Mortgage Fraud

Fraud is generally defined as the “intentional misrepresentation of the truth in order to deceive another.

80 thoughts on “Mortgage Fraud

  1. Pingback: Mortgage Fraud at Real Estate Attorney Miami

  2. Hi Diane and Kim,

    Thanks for your comments. We have had several high profile mortgage fraud cases go down in Wa state, and we’ve also had many cases slip past us largely unnoticed. I’m doing some research for part 2 where we revisit some of the high profile cases to find out what happened to the mortgage LOs and real estate agents who participated.

  3. I eagerly await the next part, Jillayne.

    Sometimes I look and the mortgage and sales history of a house, and I just can’t fathom how it could make sense, absent fraud. Unfortunately KC has taken away the ability to dig a bit deeper be removing access to the deeds. The examples I’ve run across could simple be stupidity, or perhaps a past REO, but I don’t know how to find this info.

  4. I think this is going to get worse before it gets better. As more and more LO’s and RE Agents struggle to make their BMW payments, the lure of the fast buck will prove to powerful to shun.

  5. Hi Todd,

    Well, over the past two to three years, the major lenders have invested in fraud training and have purchased fraud detection systems that work via algorithms and analytic tools. I still say it takes a human to interpret the data. We’re still submitting copies of documents to humans in other states. Documents can still be manipulated.

    I wonder what new kinds of fraud schemes we’ll talking about two to three years from today? With some of these cases I’ve read, I would never have imagined that the folks thought they could get away with what they did.

    Once the fraudsters discover how the algorithms work, they will change their methods.

  6. Hi Ed,

    Thanks for stopping by. How’s life? I clicked through from one of the posts on the titleopoly blog, and I read that you’ve started a mortgage fraud blog. What’s the URL? Okay, there it was, in the sidebar.

    I need to subscribe; I would have loved to have seen the Dateline NBC show with Matthew Cox. Did you recognize the picture in this post of his girlfriend in the orange jumpsuit?

    Remember to call if you’re ever in the Seattle area!

  7. Hi Jillayne

    The Dateline segment was revealing to say the least. I’ve found a link that may include the entire transcript:

    Cox had implicated at least two girlfriends in his lengthy crime spree.

    Mortgage Fraud Forum is essentially a reference for audiences after presentations end. I hope to devote more time, and consumer directed info, before long. Let me know if you have thoughts.

    I’ll certainly include links to your fraud series.

    Dates are being set for next year, but I haven’t seen any for Seattle. I’ll call if there’s a change. Adam and I are dealing with a lot, but we’re getting through it all. Thanks for asking.

  8. Jillayne, total assumption on my part, I think biliruben is referring that DOTs are no longer public information. KC, and other area counties, removed them when it was exposed that some notaries and/or lenders were adding social security numbers or drivers licenses under the borrowers name. This trend went on during the 80s. I know after I learned about this, I checked out my public record on KC’s site and was shocked to see my SS# available for all ID scammers.

    Great post. I look forward to the series!

  9. Hi Ed,

    Thanks for the MSNBC link. I watched all the videos. You know who I’d really like to hear speak in public? The two women that he conned into helping him. To me it seems like they’ve gained an incredible amount of self-reflection and wisdom as to why they fell for him, and it seems like they would have an awful lot to share.

  10. Nice series, Jillayne. One noticeably absent version of mortgage fraud that you didn’t list is an investor lying to the lender that they will be an owner occupied borrower. This happens more often than most people realize and it is actually mortgage fraud. Not only have lenders started getting more strict about this issue but so have builders. There are a few cases that were tried on the Eastside where a builder had a clause stating that properties could not be sold within a 2 year period after pre-sale of a new development or they would be due the equity as well as the agent’s commission and THE DEVELOPERS HAVE WON these cases.

    We’ve walked away from clients that have told us they plan to tell lenders that the new construction, or other property, they’re buying will be their primary residence when the buyer knows they aren’t planning on ever living there. As an agent I could lose my license, and therefore my business, in deals like this and it isn’t worth it. I don’t need to lose my reputation, business, and income for someone so they can make an extra couple thousand dollars on the lower interest rate.

  11. Pingback: Team Reba Real Estate » A good article on mortgage fraud…

  12. Hi Reba,

    Thanks for pointing that out. I classify misrepresentation into category 1 as being one of the most common forms of mortgage fraud.

    Many people do not realize that what they are asking to do is considered mortgage fraud.

    When an LO or Realtor moves forward with a homebuyer who has disclosed their intention not to occupy (knowing that the lender will believe the borrower will occupy), we now have combined category 1 and 2 mortgage fraud.

