Financing Houses

Loan predators remain safe

Guest  perspective: Guidelines aren't rules, they're suggestions Thursday, July 05, 2007 By Gordon  Schlicke

Gordon Schlicke

If there was ever a time when federal regulators should be knocking heads it's now. The plain truth about the subprime meltdown is that investors got greedy and lenders began looking the other way. There's plenty of blame to go around but now the blame rests with those who should pass rules that stop the industry from manipulating the system.

Final subprime underwriting guidelines were released recently by the patchwork of federal regulators charged with overseeing the soundness of our banking system. (See FDIC press release from June 29, 2007.) Guidelines aren't rules, they are suggestions. And they apply only to those lenders under jurisdiction of the federal agencies. Calling this a ho-hum approach is charitable.

It was almost predictable that regulators would emphasize the need for even more arcane disclosures to ensure that consumers will receive information they need about the features of these loans. They didn't disappoint us. We're headed for more mandatory disclosures that attempt to simplify what is a very complex transaction. Worse, lawyers – the last people who should be writing a simple explanation for anything, will write them.

The feds decided to sidestep any call for increased regulation of third-party originators, leaving that issue in the laps of wholesale buyers of loans from brokers. Not a good idea. Why? Nearly all of the disclosures are made at or within three days of loan application. That occurs long before a lender or investor sees the loan. Add to this the fact that some mandatory disclosures are so out of date they actually contribute to misleading borrowers.

The final TILA Reg Z disclosure doesn't even contain the actual loan amount. More than a few major fraud cases have shown that unscrupulous brokers use this fact to trick borrowers. The ancient RESPA-required Good Faith Estimate form, which is rarely completed correctly, is an industry joke. There isn't even a federal penalty for those who don't provide the form! Other examples abound.

The Beltway would rather encourage lenders to be more lenient in working out potential foreclosure problems than clamp down on rules designed to prevent all of this in the first place. No one in Washington has the stomach to create real change so the regulatory team has thrown the ball back to lenders and called for an early lunch.

What the agencies failed to address was that many loan servicing agreements prohibit the servicer from modifying loan agreements entirely, or limit such modifications to no more than 5-10 percent of a total pool. Further, loan modification may run afoul of FASB Rule #140, which says that if a bank alters the terms of a loan it has pooled, it cannot keep the loan off its books. It must repurchase the loan, return it to the books, set aside a reserve for losses, and actively manage it. The industry is asking for relaxation of this rule.

Two years ago, these agencies wanted to tighten this rule to keep predation in control but were shouted down. Endless hearings will keep the issue on hold for a long time. Meanwhile predators who've survived the upheaval will design new and improved loan programs complete with premiums for delivering above par rates. How will this be resolved? By the entity that pumps the most money into congress for re-election campaigns.

Gordon Schlicke is a consultant and expert witness on predatory lending and mortgage fraud, RESPA, the HUD-1 Settlement Statement, federal and state lending compliance, and RESPA-compliant Affiliated Business Arrangements. He is affiliated with BPI Consulting Group and Ethical Lending Foundation. 

Top 5 Tips to Avoid Mortgage Fraud

 Date: Thursday, February 15, 2007 @ 10:34 AM EST
Topic: Credit and Finance

       

You'd be surprised at some of the clever ways that you can become involved in a fraudulent transaction without your knowledge. Knowledgeable or not, if you're involved in fraud, you may still pay for the wrongdoing.

    EXAMPLES OF MORTGAGE FRAUD

1. Fraudulent appraisals. The lender may be cahoots with the appraiser, so ask sellers or buyers to sit back and let them inflate the price of the home. Sometimes selling agents are asked to increase the list price in MLS or buyers are asked to "go with the flow" on how much they will offer on the home.

2. Silent seconds. The buyer borrows the down payment from the seller through an undisclosed second mortgage. If it's not disclosed to a lender, you're committing fraud and the loan can be called due and/or you can be prosecuted. Let's not lie, hide, or deceive lenders. They don't like that.

3. Nominee loans/Straw Buyers. The identity of the true borrower is hidden by using another person for loan docs and credit. This isn't the same as mom buying a house and having her child live in it. This is when someone else's name is on everything, but you are the true borrower.

4. Equity Skimming. An investor uses a straw buyer, false income documents, and fake credit reports to obtain a mortgage. The straw buyer signs the property over to the investor using a quit claim deed, never makes mortgage payments, then rents the property until it's foreclosed.

RED FLAGS

   1. Significant sales price adjustments that are not supported by comps.
   2. Required use of a particular appraiser.
   3. Down payment assistance programs that charge excessive fees.
   4. Large seller contributions, possibly in the form of improvement allowances.

