Comments on: Mortgage Fraud

By: Title Insurance Affiliated Business Arrangements Under Scrutiny | Rain City Guide | A Seattle Real Estate Blog...

Sun, 23 Mar 2008 16:53:09 +0000

[...] Not only does strong-arming raise red flags when it comes to RESPA violations, it’s also a red flag for possible mortgage fraud. [...]

By: Thayne Westerman

Thayne Westerman — Wed, 12 Mar 2008 00:22:22 +0000

Again this fruad stuff …unbelivable. Sad and gives this industry a bad name.

By: Mortgage Fraud Case Studies | Rain City Guide | A Seattle Real Estate Blog...

Mon, 24 Dec 2007 04:48:47 +0000

[...] 1 Mortgage Fraud Basics Part 2 Case Studies Part 3 Recent Mortgage Fraud Developments, and FutureOutlook [...]

By: Recent Mortgage Fraud Developments and Future Outlook | Rain City Guide | A Seattle Real Estate Blog...

Mon, 24 Dec 2007 04:42:00 +0000

[...] Recent Mortgage Fraud Developments The outlook for mortgage fraud across the United States is grim. I started this series at the end of October with background research conducted by the FBI that concluded that the most damaging mortgage fraud consisted of many people in the industry working together; fraud for profit. As of today, I am no longer convinced that fraud for profit is the most damaging kind of mortgage fraud. Today I believe if we put all the out-of-work underwriters back to work and opened up all the loan files in the defaulting tranches of subprime, Alt-A, and prime loans, we would find the same kind of problems that Fitch, the ratings agency, found when they re-undewrote a small sample of 45 early default loans from the 2006 vintage. Now granted, this is a small sample. However, after working within corporations most of my adult life, I also know that the public really never hears how bad things are. The name of the report is “The Impact of Poor Underwriting Practices and Fraud in Subprime Residential Mortgage Backed Securities” dated Nov 28, 2007. Anyone can read the report by going to fitchratings.com You have to provide them with an email address, but there is no charge. Here are the bullet points: 45 loans with early defaults, originated during 2006, subprime, with an average FICO score of 686. Each loan had one or more of the following characteristics:66% Occupancy fraud (stated owner occupied but never occupied) 51% Property value was materially different from the original appraisal 48% First time homebuyer yet credit report showed other mortgage information 44% Payment shock greater than 100% and some instances of 200% payment shock 44% Questionable stated income or employment in conflict with info on the credit report 22% Hawk Alert (Fraud) noted on the credit report 18% Social security numbers on the credit report do not match the SS# on the application 17% Seller concessions outside the allowable parameters 16% Credit report indicated their score was artificially inflated via an authorized user 16% Straw buyer 16% Identity theft indicated 10% Signature fraud indicated 6% Not an arms-length transaction Fitch explained that when a lender used a high FICO score or a high property value/lower LTV to offset other risk factors, when just one of the above areas of fraud were present, the risk of default overshadowed the high FICO and property value. Just this past Friday Dec 21st, Fitch downgraded 5.3 billion in RMBS, and this is just ONE ratings agency. Future Outlook Old-fashioned human underwriting is making its way back to banks and lenders. This is good news to everyone but the people who answered sales job ads that said “make six figures your first year with no experience” who got into the industry for no other reason than to make money, who don’t care about homeowners, and who really don’t care much about mortgage lending at all. Those that care, that will complain about the amount of time it will take to hand-underwrite your files, to that I say, let the invisible hand of the free market help re-build competent, competitive, service-oriented underwriting departments without the god-like attitude. The future begins now. We should all expect massive re-assessment of risk management processes within those companies that originate loans such as bankers and lenders. Mortgage brokers should prepare for their banks and lenders to probe deeper into the mortgage broker’s business practices, including systems, education, and training on risk reduction, fraud “no tolerance” policies, and anonymous whistleblower fraud reporting systems. This also holds true for investment bankers issuing Residential Mortgage Backed Securities. Fitch is putting everyone on notice that it was not able to and cannot, today properly rate RMBS if they’re left to rely on fraudulent loan files. Since risk assessment is only now beginning, I predict the vintage 2007 subprime loans will fare no better than 2006. [...]