  13. Hi Jillayne, from billiruben’s comment, I believe he’s referring to how you once could review the recorded documents on line from the county. Yes , someone could go to a title company to get information. If it’s just for curiosity sake and not for a bona fide transaction, I’m guessing there could be a fee associated since they’re using a title company employee.

    One could also physically go down to the county and do the work themselves.

  14. I thought about this before responding. These “frauds” are some of the techniques very responsible investors have used to build Real Estate portfolios. While reading the list I can see, as a business person, why a person would need to use any or all of these.
    My assets are little hazy. Some people own gold, as an example. Some people have cash in a matress.
    A buyer of mine did not have a checking account. His credit score was perfect after we got him a couple of credit cards he used a couple of times a month. His Earnest Money was in cash. He reluctantly got a Cahier’s Check for Escrow.
    This gentleman’s wealth is based on used Volks Wagen parts he has collected since he was in high school, he’s now close to sixty.
    When he started buying Real Estate his situation was not uncommon. Today, with all of the fancy electronics, as he calls it, his ability to buy a property is a problem.
    There are also loan programs from Investor Lenders who allow many less than main stream devices for a buyer. Buying in some one else’s name has been around for a very long time and some Investor lenders are more than happy to participate. Lending is a double edged sword. While some lenders expect a return on investment, some lenders are actually buying a property through the lending process.
    Real Estate is a complicated business. I’ve said it a thousand times. Those people who think they are going to learn the business by reading a book or looking at pictures on the internet are wrong. This information may be good for the general public as a warning, but pratically speaking a good Real Estate or Mortgage professional should be guiding the process.

  15. Hi David,

    So, if it is true that “very responsible investors” use these techniques to build real estate portfolios, why would our state and federal government call these techniques “mortgage fraud?”

    All of the examples shown in the original blog article contain an element of deception.

    Responsibility means being responsive to duty.

    If the investors owed a duty of honesty to the lender, and they decided to act dishonest, we would no longer refer to them as responsible investors, just investors.

  16. “This information may be good for the general public as a warning, but pratically speaking a good Real Estate or Mortgage professional should be guiding the process.”

    David, actually this information has been posted to educate real estate and mortgage profesionals who read this blog, along with the general public.

    I teach this class in a continuing ed setting, and every single time, real estate agents and mortage sales people say that they never knew that what they’ve done in the past was considered mortgage fraud.

    How can we expect the general public to trust a “good” agent or mortgage salesperson when “good” is just a subjective word? Good as defined by David, good as defined by Jillayne, or good as defined by the FBI?

  17. Jillayne, it’s not unusual to have a consumer call and ask “I’d like to buy the property down the street from me and I want an owner occ. rate” when they’re not selling or renting out their current residence. When I quote an investor rate, they go down the street to another LO.

    Another loan I’ve turned away on many occasions is stated income where the consumer was all too happy to overstate what their current income was to buy a home they could not afford. They don’t even wince at signing a 1003 with income that is not representing what they’re earning.

    I’ll bet that many of the over-stated income loans will be a large majority of the foreclosures we will be seeing. I wonder how forgiving the lender the will be when they go through the file with a fine tooth comb, use the 4506 to obtain copies of their income per what they claim to the IRS and compare it to whats on the loan ap. It’s not going to be pretty for anyone.

    I hope that we’ll have stats on how many of the foreclosures will be fraud based, how many are from mortgage payments adjusting (ARMs) and how many are from life happening (death, divorce, illness, loss of employment, etc.).

  18. “When I quote an investor rate, they go down the street to another LO.”

    Sometimes the person who is the most honest is not necessarily the person who is making the most amount of money. Sometimes there are tradeoffs in business. When you read some of these stories (coming up in part 2) about how, for example, an escrow officer thought she was invincible until the FBI entered her office one morning, it makes you wonder about the tradeoffs.

    Realize that we’re dealing with a large population of LOs and real estate agents who, for over the past 7 to 9 years may not have ever been taught much about lending or real estate, much less taught about mortgage fraud.

    Or, even worse, they were coached by someone in the industry on how to do these things.

    Many times LOs tell me that the wholesale lender was the person who told them how to move unqualified people into stated income loans.

    To that, my response is, “ask the wholesale lender to put what they’re saying to do in writing and to sign it.”

  19. Rhonda,

    Here’s another thing that comes to mind when I read your comment number 22. If a homeowner in financial distress is seeking to modify the loan or is seeking lender approval of a short sale, we all know that the lender/servicer must verify what’s going on financially with the borrower. I’ve blogged about this extensively. With a modification, the lender must verify that the homeowner can repay. With a short sale, the lender must verify that the borrower is financially insolvent.

