By Michael S. Richardson
Chief Executive Officer
cVerifs, Inc.
Once a white-collar criminal gets away with fraud, the process quickly becomes addictive. Success breeds more success, and before long such crafters of fraudulent mortgage loans clearly begin feeling that not only are they above the law but in fact, they are not doing anything wrong in the first place. Fraud can happen to anyone: loan officers, processors, underwriters, buyers, sellers, investors, owners, and management of mortgage companies. It can happen anywhere: big cities, small towns, storied and well-recognized firms, smaller mom, and pop businesses who just want to do the right thing for a would be homeowner or just have the need to make money.
The Treasury Department provided a plan to collaborate with private funds to buy up to $1 trillion of "toxic assets." It is very unclear if these purchases will include foreclosed properties. The unlisted and unsold foreclosed homes are likely to further delay the recovery and destabilize lenders' financials further or increase the dollars needed to include the foreclosed properties.
RealtyTrac states lenders may be holding up to 700,000 residential properties that are not on listed for sale yet, foreclosure properties. This supply of homes are not counted as part of the housing inventory, with 3.8 million existing homes for sale in February which is almost a year's supply of homes for sale. The foreclosure rates have remained somewhat the same recently although it could be due to government moratoriums or voluntary lender halts on foreclosures, however, eventually a large percentage of those homes will end up being foreclosed on. With that supply of existing home for sale homes and the foreclosed properties, values are going to fall further. When the foreclosed properties enter the market, the appraisals will negatively reflect values.
Some of the positive news in February was that existing-home sales rose 5.1% and housing starts were up 22.2% from record lows. One of the issues surfacing is the so called specialists who are attempting to work a modification for borrowers are growing like springtime weeds most without the experience of needed to work the new programs or even understand the mortgage industry, thus fewer mortgages are actually being modified. Then there are the many new schemes these weeds (fraudsters) have developed preying on the homeowner once again.
When the economy eventually picks up, many of these issues will not be as challenging to the lenders, and this leads to the concern of mortgage fraud. Mortgage Fraud continued to climb up by 26% in 2008, another record. The Suspicious Activity Reports (SARS) climbed by 44%, mortgage fraud which is the third most reported activity to Financial Crimes Enforcement Network (FinCEN) , Almost 900 filing institutions submitted mortgage loan fraud SARs and according to FinCEN, fewer than 200 institutions submitted 98% (60,800) of the total. The top 10 filing institutions submitted 57% (35,400) of these filings, compared to 30% for the top 10 filing institutions of all SARs.
With fewer loan originations in the last year or so, some professionals reviewing the data may believe the increases are due to this very slow economy and shows signs of more desperation, causing more people than ever before to try to commit mortgage fraud. While that may have a some merit, mortgage fraud statistics point, clearly ,point to nothing short of an epidemic for over 5 years now or longer.
Yet, really, what do we know about fraud? In fact, it is not what we know about fraud that is dangerous; it is what we do not know. What is worse is the staggering amount of opportunity with which the American real estate industry provides those who commit fraud.
Clearly, the amount of money to be made in real estate – both residential and commercial – lends itself to abuse. New employees mean new training, and lack of new training leads to old mistakes. The growth of fraud is insidious; it creeps up on us, taking us by surprise until, before we know it, someone we work with, someone we work for, or even those who work for us, is committing fraud.
It is so easy, so slick, and until now so largely un-enforced. A number fudged there, a figure left out here, a bogus appraisal, a friend of a friend who plays it fast and loose with a client’s verification of rent, a fabricated credit report, and soon enough a mortgage loan is fraudulent.
Willful blindness is a legal term that skirts the boundary between neglect and culpability, and I wouldn’t be able to talk about it if it didn’t exist. The concept of willful blindness, which at its heart expresses the contention that the industry exhibited “willful blindness” to obvious fraud through ignoring it for so long, in so many cases, at the hands of so many fraudsters. To be honest, fraud does not exist in a vacuum. It arises from opportunity, and more often than not that opportunity exists because we are too busy minding the high-rise to success that we’re working so hard to build to check on the rats steadily chewing away at our foundations.
My personal experiences with mortgage fraud and the last five years attempting to prevent mortgage fraud have given me a doctoral degree from the "School of Hard Knocks". Much like you, I “never thought it could happen to me.”
But it did.
It can.