TIPS TO AVOID GETTING TAKEN (From www.HUD.gov)

* Shop around for a good inspector, lender, and real estate agent...even for NEW HOMES. Don't just automatically use the "preferred" professional.

* Do NOT let anyone persuade you to make a false statement on your loan application, such as overstating your income, the source of your down payment, failing to disclose the nature and amount of your debts, or even how long you have been employed. When you apply for a mortgage loan, every piece of information that you submit must be accurate and complete. Lying on a mortgage application is fraud and may result in criminal penalties.

* Do NOT let anyone convince you to borrow more money than you know you can afford to repay. If you get behind on your payments, you risk losing your house and all of the money you put into your property.

* Never sign a blank document or a document containing blanks. If information is inserted by someone else after you have signed, you may still be bound to the terms of the contract. Insert "N/A" (i.e., not applicable) or cross through any blanks.
   
* Be honest about your intention to occupy the house. Stating that you plan to live there when, in fact, you are not (because you intend to rent the house to someone else or fix it up and resell it) violates federal law and is a crime.

For more information, there's a great resource on Predatory Lending and Avoiding Fraud on HUD's website. There are also brochures available for REALTORS® at www.Realtor.org.

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NOTE: Dee Copeland is an investor specialist in the Greater Austin Real Estate Market. Contact Dee's team at http://www.DeeCopelandTeam.com. Visit the blog at http://www.TexasRealtyBlog.com.

Tips On How To Ruin Your Life

By Jill Lehn

In every person's life a time comes when you need to look at yourself and ask "Did I really do such a stupid thing?"  At the end of August, 2006 I was forced to answer that question and I did not have a lot of time to do it.  This is how it all began.

I was hard at work and getting set for another busy day of doing mortgage closings.  My telephone rings all day long and I am fortunate to have many closings when real estate times are difficult, so I get to work early to make the most of my time.  It's 8:00 a.m. and I am sitting in my office, well on my way to conquering the day.  A noise comes from the front office and the door opens.  I walk out and give my enthusiastic morning greeting but it is not reciprocated.  Two gentlemen ask, "Are you Jill Lehn?"  I say, "Yes I am".  We are so and so with the FBI and we need to talk.  My feeling of invincibility immediately went away (it will never come back).

A second later the three of us our in the conference room and many copies of some of my best fraudulent work are being placed in front of me.  "You are a very lucky person, Jill.  You are being given the opportunity to cooperate fully with us at this time and maybe
you could be fortunate enough to get just probation or a year in prison -  no guarantees.

You could go to prison for five years for each one of these offenses.  We could have just come to your home and arrested you.  You need to make your decision right now."  I was so freaked out and thank goodness I had the ability to say "I will cooperate".

Now it is time to understand the beginning.  For many years I worked for a different title company and planted everything I needed in place so I could have a title company to truly call my own.  It was a lot of diligence, hard work and intelligence.  Now, intelligent is an odd word to describe me when you reflect back.  I have been in real estate in some capacity for the past 18 years.   I have been a loan processor, loan officer, REALTOR® and title company closer.  There is no doubt that I have a thorough understanding of every realm of real estate.  There is absolutely no doubt that I did not have enough common sense to see that everything I do in this industry is easily tracked by a paper
trail.  Any person in any realm of real estate can say anything they like but cannot deny what a paper trail clearly shows.

Over the past three years I did about sixty deals that allowed buyers to get cash back.  That is not an issue if a lender approves, but if they don't it is indeed an issue.   An issue that you could possibly ponder for a few years in prison.  How it came to be was innocent enough.  A valuable loan officer client came and asked if I had the ability to make a deal work so a buyer could get some funds back.  Very foolishly I told the truth.  It was the worst thing I could have ever started for myself, that loan officer or the real estate industry.  I opened a path and an assumption that I would do those deals.

It is quite easy to justify things in your head when you feel the bases are covered.  The buyer is fully aware of this, the seller knows, the REALTOR® knows, the loan officer knows.  Oh wait ... that's right, THE LENDER DOES NOT KNOW.  Funny how that little detail can just jump past the logical part of a brain.  Now let's make everything totally clear for people in real estate:

1. Unless the lender knows a buyer is going to get money back on a purchase, it is not okay, good or advisable to give the buyer's money
back.
2. Putting a bogus lien on a property so the seller pays it off at closing on a lender approved settlement statement, and those funds end up going back to the buyer in the end, is not okay, good or advisable.

3. Having a seller just write a buyer a check after a closing for any sort of an allowance or credit that the lender does not know they are getting is not okay, good or advisable.

4. Any new way you can think of to go around the system is not okay, good or advisable.

EVERYTHING IN REAL ESTATE HAS A PAPER TRAIL.