    If the borrower committed mortgage fraud, I wonder if the lender can move foward to deny the short sale and modification, (a lender is under no obligation to grant a short sale or loan mod) and switch from a deed of trust type of foreclosure to a judicial type of foreclosure and move ahead with trying to get a deficiency judgement against the owner? I’m not sure here, just pondering what I would do if I were the lender.

    Am I predicting that we’ll see lots of these? No. The lenders will only go after the most egregious cases.

    WHICH IS WHY I DO BELIEVE in a case where a homeowner actively participated in the deception, the homeowner will likely let the loan foreclose instead of having to go back and expose their initial lie.

    So I don’t think we’ll ever get the statistics we crave, but I do believe we will continue to see defaults rise, yes, even here in Seattle.

  20. Home owners who may have committed fraud should really try to make their payments on time. I think Larry Cragun wrote a post about this at Seattle PI blogs a few weeks ago (I tried searching for it and cannot find it).

    I had a couple who wanted to buy a house they did not qualify for. They’re W2 salaried and wanted to go (well over) stated for their income. I think part of the problem is a lack of education of the mortgage process. Maybe the couple thought this was okay in the mortgage industry…in their minds it was probably confirmed since they obtained their financing elsewhere.

    And yes, as a LO I can tell you it’s amazing how the Wholesale Reps for the all the lenders would tell you to just pump up the income or add a prepay or that you (as a LO) weren’t making enough on a loan.

    I have this silly need for a good nights sleep so I would just listen in amazement to what would be suggested and encouraged by the Wholesale Reps.

  21. …….and some frank advice…..for all those reading who are in a short sale transaction (either personally as an owner or representing a seller as an agent) think again before suggesting to a seller or tyring to personally circumvent the lender by “coming up with” a fraudulent invoice for work that was never done (by a contractor/friend) or suddenly faxing over to escrow a new commission disbursement form at the last moment changing the commission amount and now distributing commission proceeds to an “assistant” that magically comes out of the woodwork. And woe, to the R.E. Broker who signs off on it.

    You never know who may show up at your signing—and that is not a snarky remark, that is the honest to goodness truth.

  22. Seriously, Real Estate and Mortgage require little more than a high school education.

    If you think otherwise, you’re overating everyone in the industry.

  23. As I said I thought about this for a long time before making a comment.
    There are loan programs for people like me. I have no income, no money, and bad credit. I buy houses and have for over twenty four years. Many of the “frauds” you listed I have used. The one about getting a quit claim deed from a home owner, renting the property, then not paying the mortgages was a case involving a Seattle native. He was prosecuted in Arizona, if I recall, but grew up down the street from me. That was the one that I think was very bad. The guy went to jail, as he should.
    My clients are a scurvy lot. We all drive beat up cars, complain about paying taxes, and trust no one. My money is in hard assets and one lender actually sent some one to look in my safe. That was then, this is now.
    If I even think I might have income or profit in any year I buy a house with a big old mortgage. I lose money as fast as I can make it. My Scedule C shows that everything I do is a write off. In my drive way there are five cars, two trucks. If I do come up short any month I go to work in one of my businesses.
    People have looked at me with a wink and nod for many years like they understand what I do. Many try to duplicate, few succeed. Real Estate Investing is hard work. It is twenty four hours a day, seven days a week. It’s true that people who take week ends off should not be claiming No Income Verifiers, No Doc, No Asset Loans.
    My concern here today is that some people may be stifled in a pursuit of wealth by this post. Our Constitution was written by criminals. The laws we have in this country are expansive. My intention is to offer a counter point. To fear your government is cause for a change.

  24. Hi David,

    Thank you for contributing the Readers Digest Condensed Version of the business history of David Losh. It sounds like you prefer to live in a world where you make your own rules. But, it also sounds like you enjoy working very hard in that world.

    Lending rules exist to promote the greatest good for the greatest number of people. Lenders lend money with the good faith assumption that people are not holding back data that the lender would need to make an informed decision. As a licensed real estate agent, you would be treated much differently by the FBI than an average, random consumer.

    I have met students (both real estate agents and mortgage loan originators) who believe rules are made to be broken whenever possible, to advance one’s own interests, and the interests of their client who would not otherwise be granted homeownership without engaging in lender deception. The most clever of all say they learn how to break the rules without getting caught. You are not alone out there.

    I suppose we could try to argue in favor of changing all lending rules; getting rid of all of them. In that world, anything goes. Any person involved in the transaction would be allowed to lie and deceive and cheat the others. That means people would lie to you on a daily basis.

    Most lending rules, though some of them are insane, promote good consequences for the majority of people.

