Over the past month, I’ve been combing through my database of my closed clients who have either adjustable rate or balloon mortgages. I’m sending each and every [photopress:july55ad.jpg,full,alignright]one of them a letter reminding them of the terms of their mortgage. Regardless of how much time I spend explaining how their mortgage program functions, as soon as someone has moved into their new home and they’re unpacking boxes—they’ve forgotten the fine details to the financing that made buying a home possible!
The letters restate what is disclosed on the Federal Truth in Lending and their Note, including what their margin and caps are. It also addresses when their first adjustment will take place and what the worse case rate and payment may be. Worse case payments are currently not disclosed on the Truth in Lending.
I began my mortgage career on April 1, 2000. So far, 20% of my closed transactions have been adjustable or balloon mortgages and 3% of my total closed business would be classified as “subprime
The ARMS are going to turn cities into mushroom patches of for sale/for rent/forclose signs.Something about reaping whats sown……
http://patrick.net/housing/crash.html
CNN had a piece on this topic on their site yesterday. They speculated in that one reason that so few ARM victims are contacting their lenders or brokers to refinance is that it can become obvious with today’s lending scrutiny that some lied on the applications which is mortgage fraud. I.e with the choice of pontentially loosing their home or their freedom they choose to risk the home.
tj, If an “ARM victim” lied on their loan application, would not the true victim be the mortgage company since fraud was committed?
I’m interested in knowing what percentage of the mortgage crisis is fraud.
I agree Rhonda, my wording was incorrect. It should have been ARM holders. Not all are vitcims. In case of fraud the lender would for sure be the victim even if could be of their own slack standards…
tj,
ARM lender as victim? Thats like sayin OJ was a victim of the justice system 🙂
Rhonda, on the topic of fraud does a mortgage broker have any responsibility to report to the lender if you suspect fraud? I.e if an applicant seems suspect to you is it your legal responsibility to inform the lenders you are submitting the application to?
tj, I think an ARM victim would be someone who did not learn about the mortgage prior to closing.
Sometimes people lose site of the fixed term by the low rate. If you understand the term and fits with your financial plan, you’re not a victim, you actually come out ahead.
tj-good question. Every so often I’ll have a prospect who wants to finance a home as owner occupied instead of non-owner occ. and I’ll refuse. They go down the street to brand x. I never know who brand x is, so I”m not able to warn them. Maybe we should put their pictures up in the post office! 😉
I will not submit an application that has any fraud on it. period.
“if an applicant seems suspect to you [mortgage broker] is it your legal responsibility to inform the lenders you are submitting the application to?”
tj,
These duties would be carefully spelled out within the contract signed between the mortgage broker and the wholesale lender.
From the contracts I’ve seen, the wording is such that if a mortgage broker has knowledge, they’re liable. Of course there’s always the burden of proof.
The closest to fraud I’ve been is when people fish around to test if you are willing to “bend the rules” (like the example that I gave).
It would be interesting to know what percentage of fraud takes place w/o the lender knowing vs that with LO participation. It was a local fraud case that got me started blogging. It involved the LO and escrow where the LO used a preapproval that did not use for financing for clients who did not qualify. There were actually two sets of docs that went out. The buyer (who did not qualify) signed believing they were buying a house while the LO forged the other signatures (the preapproval) on a different set of docs and closed on them. The buyer did not find out until the bank came knocking that they did not own the house they thought they did.
I’m sure Jillayne knows of this story…I think you might have blogged about it when you were at the PI.
Ah, the Liza Bautista case. Yes. If I’m not mistaken, her mortgage broker’s license was pulled but she’s still originating loans here in WA state under a different name.
To my knowledge, no law enforcement authority has charged her.
A very, very sad case.
Thanks Jillayne, I knew you had some knowledgable input and hoped you would add a comment or two. Rhonda, thanks for your answers as well. I wonder if the ploitical pressure/opportunity of “saving” borrowes in trouble and the economy in general will have a cooling effect on pursuing mortgage fraud during the ARM reset turmoil/pain?
