal settlement, is good, he told attendees at NAMB/West in Las Vegas, it singles out mortgage brokers as the source of pressure on appraisers to deliver a certain value. It "drives a wedge between you and the lending process," he reiterated. Under the settlement, a firewall has to be created between the lender and appraiser. In many cases, that has taken the form of the lender hiring an appraisal management company. Mr. Biggers called the situation "absurd" because the lawsuit that resulted in the HVCC was filed against an appraisal management company. Whether or not the HVCC takes effect, many lenders will likely adopt its terms, he said. A number of Federal agencies, including the Federal Reserve Board, have just introduced their own regulation that could trump the HVCC, Mr. Biggers said. Unlike the HVCC, the regulation will not cut the mortgage broker out of the appraisal ordering process. The broker also will be able to have contact with the appraiser but will not be allowed to discuss a target value.

The National Association of Mortgage Brokers contends it is "unfair" that brokers have to disclose their indirect compensation on the newly revamped good faith estimate differently from banks and other competitors. "It is basically unfair to have direct competitors disclosing differently," said Joe Falk, a former NAMB president. The new Real Estate Settlement Procedures Act rule issued by the Department of Housing and Urban Development re-characterizes the yield-spread premium on the GFE as a charge or credit in relation to origination fees. Meanwhile, lenders' indirect compensation is "hidden at the bottom of a page and without relation to any other fees," Mr. Falk said. The American Bankers Association also said it is "disappointed" with many aspects of the RESPA rule and the new disclosure of YSPs. "ABA believes the new formulation [of YSPs] will be confusing to consumers," ABA's weekly newsletter says.

Congress needs to pass legislation that "unlocks" securitized trusts so servicers could sell distressed mortgages to the Treasury Department for restructuring, according to a former Treasury official in the Clinton administration. Michael Barr told a House panel that the Real Estate Mortgage Investment Conduit statute could be amended so that mortgage-backed securities investors don't face a tax penalty when loans are sold to Treasury, which is administering the Troubled Asset Relief Program. "We need to free servicers from the conflicting requirements and give them an incentive to sell mortgages to Treasury for refinancing and foreclosure avoidance," he testified. Mr. Barr is a law professor and a senior fellow at the Center for American Progress, a liberal think tank. He served as a special assistant to former Treasury secretary Robert Rubin and as Treasury deputy assistant secretary for community development (1997-2000). His testimony could signal options that the President-elect Obama's transition term is considering. Mr. Barr also supports a Federal Deposit Insurance Corp. plan to guarantee modified loans. "FDIC has proposed a plan to use guarantee authority, and the [Bush] administration should implement it," he said.

The key to combating mortgage fraud is "regulation, regulation, regulation," the director of research and policy for the Community Law Center told attendees at SourceMedia's Mortgage Fraud Conference in Las Vegas. Robert J. Strupp said part of the problem is that existing laws were not enforced. He warned against what he called "self-proclaimed" loss mitigation specialists and "certified" foreclosure consultants. No state certifies foreclosure consultants, Mr. Strupp declared, adding, "In my opinion, this whole industry needs to be regulated and it is not." Rodney Nelsestuen, research director for TowerGroup, took an opposite position on increased and detailed regulation. At first, he said, it can be prescriptive in dealing with the problem, but in the end it will fail because the prescription will provide fraudsters with a road map to get around the problem. Any solution to fraud needs to be principal-based, Mr. Nelsestuen said.

Residential loan modifications could be ripe for mortgage fraud, according to panelists speaking at a SourceMedia mortgage conference in Las Vegas. Gary Lacefield, executive vice president and director of compliance at WR Starkey Mortgage of Texas, said part of the problem is that lenders are modifying loans, keeping homeowners in a product that was not suitable for them in the first place. The modification continues the predatory pattern and practice, he said. Al Macdonald, chief executive and founder of NominoData, when asked about borrowers who were involved in mortgage fraud, said before just simply modifying the loan, the originator should re-screen the borrower to make sure there was not fraud. He later said that technology is merely a tool to help catch fraud. Lenders need to be constantly monitoring their systems to make sure technology is filling the role that was originally intended.