    Did you want to confess to any more mortgage fraud while you’re on a roll?

  25. Hi Ubersalad,

    Here’s your quote:

    “Seriously, Real Estate and Mortgage require little more than a high school education. If you think otherwise, you’re overating everyone in the industry.”

    You are correct.
    To obtain a real estate license, agents in WA state must take a two week class and pass a competency test. I am not sure if they must submit to a background check.

    To obtain a license to become a loan originator, the LO must simply pass the competency test. There is no required pre-licensing education. However, they do a background check and the LO must not have had a felony conviction in the past 7 years.

    LOs who work at a bank do not have to take a competency test.

    After they’re licensed, LOs use to be able to make an exceptionally high salary with no experience or training. Those days are gone. In WA state, LOs are required to take 2 classes per year (3 hrs/class).

    After real estate agents are licensed, they’re required to take 60 hours of continuing ed during their first two years and all agents must take 30 hours every two years after that.

  26. “I have this silly need for a good nights sleep so I would just listen in amazement to what would be suggested and encouraged by the Wholesale Reps.”

    Rhonda, I know that you know some wholesale reps. Was this the norm all around during the last 7 years or was it just the norm at certain companies?

  27. Call me naïve, but it seems like lenders could avoid a lot of this mess if they changed the property appraisal process. Over the past several years, there has been tremendous pressure for appraisers to ‘hit’ the right number. The appraiser should never worry about getting business from a mortgage broker or loan officer. They should be hired directly by the lender to evaluate the value of the collateral. If the appraisal came in unbiased, then some of the scams you noted would be much more difficult (Silent Second, Undisclosed Seller Concessions).

    I suppose the lender would still have to verify income though. What a hassle…..

  28. Hi laxtosnoco,

    Lenders have a list of approved appraisers who have a proven track record of reliable, accurate appraisals. When a consumer is working directly with the bank, the appraiser is selected from an approved list.

    When a consumer is working with a mortgage broker, there was more latitude in selecting appraisers.

    During the refi boom, appraisers were pressured to hit a “value needed” to make a loan go through. Often, this was a 100% loan where a customer wanted cash out to pay off bills, up to 100% LTV.

    Some brokers threatened appraisers by withholding payment unless a needed value was met, threatened to withhold future business, and so forth. Several appraisers have testified at the state level about these practices and since then, there’s now a section in the state Mortgage Broker Practices Act that directs brokers and LOs as to what they can and cannot do when dealing with appraisers.

    Red flags for mortgage fraud include a homebuyer who has already selected the appraiser he/she wants to hire, and a homeowner who insists on using a specific appraiser.

    The appraisal is for the benefit of the lender, not the buyer or seller.

  29. What is the norm? Boy, that’s tough to say. There were some wholesale reps where I would pick up the phone and pretend to be talking just to avoid hearing what was slime was going to ooze out of their mouth.

    Some of the major bank reps would push and push option ARMs. It was almost like we were the “last virgin” that every guy wanted. AEs could not understand why our company was “so conservative”. I’d hear over and over again “everyone else is doing them and making huge money” or “they’re safe..”…”you guys are missing the boat”.

    Subprime reps would ask if we had files we could not get approved…nothing wrong with that until they review it and say “oh year, just go stated” Gee…their full doc 80/20 program was all ready at a 55 dti…now we should state their income? No thanks.

    I was just talking with my husband about how glad I am that I’ve been more conservative instead of falling for making bucks. I have to thank my escrow background and doing signing after signing of buyers who were like deer in headlights not knowing what their new mortgage program is…it really made an impact on me. Plus, the company I work for (happens to be owned by my in-laws) is more conservative than most.

  30. No doc, No Income Verifier, loans are available. Accusing me of fraud is very wrong. The fact is a large variety of loan programs are in the market place for good reason. People who keep money in a mattress or who invest in Real Estate on a regular basis are very good examples. The phantom second can be for work performed on a property to get it bank financable. Should the seller of a property with deferred maintenance, who has no money, walk away from a property, or wait for some hot shot investor with cash?
    It is a very long history. I sleep very well at night. We have helped hundreds of people for very little money over a great many years. Personally attacking me for what I do is unfair. Many of the people I work with are very decent hard working people who are turned away from traditional Real Estate agents and Lenders. Thankfully there are Lenders and Loan programs for every one.
    The greatest good works for the majorities. What about the people who fit a different profile? Should Real Estate only be for the majority of people? I think every one has a right to own property in this country. Vast wealth is created by the aquisition of property. Our federal and state governments will tell you they would prefer having wealth property based rather than in cash.

