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Carver Communications - Index

Carver Communications - 5.1.09 - Index

Vol.XXVII, No.9 © Carver Communications, Inc. May 1, 2009
Mortgage Fraud - Don’t Be A Naive Partner!
By Barbara Coker
Mortgage Fraud has finally hit
the big time! Everywhere we read about
people going to jail for committing mortgage
fraud. However, don’t think it’s only
the shady lenders who are heading for the
slammer! Realtors are often involved in
these schemes, sometimes knowingly, but
often as naïve partners who have been
“duped” into activities that “everybody
does.”
The dictionary definition of fraud is
the “crime of cheating somebody. . .of
obtaining money or some other benefit
using deliberate deception by a person
seeking financial gain.” The U.S. Bureau
of Justice says that each scheme contains
some type of “material misstatement, misrepresentation,
or omission relied upon by
an underwriter or lender to fund, purchase
or insure a loan.”
It’s no secret that cheaters have
always been with us. However, the stunning
breadth of real estate and mortgage
fraud that is being uncovered by the FBI,
national lenders, and local governments
reminds us that the world’s economies are
P.O. Box 33862
San Antonio, Texas 78265
now interconnected to unprecedented
degrees. This virus has spread, mutating
into all sorts of schemes. For a while, the
worthy goal of homeownership for all
Americans caused Fannie Mae, Freddie
Mac, FHA, and even the VA to relax old
underwriting guidelines. Down payments
became optional, and credit score minimums
faded almost to the 400’s.
Subprime loans and the low or even no
documentation loans encouraged a rush to
home-buying that began one of the
biggest “bubbles” in housing values in
history. And the fraudsters climbed on for
the ride.
The FBI divides mortgage fraud
into “Fraud for Housing” (20%) and
“Fraud for Profit” (80%).
“Fraud for Housing” is perpetrated
by a buyer trying to obtain housing
under false pretenses. Common actions
include misrepresenting employment or
income history, and using unacceptable
sources for down payments and closing
costs. Lenders combat the income falsification
by ordering two years of income
tax transcripts directly from the IRS prior
PRSRT STD
U.S. Postage
PAID
San Antonio, Texas
Paid Permit #1957
to closing a loan. Employment addresses
and phone numbers are independently
verified by the internet or phone books. A
“friend” can no longer “verify” employment.
Tax returns can’t be falsified.
Sellers are no longer permitted to “owner
carry” silent second mortgages to prop up
buyers with no funds for down payments.
“Fraud for Profit” is the main
focus of the FBI, and has probably cost
lenders millions, if not billions of dollars.
The Mortgage and Real Estate professions
are made up of thousands of honest and
honorable practitioners. However, industry
insiders are responsible for roughly
80% of all fraud, and a visit to mortgagefraud.org
will show the slow but steady
prosecution of these thieves.
Property “flipping” is a popular
scheme, involving the quick resale of a
property at an inflated price with the collusion
of an appraiser. This typically
results in kickbacks to buyers, investors,
loan officers, appraisers, and title company
employees.
Inflated appraisals are used to
move properties when listing prices are
increased by many thousands of dollars in
MLS. The seller walks away with his
desired price, and kicks back the slush to
the conspirators. Even though it might be
listed as a “decorating allowance” in
MLS, it’s actually fraud.
Straw Buyers use stolen identities
to conceal the true buyer, or a participant
might voluntarily give his identity to be
used in the purchase. This usually
involves a “flip” where the equity is
“skimmed” through the use of the straw
buyer who receives his share of the falsely
inflated price.
Foreclosure Schemes are becoming
popular as owners struggle with
adjustable mortgages, subprime loans
with balloons, or severe decreases in
home values. Disreputable companies
mass mail out authentic-looking solicitations
of government-sponsored aid, but
with upfront fees that disappear. Buyers
are always best served by contacting their
lenders.
Investors might offer to buy the
home without actually doing so. Unwary
sellers sign papers just giving title and
powers of attorney to the investor, thinking
they have sold their home, but they
haven’t. Investors might rent the property
for a while, but when they stop making the
payments, the original owner’s credit is
ruined by foreclosure.
“Air Loans” involve the sale of
properties that aren’t there! Appraisers
take photos of other homes while stolen
identities or straw buyers submit fraudulent
applications.
Cash back for repairs involve
false invoices presented for the seller to
pay at closing, often to shell companies of
the realtors. Sales prices are falsely inflated
with collusion of the appraiser.
A realtor who knowingly commits
fraud is risking a career and possible jail
time, and he knows it. The purpose of this
article and the Anti-fraud MCE classes
being offered by the San Antonio Board of
Realtors is to alert the realtor who might
unwittingly be enticed into a situation
which sounds too good to be true. If it
can’t be shown on the HUD-1 Settlement
Statement, run from it. Report fraudsters
to the FBI. Report loan officers who suggest
fraud to the Texas Department of
Savings and Mortgage Lending.
The only way to stop this blight on
our professions is to shine the light on it.