If everything so far in this article has not inspired you to maintain a professional, ethical business let's talk about your personal life and how being a convicted felon for the rest of your life works in regards to that.  It is pretty safe to say that you will not wake up smelling roses for quite a while.

People are driven by a desire to have quality of life and quality of family and friends.  That is part of the very reason that so many of us are in the real estate industry.  Owning a home is a key to most people's financial and personal plan.

I had to go home and tell my husband that I received a visit from the FBI at work.  Saying those words to a person you love so much is something that is surreal and worse than most things you can imagine.  You have no idea what the reaction will be.  The only thing you know is that it will not be positive.  My husband had no idea about these deals and I had to painfully explain for the second time in one day how I did them and how it worked.  For many years I felt like a genius in the title industry but could not have sounded more stupid saying these things out loud.  I am so lucky to have a husband that supports me fully and has vowed to stick by my side.  Here is a question for you:  Would you be that lucky?  And, could you bet on that?

When you have to find a way to mentally deal with a situation like this, it is so tough.  In my situation, I could not tell anybody or my cooperation agreement would be broke immediately and I'd be prosecuted to the full extent of the law.  So, I could only talk to my husband and the FBI.  The FBI asks you questions about loan officers, REALTORS®, buyers, sellers and others.  Many of these people I considered to be friends and I really cared about them quite a bit.   

The FBI told me to not let this ruin or affect my life and family time.  That was not advice I took at first but after getting a well deserved "snap out of it" from my husband I started to practice that philosophy.  I had so many emotions.  Naturally, I was annoyed I got caught and wanted somebody to blame.  I had to find a way to stay my always cheery, confident, full of energy self at work and at home.  You become suspicious of everything and truly sad.  Every time you get a telephone call with a question, or from somebody you do not know it makes you paranoid.  You ask yourself "Am I being tested, taped, set- up?"  You just don't know.  I cannot mention all the things I have had to do for the FBI, but it opened up ideas in an overactive imagination that could be put in to a spy novel.

For five months I kept face.  I'm pretty sure many people close to me did not really buy into it but I did my best.  I worked and tried to pay all my bills.  That is something very difficult to do when your assets get frozen, by the way.  Then, I got another visit from the FBI.

"Jill, we need to charge you now to go forward with the rest of our cases.  You need to find a really good criminal defense attorney that specializes in money laundering and wire fraud."  Until I heard that there was still a glimmer of hope in me that they were yanking my chain a little bit to get the most information they could.  I have heard of wire fraud and money laundering before but had no idea that what I had done even fell under those categories.

In less than two weeks later I was in front of a federal judge pleading guilty to money laundering and wire fraud.  My life went from being secretive about my troubles to public knowledge.  I really did hope that I would not have to tell a soul about any of it, but that only lasted for a few weeks.  As you tell people that you are not doing creative deals anymore and they get suspicious, things happen.  Some people you term as friends are suddenly scared, running for cover and enjoying seeing you fall because they look better.  Others are too scared to talk to you at all because they think you are being tapped.  The imagination runs wild and you do not know what is true and what is not true.

Lately people I do not know and have never heard of call colleagues and friends to ask about me.  For me that is insane.  I am a person who likes to go to work and have a great day then go home to family and have a great night.  That is it.  I am fairly boring and I like it that way.

Strangers who believe they know me and my story takes me to where I am today.  I am writing this story to plead with others to learn from this and not make the mistakes that I have made.  If you have made them in the past ­ stop.  It is that simple.

In my collective real estate career the errors that I have made are a maximum of one eight of one percent.  These deals did not make me rich or give me anything of value in my life.  Now, I will forever be defined as a felon and have to go about life in an entirely different way.   

These are some huge burdens that I will always have:

1. Making sure my family is not harassed by people from this
2. Explaining myself and proving I am good enough to be trusted in a business relationship
3. Trying to find a job that will give me an opportunity
4. Never being able to vote again because my opinion does not count in the United States anymore
5. Accidentally goofing up
6. Helping support my family
7. Being able to retire
8. Not getting a second chance
9. Breaking my parents hearts
10. People always thinking you are a target for some harassment
11.  Disappointing myself

My next three months to one year will be spent waiting for the telephone call to let me know that it is time for my sentencing.  If I have to go to prison, I will get about one month to say my goodbyes to the people I love so much.  There is a possibility that I will miss some of the most special moments of my only child's life.  They will be lived through pictures and stories from my husband.

Now I cannot do mortgage closings, have my real estate license or apply for a job with a criminal history check.   So, I am going to advocate people making the right decision and the smart decision.  Choose ethics and freedom over a life dictated for you.

Posted at 04:37 PM in Mortgage Fraud | Permalink