  31. If you are counseling people towards writing A paper loans you are catering to the top ten per cent of buyers. My point is that there are loan programs for every one. There are lenders for everyone. Who would have thought Wells Fargo would step up a program for investor buyers?
    The fact is that not all assets or income can be verified by conventional means. There have been many lenders who were well aware that the Loan Originators took liberties with assets and or income.
    The most successful Real Estate investor I have ever known did not finish grade school. In the 1970 and 80s he lent money to people, like himself, who lenders would not make loans to. He fought for the right to change laws that were unfair to consumers. He helped to open the door for the loan programs that are today being villified.
    As Home Ownership slips away from more and more people there have for sure been abuses to our lending system. I have never, nor will I ever, put people into a situation that is bad for them financially. I say that if you can not sell a property the day you close for a profit don’t buy it.
    I’m an investor. I deal with probably the lowest one per cent of Real Estate buyers or sellers. What I know for a fact, as sure as I’m sitting here, is that more people will be hurt financially by well intentioned Real Estate agents or Loan Originators than some one who is looking for a solid transaction.

  32. Hi David,

    There are many government sponsored programs (like FHA) for first-time homebuyers (FTHB) as well as state bond financed programs to help FTHB.

    We do disagree on a fundamental value. From comment 36, “every one has a right to own property.”

    I disagree. I see owning property as a privilege, not a right.

    Speculative real estate investors are not going to garner much support for investing in real estate as a “right.”

    Hard money and private money lenders exist for those folks who would like the privilege of homeownership without having to verify assets or the ability to repay. Perhaps the people who run those firms fully expect that the client is going to act with deception.

    Do hard money or private lenders consider any of the above situations as mortgage fraud?

    Or you can put it on yourself. If it was david losh’s money, and you were the private lender, would you consider any of the acts from the original blog article fraud against you, the lender?

  33. david, there are many conventional programs that also cater to those who are not considered “a paper”, such as Expanded Approvals. As Jillayne mentions, FHA is also a great product that is not credit score sensitive.

    There are also alt-a programs, such as stated income, no-income and/or no-employment verified. When I had a client, typically self employed, where their income was not easily documented, I would encourage them to go no income verified or no doc vs. stated with a 4506. Why put your clients in a position where they are lying? The loans would need to make sense to the underwriter and would need to fit certain criteria, such as down payment and credit scores. OVERstating income is different than stating your income.

    I’m missing your point on how “more people will be hurt financially by well intentioned Real Estate agents or Loan Originators than some one who is looking for a solid transaction”.

    Are you saying that the transaction is more important than having well intentions towards someone’s financial future? Again, I’m not sure how to interpret that comment.

  34. David,

    I think you have mistaken luck and timing as success. I am sure you have done a damn good job at whatever is it that you do, but I am also certain that majority of the people in your same shoes have failed miserably doing what you tried to do (in fact, you pointed it out in a previous post). I guess this could be considered a catch 22, where education scared someone or made someone lazy, as oppose to uneducated like yourself, who just dive head-on and invest with very little knowledge…

    I don’t know…maybe I should borrow some of your taste for high risk.

  35. Jillayne, your original response to Mr. Losh was right on. No need to equivocate.

    Losh said: “The fact is that not all assets or income can be verified by conventional means.”

    You mean because people are hiding their income or assets from the taxman/child support collectors/creditors?

    There are loan programs for people with minimal credit histories that let them establish nontraditional credit profiles. There are even programs that will let buyers use ‘mattress money’ for a down payment.

    Nobody here has advocated cutting off loans to people because they don’t have a lot of money or education. The posting was about how buyers and sellers have been fraudulently representing transactions to lenders.

  36. Jillayne –

    Thank you for this post! I don’t think that many buyers are aware that Undisclosed Seller Concessions are considered Mortgage Fraud.

    I certainly did not until recently. I have been house hunting for about one year. (I am a buyer who was labeled “an unstable buyer” by my last realtor because I don’t need to move right now and am hanging back to see what happens with prices, interest rates, etc. Apparently I am an agent’s worst nightmare. LOL)

    I have bid on 7 homes and in 4 of the 7, either my agent or the seller’s agent has suggested that I offer over asking price and then get the money back from the seller “on the side’ after closing. This really never sounded quite right. The Redfin agent that I dealt with on the last bidding scenario was the only agent that informed me that this activity was on shaky legal ground and advised against it.

    I have learned much from reading this blog and wanted to thank all of you for sharing your knowledge.