In addition, if the statistics prove out, it probably will or has affected you…
Until we stop fraud on a loan-by-loan basis, establishing significant penalties and sobering preventative measures, fraud will continue to reach epidemic proportions in our industry. We must be vigilant against fraud, recognizing its signs and taking proactive, definite, and realistic steps to not only prevent it but also punish it. Let us be honest: we cannot always prevent fraud through proactive measures. While we are busy running our companies or processing loans, fraudsters are spending all their time – and I do mean all, as in every waking second – thinking of new, inventive, and difficult to detect ways to do what they do. It is nearly impossible to keep up with such dedicated, aggressive, and workaholic criminals. If we could somehow stop all fraud tomorrow I believe that, like cockroaches, these “bad seeds” would quickly find some other way to earn their ill-gotten gains.
We cannot turn a blind eye to fraud anymore. Not only does this make us an unknowing accessory but also it is the very reason fraud remains so rampant. Those who would commit fraud know that few will report it if they are discovered and, even if they do, by then they will have moved on to avoid penalty. The only way to stop such a widespread, global problem is to look ourselves squarely in the mirror and promise to fight fraud wherever, and whenever, we can, one loan at a time.
Let us not just talk about this time, it is time to take action!
It starts with me.
It starts with you.
It starts with us…
Sunday, April 19, 2009
Tuesday, March 17, 2009
Mortgage Fraud Up Record 26% in 2008
MARI: Mortgage Fraud Up Record 26% in 2008
Sorohan, MikeLAS VEGAS--Reported incidents of mortgage fraud increased by 26 percent in 2008 to unprecedented levels, the Mortgage Asset Research Institute said yesterday in its annual report to the Mortgage Bankers Association.
MARI's 11th Periodic Mortgage Fraud Case Report to MBA found that Rhode Island ranked highest in incidents of reported mortgage fraud, with more than three times the expected amount of reported fraud for its origination volume. Rhode Island, making its first appearance on the MARI Top Ten list of states, was followed by Florida, Illinois, Georgia, Maryland, New York, Michigan, California, Missouri and Colorado.
“With fewer loan originations today, the data suggests that the economic downturn may have created more desperation, causing more people than ever before to try to commit mortgage fraud,” said Denise James, LexisNexis risk and information analytics group director of Residential Mortgage Solutions. “Not only are we seeing traditional fraud trends, such as application fraud, but we are also seeing new types of emerging fraud occur. It is therefore imperative that the mortgage industry continue to share information and insights, and collaborate in the fight against mortgage fraud.”
The report examines the current state of residential mortgage fraud and misrepresentation in the U.S. based on data submitted by MARI subscribers.
The top fraud incident type in 2008, representing 61 percent of all reported frauds, was application fraud, the fifth year in a row it topped the list. Second were frauds related to tax returns and financial statements, which jumped by 60 percent (from 17 percent) of reported frauds in 2007, to 28 percent of reported frauds in 2008. Additional documented fraud types included, in order of volume, frauds related to appraisals or valuations; verifications of deposit; verifications of employment; escrow or closing costs; and credit reports.
“Mortgage fraud is more prevalent today than it was at the height of the boom in mortgage loan originations,” said MBA President and CEO John Courson. “Mortgage fraud continues to be a threat to our members and to consumers.”
Courson said MBA continues to advocate spending in the federal government's fiscal 2010 budget that will increase resources for law enforcement . “We have to give law enforcement the tools and the funding they need to prosecute cases of mortgage fraud,” he said.
James attributed one factor in the higher numbers to improved use of technology by lenders and servicers, who catch instances of fraud that they had not detected previously.
“Lenders are performing more due diligence and catching incidences of mortgage fraud before they go into the pipeline,” James said. “But that is shifting cases of mortgage fraud to areas where there is not proper due diligence.”
Other report findings:
--After improving in 2006 and 2007, Georgia jumped from seventh to fourth place in 2008;--California, ranked fourth in 2007, declined to eighth in 2008;--Maryland jumped from 15th in 2007 to fifth in 2008; and--The volume of reported frauds related to credit reports dropped from 9 percent to 4 percent between 2007 and 2008.
Additionally, the report noted three “emerging” fraud schemes:
--Foreclosure prevention schemes, in which fraudsters pose as “professional, knowledgeable foreclosure specialists.” These fraudsters promise to work out foreclosure problems or buy the home while offering the homeowners tenancy. In some cases, once documents have been obtained, the fraudster sells the property and evicts the tenants. “Fraud in the past has been a crime of opportunity,” James said. “Now, it is emerging as a crime of desperation.”