After pleading guilty in July 2008 for her role in a multi-million dollar mortgage fraud scheme, Adriene Newby-Allen of Alpharetta, Ga., was sentenced to 135 months in federal prison to be followed by five years of supervised release and ordered to pay $5.28 million in restitution. According to the U.S. attorney for the Northern District of Georgia, from mid-2004 through March of 2006, Newby-Allen siphoned off millions of dollars in fraudulently inflated mortgage loans being provided to unqualified straw buyers, one of whom was her husband and co-defendant, Brinson Allen, who was found guilty of multiple charges relating to the fraudulent scheme on July 30, 2008 and will be sentenced at a later date.

Ronald Persaud, Esther Persaud and Shawn Persaud, all of Saratoga, N.Y., were convicted for their roles in a mortgage fraud scheme. Ronald and convicted defendant Indranie Persaud perpetuated a scheme to inflate the latter's employment income on a mortgage application to obtain a $712,000 mortgage to obtain a real property known as 12 Beacon Hill, Saratoga Springs, N.Y. Ronald and Esther Persaud also perpetrated a wire fraud conspiracy by enticing investors to pay advance fees on the false promise that the investors would receive millions of dollars in commercial funding. The investors made advance fee payments in excess of $1 million and received no commercial funding. Ronald purported to be the person with banking connections while Esther purported to be a bank executive. Ronald, Esther and Shawn Persaud then conspired to conduct a series of financial transactions calculated to conceal and disguise the source, ownership and control of the advance fees paid to the Persauds and others. All are scheduled for sentencing on March 9, 2009.

Federal law enforcement officials are close to announcing settlements in several mortgage and securities fraud probes that were started in 2007, according to one litigator watching the cases. "There are some discussions that are active," said attorney James Wareham of the Paul Hastings law firm. Settlements involving lenders and even home builders could be announced in a few weeks but there are no timetables, said Mr. Wareham, who supervises 300 litigators. The Department of Justice, and the Securities and Exchange Commission want to close out some of the cases and re-direct experienced investigators to bigger cases involving packaging of mortgage-backed securities and collateralized debt obligations, Mr. Wareham said in an interview. DOJ is investigating at least 20 subprime lenders and several Wall Street firms.

Tavant and Wolters Kluwer Financial Services said they are working together to make the compliance documentation process for mortgage lenders easier, faster and more accurate while giving them multiple document delivery options. The two companies have integrated Wolters Kluwer Financial Services' Document Services Platform with Tavant's point-of-sale solution suite. The new integration will enable users to generate standard and customized compliance documents and disclosures through Wolters Kluwer Financial Services' Document Services Platform, and then electronically deliver them to borrowers for e-consent and signature. The platform also gives lenders the option of completely and securely outsourcing the printing and mailing of paper disclosures when needed or requested by the borrower through Wolters Kluwer Financial Services' SAS 70-certified mail fulfillment center.

If there was one point that a state legislator and an industry representative agreed on during a panel on state and federal regulation at the Mortgage Bankers Association, it was that any legislative solutions being crafted have to avoid unintended consequences. California State Sen. Michael Machado said there is a need to update statutes but the effort need not to be so capricious it would hurt the marketplace. Being able to meet the desires of those who live in their districts and take actions that do not exacerbate the problem is a balancing act, he said. Jack Konyk, senior vice president at National City Corp., said, "Everybody is trying to find a fair solution to a complex problem." The problem is finding out what exactly constitutes a fair approach. He then gave the example of an iceberg where it is easy to see and react to the 5% above the water, but it takes patience and perseverance to see the 95% below the water. It is easy, Mr. Konyk said, to call for a moratorium on foreclosures. But it is a difficult task for loan servicers, who are still responsible for advancing principal and interest payments to the investor whether they are made or not.

The Department of Housing and Urban Development will issue a final rule by year-end revising the Real Estate Settlement Procedures Act, HUD secretary Steve Preston told attendees at the Mortgage Bankers Association's annual convention in San Francisco. Bankers and lenders, who have long opposed the rule, will have a year to implement it, he said. "With so many families in trouble with their mortgages because in many cases they didn't understand, our goal is to make sure it never happens again," he said. On RESPA reform, he said the "unnecessary complexity" of mortgages had contributed to the housing crisis. "We must make mortgages more understandable and the process more transparent," he said. HUD has proposed a four-page form that would require mortgage lenders and brokers to provide an estimate of closing costs, interest rates, monthly mortgage payments as well as settlement services, prepayment penalties and balloon payments.