  37. Why does nobody say no when they know fraud is involved? I witnessed a builder unable to sell his new fantasy for $800,00, drop it over and over till it was at $650 and he was talking of having to go to $600. All of a sudden his selling agent parchutes in from his balloon and raised the price to $720 in the MLS and 3 minutes later revised the status to ‘STI’ at $750; I think the raise to $720 was a CYA. Buyer gets 100% loan from CA mortgage company and probably shared in a $100,000 kickback. Two families moved in, they haven’t paid the 1st half RE Tax yet: nice operation.

    The next week another house nearby that never sold in 3 years sells for $750,000 with the same CA loan company. Nobody moved in and it went REO; still empty and the price continues to drop.

    I contacted the mortgage firm, their NY parent, the FBI, and several state agencies. Typical response is “We’ll investigate”. While looking into who purchased the first home I discovered he just purchased another home for $980 with another 100% loan from the same mortgage company. His record of buys and sells looks like a used car dealer’s records with 3 pages of transactions over the last three years.

    Where was the one person out of the 20 or so involved in these 3 transactions that could have said “NO”? The RE agents knew, the mortgage broker(s) knew, the appraisers should have known, and the sellers knew. Sell your soul for a few bucks.

  38. Hi RRM,

    Thanks for stopping by. The story you describe sounds familiar. You did the right thing by contacting the firm, the parent company, and the FBI.

    It takes several thousand to prosecute a mortgage fraud case. When the regulators, whether it’s the state or federal government, or a local city/county authority gets information, sometimes this may or may not be shared.

    The nice plan about contacting the FBI is that this department is the enforcement wing of HUD. When state regulators realize that money has changed hands across state lines, they refer the case to the FBI.

    Once the FBI continues to get reports about suspicious mortgage activity, the persons involved are marked, so when more than one report is filed, those names that keep appearing over and over again get put higher on the priority list.

    With a local case that I’m going to tell you about in part 2 of this series, local state regulators told news reporters that NO ONE had complained to them about this particular LO.

    So….thanks for doing your part.

  39. I over pay my taxes. It’s cheaper than an audit. Read my comment again. My Schedule C lists my business expenses. I work a lot. It is not luck I have been Real Estate Investing since 1972, in good markets, and bad. Your very right I am stupid, ignorant, and uneducted. What I’m objecting to here is that in this post there are some back of the closet buzz words being used to scare people.
    Sorry but the United States goverment looks at home ownership as a good thing. It is a big part of the American Dream. The privledged few try to make it a complicated game with confined rules, laws, and regulations. In fact our laws, in the United States, are very expansive. We have court systems to fight unjust legislation. Attempting to bar home ownership based on threats of incarceration is just wrong.

  40. Don’t confuse seller concession with fraud, it isn’t. There’s a long list of what is and what isn’t, and I would say most of them is in the grey area anyway.

  41. Bottom line is, underwriter allows appraisals to be the way it is and that’s how things go through. It doesn’t matter what an appraiser thinks or comps if the underwriter disagrees, and for $250-300 dollars, they can do their own field review or desktop review to verify appraisal.

    Can’t put all the blames on appraiser when underwriters are the ones approving them.

  42. Hi Ubersalad,

    Right you are again. I’m definitely not putting any blame on appraisers OR underwriters.

    With seller concessions, the appraiser has to justify the value to the underwriter. If the appraiser cannot justify the increased value, then his/her work is called into question by the lender/underwriter.

    However, if the lender/underwriter/appraiser do not know about the seller concessions, then the appraiser still has to justify the value…somehow.

    We need help from an appraiser here. I’m going to hunt down Shane.

  43. Appraisers are the biggest suckers in the industry, especially right now.

    Many of them do NET 30, which means they did all the work and hopefully the loan closes in 30 days and they get paid. Now with the things the way they are going, they will always be the first to be stiffed.

    What about those that take cash up-front? Knowing the way things are going and uncertainty in closing the loans, if I am the LO, I’ll find a sucker that’s desperate to do NET30. If he’s lucky and I am lucky, we both get paid. If not…too bad.

    Appraisers, I feel you, but it’s time for a new career.

  44. Ubersalad, how about LOs and agents who don’t even do NET 30? If the transaction doesn’t close, they’re out too regardless of the amount of effort put into the transaction.