--Elderly and Immigrant Identity fraud, which the report notes is not new, but is gaining in notoriety. Fraudsters steal identities of elderly and immigrant consumers and use the identities is “straw buying” or other property transactions. “This is currently happening in reverse mortgage situations,” the report said; and
--Builder Bailout Fraud, in which fraudsters secure funds for condominium conversions or planned community development properties that, unbeknown to the investor, will not be completed.
“To combat fraud, the industry must pay attention to details,” the report said. “Mortgage bankers must act with a sense of constant vigilance to protect their pipelines from being tainted with preventable fraud risk by leveraging smarter technologies and acquiring more relevant information about their customers, employees and vendors.”
The report is available on the MARI web site, http://www.marisolutions.com/.
Michael S. Richardson
http://www.preventmortgagefraud.com/
Sorohan, MikeLAS VEGAS--Reported incidents of mortgage fraud increased by 26 percent in 2008 to unprecedented levels, the Mortgage Asset Research Institute said yesterday in its annual report to the Mortgage Bankers Association.
MARI's 11th Periodic Mortgage Fraud Case Report to MBA found that Rhode Island ranked highest in incidents of reported mortgage fraud, with more than three times the expected amount of reported fraud for its origination volume. Rhode Island, making its first appearance on the MARI Top Ten list of states, was followed by Florida, Illinois, Georgia, Maryland, New York, Michigan, California, Missouri and Colorado.
“With fewer loan originations today, the data suggests that the economic downturn may have created more desperation, causing more people than ever before to try to commit mortgage fraud,” said Denise James, LexisNexis risk and information analytics group director of Residential Mortgage Solutions. “Not only are we seeing traditional fraud trends, such as application fraud, but we are also seeing new types of emerging fraud occur. It is therefore imperative that the mortgage industry continue to share information and insights, and collaborate in the fight against mortgage fraud.”
The report examines the current state of residential mortgage fraud and misrepresentation in the U.S. based on data submitted by MARI subscribers.
The top fraud incident type in 2008, representing 61 percent of all reported frauds, was application fraud, the fifth year in a row it topped the list. Second were frauds related to tax returns and financial statements, which jumped by 60 percent (from 17 percent) of reported frauds in 2007, to 28 percent of reported frauds in 2008. Additional documented fraud types included, in order of volume, frauds related to appraisals or valuations; verifications of deposit; verifications of employment; escrow or closing costs; and credit reports.
“Mortgage fraud is more prevalent today than it was at the height of the boom in mortgage loan originations,” said MBA President and CEO John Courson. “Mortgage fraud continues to be a threat to our members and to consumers.”
Courson said MBA continues to advocate spending in the federal government's fiscal 2010 budget that will increase resources for law enforcement . “We have to give law enforcement the tools and the funding they need to prosecute cases of mortgage fraud,” he said.
James attributed one factor in the higher numbers to improved use of technology by lenders and servicers, who catch instances of fraud that they had not detected previously.
“Lenders are performing more due diligence and catching incidences of mortgage fraud before they go into the pipeline,” James said. “But that is shifting cases of mortgage fraud to areas where there is not proper due diligence.”
Other report findings:
--After improving in 2006 and 2007, Georgia jumped from seventh to fourth place in 2008;--California, ranked fourth in 2007, declined to eighth in 2008;--Maryland jumped from 15th in 2007 to fifth in 2008; and--The volume of reported frauds related to credit reports dropped from 9 percent to 4 percent between 2007 and 2008.
Additionally, the report noted three “emerging” fraud schemes:
--Foreclosure prevention schemes, in which fraudsters pose as “professional, knowledgeable foreclosure specialists.” These fraudsters promise to work out foreclosure problems or buy the home while offering the homeowners tenancy. In some cases, once documents have been obtained, the fraudster sells the property and evicts the tenants. “Fraud in the past has been a crime of opportunity,” James said. “Now, it is emerging as a crime of desperation.”