No way! That makes me want to barf. Why should I be surprised? If she’s going to make fake transactions…why shouldn’t she make up a new one for herself. SICK! 🙁
How do you know she’s still originating loans?
tj, If someone committed fraud, they should pay the price. It’s part of this whole problem. I suppose it could get murky on if a borrower knew it was fraud…there’s a difference between overstating your income on a loan ap and changing your tax returns.
Hi tj,
A couple of weeks ago there was a job posting for a mortgage fraud investigator in the King County Prosecutor’s office.
HUD’s enforcement arm is the FBI. When money crosses state lines, state regulators refer the crime to the feds, and it ends up in federal district court.
A good place to hang if you’re in to this topic is Rachel Dollar’s mortgage fraud blog. All you have to do is search for your city and you’ll see what’s up. For good measure, try the name of your county or state as well.
http://www.mortgagefraudblog.com/index.php
I fully agree with you Rhonda but I’m sure some politicians are worried that it can be seen as making things worse and kicking on predatory victims etc,etc. Not in the way that known and obvious fraud will not be punished but that the level of efforts made to find and investigate suspected cases could be muted.
Hi Rhonda,
There are three types of mortgage fraud, but I should really do a separate blog post on this. How come I always get stuck with the Darth Vader topics?
We know she’s still out there because people who knew her added on to the King 5 news story blog and talked up quite a storm. Do you want me to dig up the link for you? Let me see if I can find it.
ooo, here’s another local mortgage fraud story, wait, I’m still looking…
http://www.king5.com/localnews/investigators/stories/NW_112006INVhomeschemeDS.b50c8cc.html
now click on “Susannah’s blog post”
Wow what a story, what I find most fascinating is how anyone clever enough to get these deals through can be stupid enough to think it’s not going to be detected and traced back to them?
Yep…she’s the reason why I started blogging! I have a tiny link to same story in the post. Looks like LO licensing is the other bugaboo that got my fingers typing.
Thanks for the link Jillayne, it’s a very interresting site. I’m not a fraud fetishist in general but there is a notion that many stated loans where fraudulent in nature so it’s interresting to see if this will be throuroughly investigated when lenders now are loosing big money on defaults or if the authorities will look the other way due to the massive amount of potential cases and the political sensitivity of going after otherwise law obiding people that got “caught up” in the hysteria.
When a loan goes bad, it’s scrutinized for fraud and/or errors. It will be interesting to watch how the stated income issue unfolds…I don’t think we’ve heard the last of it.
Many think it’s fine to overstate income, for example, giving an income they believe they will make (but they’re not making it now and have not for the past 2 years, which is what a full doc loan would be) or just flat out plumping up income to qualify for a mortgage.
As a LO, I encouraged clients to go no-doc or niv instead of lying about income on a 1003 (if they cannot go full doc). Especially if the lender requires the borrower to sign a 4506 that is then sent into the IRS if the loan goes bad or if the loan is selected for quality control. Then the liability is on the underwriter to make the lending decision, not the borrower or loan officer stating a high enough income to make ratios work for qualifying purposes.
Why make someone lie about their income? I did just a few cases where we did stated, however the people did make the income. We just could not document it to the u/w’s satisfaction.
Jillayne Vader (or would you rather be Garth Schlicke), I would love to see the three types of mortgage fraud. 🙂
What got my fingers typing is NAMB constantly being quoted a saying “our member subscribe to a strict code of ethics” when nothing could be further from the truth. Don’t get me wrong here: NAMB does good work lobbying congress in DC on behalf of its members. As a trade organization, they’re working hard. As a professional asociation? They’ve chosen not to be one.
But really, now that the subprime meltdown is bleeding over into a presidential election year, we’ll see many new federal laws pop up as elected officials try to show their voting constituents what they’ve accomplished. These laws will likely effect brokers (not bankers), which includes the broker (or consumer finance co?) that is still letting Liza Bautista originate.