    I would love to trade my commission for an hourly rate, such as an attorney. 🙂

  45. Jillayne,
    Wow! I read this post and thought I would wait to read some of the comments and have you got comments!! What a wonderful topic!! Good for you – Great for the industry!
    Just a little note on comment # 33 by laxtosnoco and # 34 by Jillayne. The lending and appraisal industry foresaw the possible pressure problems a few years ago. In order to counter some (not all) of the risk for appraiser pressure the appraisal management company was created where the appraisal is ordered by a third party. A few title companies started to undertake the task but a couple of years back the Federal Government did in with lenders charging service fees for those services that they did not provide directly.
    In order to counter the loss in revenue they (the big lenders; Countrywide, City-Group, etc.) bought or made their own AMC’s and then offered fee splits to the appraisers in return for volume. When the larger lenders became under control of the AMC’s appraisers once again became under pressure just a little more subtle. The use of AMC’s is not required by law so many mortgage originators still had and have control as far as what appraiser received the order. Jillayne is correct in describing the types of appraiser pressure and also allowing homeowners to pick the appraiser.
    In regards to concessions being fraud I have not been able to find any federal law that states that and if there is one then I would love to show it to several MLS systems and real estate brokers/agents. There may be rulings on a state to state basis. Unless the concessions are classified as under the table income/transfers as not reported on the HUD Statement I would think.
    Undisclosed concessions should be considered as fraud and the problem is compounded by MLS systems and those that do not report them as it affects a larger user base. Real estate sales people do not agree because it affects future sales and hence the commission when the appraiser uses the concession sale as a future comparable. MLS systems are now also withholding the days on market for active listings in some places. I think that as a licensed entity that is to serve the good to the public that this information should be disclosed in the MLS as well as the HUD Statement, but it is not. The MLS systems have classified it as personal information (which seems like income statements to me) and therefore the appraisers are required to disclose to the lenders that the information was not available and that the finial value may be affected by the withheld information.
    I also think that the issue of concessions being considered as income by the IRS holds weight as a disclosure tool. Currently the only tool that appraisers, buyer agents, seller agents, assessors and regulators have is to compare the MLS data with tax data as reported on the transfer.
    As appraisers all this information needs to be taken into account for with an unbiased opinion. There are those lenders and appraisers that will continue to do business based on reached values. There are those of us in the business that is seeking to contain that very problem also.
    Most appraisers are requesting payment up front due to market conditions with many of them having always required payment up front. Those that do invoice the client do so based on their own business models.

  46. When I started my Real Estate Investing I paid other people to own the properties for me. There were fees involved. My company did the work on properties for wealthy people who had the privledge of qualifying for a home loan.
    The system was unjust. Over the years many people have been brave enough to fight this mortgage strangle hold. It’s interesting today when the playing feild was somewhat leveled I’m seeing a post about fraud.
    How about those banks and lenders who have fifty pages of loan docs, with the fees, the acceleration clauses, and more importantly the lobby to tighten bankruptcy laws just before the ARMs were set to adjust.
    All of that is legal. The mortgage system, I will say it again, is unjust. Let’s compromise and call Home Ownership an entitlement. Every one is entitled to own a home in the United States. Home Ownership should not be just for the ten percent of six figure income people with no debt. If I want to own a million dollar home I should be allowed to buy it. As we are seeing it’s pretty easy for these lenders to take a property back if they want it.
    Every body makes money in a Real Estate transaction, please spare me on how the poor little lender or bank is losing money on fore closure. That is a matter for the Asset Management Department.

  47. An entitlement? Sorry David but homeownership is not an entitlement nor is it a “right” any more than it’s a right to have affordable health care. You are allowed to buy a million dollar home David, if you can afford it.

  48. Here’s my take on this…Americans are not “entitled” to home ownership. They do have the right to to become home owners if they are responsible enough to qualify for the mortgage (assuming they need a mortgage). If they do not make their mortgage payment or property tax payment, Americans also have the right to be lose their property.

    David says the mortgage system is unjust. Many of the guidelines that are in place are due to fraud and/or foreclosures. More and more documentation is added to the process because of the losses that the banks face due to fraud and/or foreclosure. Banks do not want to own homes and they do not want to foreclose. This is why in order to get the best rate, you’re going to go through a few more hoops and have better credit, income and savings. Why wouldn’t that be rewarded? It’s lower risk.

    David, if you don’t like how the mortgage company operates, why not create your own bank, make your own rules and lend your own money? Otherwise, you need to play by the banks rules…anything else is fraud.

  49. Sorry, but many people, including myself, have fought for many years for the right to lend money. The term bank is also very expansive. We have global interests that lend money in this country according to guide lines they set out. Those guide lines are guide lines. As I said in an earlier comment the gentleman with the grade school education lent money according to his guide lines.
    Your post is making blanket statements. For some reason it bothers me that this post seems to be streering the people to the idea that there is an A paper way of lending and anything else is fraud. As far as I know, as long as I disclose, disclose, and disclose what I am doing, and how I’m structuring my loan it is legal. As long as I pay my taxes, and disclose the source of the income, it seems to me I should be within the law. As long as I make my mortgage payments according to the deal the lender and I agree to it should be legal for me to own property. It’s a contract between the lender and I.