Metavante Corp. now offers support for new FHA compliance regulations enabling lenders to take advantage of this significant business opportunity. According to the Federal Housing Administration (FHA), twice as many people with subprime loans are refinancing into government-insured FHA mortgage loans and these types of loans are also ideal for first time homebuyers and those who may have less than perfect credit. Metavante's LOS supports the FHA Loan Transmittal, the Maximum Mortgage Worksheet for 203k and 203k Streamline loans and the Mortgage Credit Analysis Worksheets (MCAW-PUR for purchases and MCAW-W/S for refinances). Metavante's LOS also supports key components of the FHA Modernization Act of the Housing and Economic Recovery Act of 2008 (HERA), as well as the minimum cash investment requirement and maximum combined loan-to-value changes.

Clayton Holdings, which is cooperating with an investigation into mortgage underwriting fraud on Wall Street, named Paul T. Bossidy its new chief executive officer on Tuesday. A spokeswoman said he replaces Frank Fillips who retired from the Connecticut-based Clayton this summer. Mr. Bossidy, 48, has worked for various divisions of General Electric, including GE Vendor Financial Services. Clayton is owned by Greenfield Partners, a hedge fund. Earlier this year New York attorney general Andrew Cuomo granted Clayton immunity from prosecution in exchange for providing information on the due diligence work it conducted for Wall Street firms that securitized subprime mortgages over the past five years. One key issue AG Cuomo is looking at is underwriting "exceptions" granted by projects managers working for Clayton on Wall Street accounts. Over the past three years subprime firms funded $1.7 trillion in A- to D and other non-conforming loan types -- much of it securitized through Wall Street firms such as Bear Stearns, Credit Suisse, Deutsche Bank, Lehman Brothers, and Merrill Lynch.

Led by the ranking minority member on the House Financial Services Committee, 28 Republican members of Congress are asking the Justice Department to include Fannie Mae and Freddie Mac in their targeted probe into mortgage fraud. Led by Rep. Spencer Bachus, R., Ala., the group sent a letter to Attorney General Michael Mukasey, asking whether the Department of Justice is focusing on MBS fraud "and/or accounting fraud committed or aided and abetted by Fannie Mae and Freddie Mac." The 28 also want to know if the government is looking into the 'Friends of Angelo' program where certain elected officials, past and present GSE employees, and others, received breaks on mortgages that were funded by Countrywide Home Loans, Mr. Mozilo's former company. (Countrywide is now owned by Bank of America.) Both GSEs were investigated for fraud in regard to their past accounting scandals. No charges were ever brought. DOJ's wide ranging investigation into mortgage fraud is called "Operation Malicious Mortgage" and includes probes of more than 20 subprime lenders and some Wall Street firms.

SourceMedia, the publisher of Mortgage Technology magazine, gave out awards in seven categories honoring achievement in mortgage lending technology at the MBA's annual convention in San Francisco. The Steve Fraser Visionary Award is given to an outstanding mortgage technology innovator, visionary or evangelizer. The winner of the award is Kim Weaver of Fiserv for her dedication to furthering the e-mortgage and getting lenders live in an e-mortgage environment. The Release of the Year Award is given to the announcement of a technology product, platform, alliance or initiative that seems likely to have the broadest impact on mortgage lending. The winner of the award is DocVelocity for making lender-proven paperless technology available to all mortgage participants. The Synergy Award is given to technology initiatives and alliances that show exemplary inter-operability in a production setting to advance the cause of automation and e-commerce. The winners of the award are Optimal Blue and Secondary Interactive for bridging the gap between pricing and secondary marketing. The Lasting Impact Award is given to an individual, group or company that launched a technology initiative or development that has had a lasting impact. The winner of the award is Roger Gudobba for evangelizing on behalf of a data-driven process and working to help the mortgage industry embrace this vision. The 10X Award is given to a company, product or technology application having an exponential impact on mortgage lending. The winner of the award is The Turning Point for MACH 3, which helps lenders get repeat business through technology in a down market. The Help Desk Award is given for outstanding customer service and technical support. The winner of the award is Mortgage Builder for combining experienced support staff with cutting-edge technology to help clients. The Fix-It Award is given to a technology tool providing an effective solution for a particular industry problem, need or channel. The winner of the award is Zaio, for solving the problem of appraiser fraud through automation.