--Elderly and Immigrant Identity fraud, which the report notes is not new, but is gaining in notoriety. Fraudsters steal identities of elderly and immigrant consumers and use the identities is “straw buying” or other property transactions. “This is currently happening in reverse mortgage situations,” the report said; and
--Builder Bailout Fraud, in which fraudsters secure funds for condominium conversions or planned community development properties that, unbeknown to the investor, will not be completed.
“To combat fraud, the industry must pay attention to details,” the report said. “Mortgage bankers must act with a sense of constant vigilance to protect their pipelines from being tainted with preventable fraud risk by leveraging smarter technologies and acquiring more relevant information about their customers, employees and vendors.”
The report is available on the MARI web site, http://www.marisolutions.com/.
Michael S. Richardson
http://www.preventmortgagefraud.com/
Sunday, March 15, 2009
http://www.preventmorgtgagefraud.com/
Michael S. Richardson: founder, author and loan modification specialist
FORENSIC MORTGAGE LOAN AUDITS
What is a forensic mortgage audit?
A Forensic Mortgage Audit is the comprehensive review of all loan documentation including legal documents, transactional data, and other evidence pertaining to your real estate loan that has been funded. A forensic mortgage audit identifies any illegalities performed by the lender, their broker, or other parties in conjunction with the mortgage. During the audit process, skilled professionals review all documents received from your lender from the date you applied to the date you funded your loan including any envelopes, faxes, and emails to ensure that your loan meets all legal requirements that were in effect at the time the loan was funded.
How can an audit stop a foreclosure?
If you are in foreclosure, the proper plan and notifications can stop the foreclosure process immediately. A forensic mortgage audit disclosing violations can stop a foreclosure in its at once, until the issues are resolved. The law gives a borrower a limited amount of time to act. If you wait, you may not be able to take action later.
Why do a loan audit?
A Forensic Loan Audit helps to identify potential infractions and violations committed by your lender and/or broker when your original loan was funded.
A thorough forensic loan audit should look for:
1) Violations of Federal, State or Local LawsThe act of using your home as collateral in obtaining a mortgage is covered by numerous federal, state and local laws. These laws are in place to protect your rights when you use your home as collateral in a mortgage transaction. The audit professional will review your loan documents to determine if there are differences between the disclosure of information in your loan documents you received and the disclosure of information required by law.
2) Constructive Fraud Material facts include the terms of the loan, whether there is a prepayment penalty, or any other information that a reasonable borrower would want to know before accepting the loan. Did the broker or loan officer or anyone working for the broker or loan officer fail to disclose any material facts to the borrower?
3) Fraud and Negligent Misrepresentation Were any representations, statements, or comments, written or oral made by the loan officer, broker, escrow or anyone else which contradicted the terms of the documents? When a mortgage professional makes errors, which a reasonably diligent mortgage professional would not have made, he or she may have made a negligent misrepresentation.
4) Excessive Fees Were there any excessive fees or improper charges made by the lender or loan broker. Are there any deceptive, abusive, or predatory lending practices or an excessive prepayment penalty? Is there a Net Tangible Benefit to the Borrower in the mortgage transaction? Was there a proper analysis to determine if the Borrower can afford the payments on the loan? Were the fees properly disclosed?
5) Breach of ContractThe note and its attachments are a contract. The lender must follow all the terms of the contract such as the way the interest is calculated, and the penalties are assessed. Were there any terms in the contract, which the lender failed to follow?
Typical Problems we find in the loan files:
1. No broker disclosures were made
2. No RESPA booklet was ever given
3. No good faith estimate (GFE) was given within three days of taking the loan application
4. Two Copies of Notice of Right to Cancel not given to each borrower
5. Three Day rescission period not provided for (client signs and loan funds on dame day on a non-purchase loan)
6. FICO scores not properly disclosed
7. Credit risk factors not disclosed
8. Truth in Lending not provided within three days of taking the loan application
9. Truth in Lending Statement does not accurately disclose the finance charges, APR, amount financed, or total of payments
10. No payment schedule is included in the loan documents or the payment schedule is not accurate
11. There is no ARM disclosure or the ARM disclosure in not accurate
12. The loan contains a floor interest rate that is illegal in California
13. Truth in Lending Notice of Right to Cancel is not filled out properly by the lender
14. Documents are not properly signed or notarized
15. There is no copy of the promissory note (it is unclear what entity is entitled to enforce the debt)
16. There is no Final Hud-1 in the file or the Final HUD is not accurate (These are the main ones that pop up with frequency. There are of course others as well.)