  50. David, if you disclose what you’re doing and the ultimate lender is aware, everything should be fine (assuming the LO is not doing fraud with or without your knowing of it).

    My business is hardly based on the 20% down perfect credit. I’ve helped many people from those currently in a Chapter 13, some subprime where I’m worried how they’re going to survive without a program to refi into, oringal subprime loans where the borrowers are doing great and owning a home has been fantastic for them.

    I hear part of what your saying. I’m not sure if it’s your tone or message that concerns me. I grew up in rentals and was the first person in my immediate family to own a home. I went into the mortgage biz believing that everyone should has the right to own a home and that renting was not a good thing. After 7 plus years in mortgage (going through this subprime phase), my opinion has changed.

    Owning a home is not an entitlement. Owning a home is not for everyone. Not everyone is qualified to pay a mortgage. Some people are quite happy renting and do not have a need to own a home. I do have “a need”…and I do believe in home ownership…but again, it’s not for everyone.

    Knock on wood (fast) most of my subprime loans are performing well. I’ve had a few that have not but it was due to the borrowers. One turned out to have issues with alcohol and bought a $700 car payment the month after obtaining his mortgage. I had no idea of his health issues–that’s one item NOT on the loan ap. I was still sick about it.

    There are many loans that are not “a paper” and they are not fraud. I think Jillayne covered the definition of fraud very well in her first paragraph of this post. As long as all parties know and agree, no problem! If you’re having someone else buy a home (and it’s not non-owner) and you made the payments, this is fraud. Hey, I don’t know all the details to your transactions. It’s just the tone I’m picking up on.

  51. Statements in a post like “mortgage fraud is driving up the price of real estate” or we all pay for the poor bank and lender having to fore close on properties is hysteria baiting. This is like the bubblers. OMG, the sky is falling and you are going to jail because you wanted to buy a house!!!!
    How fair is that?
    How responsible is that?
    Real Estate is not for every one. I say that all the time. This is a brutal, vicious business and business is war. All the touchy feely stuff seems to be going out the window lately. This post is a case in point. For years now the people I do business with have commented on the cheer leaders of Real Estate. Buy more, pay more, the skies the limit. Today, when you reached for the sky you’re going to jail because you did not follow the rules.
    How fair is that?
    When George W. Bush stood up and claimed we had more home owners now than at any other time in history he said it like that was a good thing. Today the FBI is going to start rounding people up who did not follow the rules. Maybe we should make a camp some place to contain all of these bad people who committed fraud to own a home.
    How about that for a tone?

  52. david,
    you are going to jail because you wanted to buy a house so bad that you committed fraud (lied to the lender)…hysteria: no.

    You’re going to jail because you did not follow the rules? That’s how it’s suppose to work.

    There are so many loan programs out there, you don’t have to lie to buy a home. That’s part of the reason why we’re having the “mortgage meltdown”.

    Punish the people who commited fraud to own a home? If they knew they were committing fraud; yes.

    Just my simple opinion, david.

    If someone does not want to qualify for a mortgage base on the terms offered (and there are many terms for many different types of mortgages), then they should get private financing. No problems!

  53. I think the discussion has strayed from the original topic: mortgage fraud. Before this thread becomes unrecognizable and Mr. Losh brings up the giant asteroid, I’d like to urge Jillayne to crank up the word processor and get to work on Part II.

    Part I was good, but was just the appetizer. I can’t wait for the main course, case studies!

  54. I haven’t been following this, but I’m ROTFLMAO at Laxtosnoco and the giant astroid and David and the “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?

  55. Hi david,

    I’m not big on rule-following in general. In fact, I’ve broken the rules many times in my life with mixed results.

    Sometimes in mortgage lending, rules can be broken. As a former underwriter, I remember many times looking at the published guidelines, and then making a decision to grant the loan because there were logical, good reasons to back up the decision.

    Some people see hard lines that are never to be crossed, others see the lines as all gray, all the time, and justify bending (or breaking) the rules in order to balance out an injustice, while feeling comfortable with the possible consequences.

    I get a sense that you receive tremendous satisfaction from helping homebuyers who might otherwise not be able to obtain homeownership.

    david, at some point in your life, were you denied a mortgage loan from a traditional bank?

  56. Jillayane, I guess I would say with regards to mortgage underwriting; there are exceptions to every rule.

    To not follow the rules, especially when you are in a contract (with portions recorded as public record) is something else.

    There are other options besides a tradtional bank, such as mortgage brokers (and mortgage brokers work with different lenders) or private money.

    Dustin recently did a post on locating “hard money”, I believe.

  57. 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.

  58. 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”.

  59. 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”.

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