NAMB’s lobbying warchest isn’t big enough to buy the votes they’d need to squelch any broker smackdown bills currently on deck in D.C.
tj, you’d be surprised what goes on out there in offices where management and supervision is located at a main branch far, far away from the loan originators.
Jillayne, I bet we’ll see more character and stronger code of ethics from NAMB. Those bankers do have more lobbying power$ than the brokers…and it’s many of the bank products (WaMu was one of the first with an option ARM…Countrywide pushed the heck out of them two) that brokers sold…right along side the bankers. But it will be the brokers who will get a black eye over this.
tj,
I blogged about this a couple of weeks ago. Only the most eggregious cases will be prosecuted locally. Why? It’s very expensive to prosecute.
Instead what will happen is that shareholders will demand profits. Facing the potential for lawsuits, wholesale lenders will open up the broker contract and see how much liability the wholesale lender can “share” with the broker. Then they’ll go get the original file and start combing through all the documents.
The wholesale lender has a duty to its shareholders to maximize profits. In my opinion, they’re going to do the same thing that our local prosecutors would do: Go after the most awful cases with vigor, and, if the broker appears to have some money, envoke the buyback provision in the lender/broker contract.
http://www.raincityguide.com/2007/08/04/its-going-to-be-a-wild-ride/
But we’re a couple of months away from this yet. Patience.
Hi Rhonda,
Oh yes! Here is a change that NAMB made to their code over the summer, with no press release:
“NAMB members shall provide accurate information in all advertisements and solicitations.”
The former version said:
“NAMB members shall endeavor to be accurate in all advertisements and solicitations.”
http://www.namb.org/images/namb/Ethics/Code_Of_Ethics.pdf
Okay, Jillayne…I’m probalby going to poke myself in the eye for asking this… what is the Mortgage Bankers code of ethics?
Not much better. Still only one page long.
Jillayne,
Does size matter with a code of ethics? 🙂 You say it’s only one page long…
tj, do you have a link to the CNN piece that you’re referring to? I would love to read it.
Size does matter (and a cigar is never just a cigar.)
Short codes are often written that way on purpose. Ambiguous and vague language leaves a WIDE range of latitude for acceptable behavior. Here is another example from the NAMB Code:
“Members shall conduct their business in a professional manner.”
Well, what does THAT mean?
When codes are too vague, they fail to be useful or helpful for their members. On the other side, codes that are too specific are often too rigid, and end up sounding more and more like laws or absolutes.
In order to be effective, a professional code ought contain the following elements:
Clearly written
Understandable
Guide behavior
Useful
Apply to everybody (not just some of the workers)
Spell out the common values of that industry.
Forgive me for being the graduate student that I am. One more quarter to go.
A code would never tell the reader what to do in every single situation. Instead, a code would guide the reader to reflect on all the possible right answers. It’s still up to the individual to act, with good reasons to back up the action.
I forgive you, Jillayne. I do believe it comes down to the individual and what their values and personal code of ethics are. Don’t you? I guess you certainly would not want to work for a company with no values or values that are far stretched from your own. But when it comes right down to it, it’s all about who we are at the core.
That’s what we have now in mortgage lending: subjectivism with no boundaries other than state/fed law and limited government resources to regulate their laws.
An individual’s value system can work well in life. However, once an individual steps into the role of a worker and wants to call himself or herself a professional, the profession would provide its workers with a “bible” for lack of a better word. Your own values can guide you, but the profession’s code would be the framework of operation.
Mortgage lending is in its infancy when compared to other professions that are highly morally developed. Even the Realtor Code has been around for 100 years.
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Hi Rhonda, I hope the link works.
http://money.cnn.com/2007/09/26/real_estate/few_loan_modifications/index.htm?postversion=2007092617
And here is the part I mentioned:
“In some cases, if borrowers overstated their income on their original loan application to buy more home than they could afford, they’re reluctant to admit that to the servicer since lying on a loan is illegal, said Allen Hardester, a mortgage consultant in Maryland. “
tj, thanks! That is an excellent article that slipped by my radar. 🙂