By: Jillayne Schlicke

Jillayne Schlicke — Fri, 02 Nov 2007 04:54:50 +0000

“Talk is that pressure to force appraisers to report “stable neighborhood value” in declining neighborhood markets is the new ploy.”

I read this comment today on calculatedrisk regarding the First American WaMu appraisal lawsuit.

http://calculatedrisk.blogspot.com/2007/11/ny-ag-sues-first-american.html

By: Nancy

Nancy — Wed, 31 Oct 2007 13:56:19 +0000

You are absolutely correct! We better build it bigger. Hey! I hear there’s cheap land in Florida.

By: Rhonda Porter

Rhonda Porter — Wed, 31 Oct 2007 13:30:12 +0000

Nancy, it the fraud camp would also include consumers who tell the lender they’re going to occupy the property when they’re not or who OVERstate their income on the loan application or who commit forgery…I’m sure there’s more examples. The camp would not be exclusive to “professionals”.

By: Nancy

Nancy — Wed, 31 Oct 2007 13:23:04 +0000

Jillayne needs to go on and tell us about the case studies. Anyone who is in the industry and capable of reading or even watching what is going on (or trying to go on) in your own closing room can probably tell of victim after victim who has been harmed by mortgage fraud. Read about Anne Fulmer and what a flipping conspiracy did to her neighborhood.
I’m guessing that most everyone here has some true concern for the consuming public we serve…but not everyone does. It’s those unconcerned future residents of the “Lender Fraud Internment Camp” who ruin people’s lives. But I suggest it just be called “Fraud Internment Camp” because if there really were one it would hold Appraisers, Loan Officers, Underwriters, Settlement Agents, Realtors and lots of “turn a blind eyers”.

By: Jillayne Schlicke

Jillayne Schlicke — Wed, 31 Oct 2007 06:38:11 +0000

“Lender Fraud Determent Camp”. Let’s make the movie! Jillayne, I have just the outfit for you. Can you guess the role you’ll be playing?”

The teacher?
Hmm, no that couldn’t be right. What do they do in an determent camp?

By: Jillayne Schlicke

Jillayne Schlicke — Wed, 31 Oct 2007 06:32:49 +0000

Hi Rhonda,

Agreed. I have met people along life’s path that see every law as gray, whether it’s the IRS Tax Code, the speed limit (as a suggested 55 mph instead of a 100% mandate), and perhaps even, as david suggests, some laws governing our wonderful industry.

With a choice to live in that gray area comes possible consequences, both positive and negative. Further, it is really difficult to try and figure out all the possible consequences.

Let’s face it: HUD is asleep at the wheel; they’ll never have enough resources to regulate every single transaction and all the hands that touch it. We have computerized systems to try and “flag” fraudulent files, we have state regulators, yet day in and day out, I meet people who have committed what the FBI classifies as mortgage fraud, and they either 1) never realized that what they were doing was classified as fraud/intentional deception, or 2) knew, and made the decision to do it anyways because the risk of getting caught is so low. (now this isn’t a very good reason for taking the risk, but this is what I hear.)

What it looks like we’ll be able to accomplish with this series of blog articles on mortgage fraud, is to show readers the WIDE RANGE of people they will meet when buying or selling a home.

Some people see fraud as a black and white thing.
Others see shades of gray everywhere, and so forth.

This is good information for a consumer to learn….especially if they are being talked in to doing something in the gray area, or something that’s over their own comfort zone of black and white.

Somehow, I don’t see the conversation going like this: “Now what I’m about to explain is technically classified as fraud, but I’m going to explain why I don’t see it that way.” See, consumers aren’t always given the complete picture by those of us in the industry who want to live in the gray area.

When this happens, the person holding himself/herself out to the public as a licensed professional is greatly increasing his/her liability.
It is a choice.