How do I begin?
Here is an overview of how the Forensic Mortgage Audits program works from
1. PreventMortgageFraud.com will conduct a Forensic Loan Audit, which scrutinizes the mortgage documents you received upon the closing of your loans(s) and look for TILA, RESPA and HOEPA violations by your lender. Once you receive your Audit, you will know what violations, if any, were committed in the handling of your loan. (Statistically, nearly every loan has at least some violations) You can then decide if you should proceed to seek a mortgage loan modification. If you do proceed,
2. We will the start your mortgage work out plan plan or known as a Loan Modification using your audit as leverage. If needed your audit could be referred to an attorney who can immediately file a Federal lawsuit on your behalf, this happens in very few cases.
3. Armed with your details audit and perhaps indicating the lender’s violations, our Loan Modification team will negotiate with your lender for a reduced payment and even possibly a reduction of your principal balance. Alternatively, if the Attorney is needed they will reach a settlement agreement with your lender using our audit to support your claim. If the claim continues into trial, our audit will demonstrate to a judge and jury how the lender willfully failed to comply with the law.
Order my book today at http://www.amazon.com/ or http://www.barnesandnoble.com/
An American Epidemic: Mortgage Fraud – A Serious Business
Michael S. Richardson is an author and Loan Modification Specialist
Do not wait visit our "Start Now Page" http://www.preventmortgagefraud.com/
Relief of those who are facing foreclosure on their mortgages.
Mr. Michael Richardson - President Preventmortgagefraud.com
1. Obama's plan appears to provide no relief for any homeowner whose mortgage exceeds the total value of his home.
2. About 20 percent of America's home mortgages are now worth more than the property they finance.
3. Obama rush to the aid of those who have been hurt in this bad economy, but exempting from his proposed relief anyone who has lost his job and seen a cut in income or whose property values have dropped below the amount of his mortgage.
Analysis
We have to solve the “F” word in the industry? Do you even dare to bring the “F” word up in polite conversation? After all, if you even mention the ‘F” word it makes any honest, hard working real estate professional quiver. The “F” word is a dirty word in the mortgage industry, and for good reason. So, have you guessed it yet? What, exactly, IS the “F” word? “Fraud.” More specifically: “Mortgage Fraud.”
Mortgage Fraud. Clearly, the statistics point to nothing short of an epidemic. And yet, really, what do we know about fraud? In point of fact, it’s not what we know about fraud that’s dangerous; it’s what we don’t know. What’s worse is the staggering amount of opportunity with which the American real estate industry provides those who commit fraud.
If we are to see a light at the end of this tunnel the mortgage bankers are going to have to attack this problem head on.
The first thing that should be done is a "Forensic Mortgage Audit" on a higher percentage of loans, a comprehensive review of all loan documentation including legal documents, transactional data, and other evidence pertaining to your real estate loan that has been funded or about to be funded. Implementing this type of plan will accomplish two risk areas, existing loan issues and slow down the flow of new fraudulent loans into the funded pipeline. This process will also help flush out the fraudsters past and present.
The second area is that the government clearly knows there is a problem, but does not understand how to make whole, who could they? The government is not and does not think like a business.
A loan modification is then needed with a mutually agreed upon modification to a homeowner's existing mortgage note(s) that allows a homeowner to stay in their home, avoid foreclosure of the property and for the property to cash flow again for the investors.
It is also very obvious that most of the government people are looking for a fast fix for millions of people. The Real Estate and Mortgage Industry is a people business, the homeowners need and wants personalized attention. There is no other way than to talk with each homeowner individually.
There’s a story often told about a solitary man out taking a stroll on the beach. Eventually he comes upon a portion of the beach where millions of dying starfish have been washed upon the shore by an unusually high tide. The man is shocked by the sheer number of starfish and how many will perish because of Mother Nature’s folly.
As he continues walking he sees more and more starfish stretching as far as the eye can see. Step by step he becomes more convinced of the futility of it all. He begins to question his own mortality, and wonders if he and his vain attempts to find meaning in life aren’t a lot like all those starfish.
Finally he comes across a little boy who, much like himself, is confronted with the massive proportions of those millions of dying starfish. The two stand side by side, silently contemplating the holocaust. Finally, the boy reaches down to pick up a single starfish, flinging it out to sea.
The man snorts and says, “Why bother? You’ll never save them all. How can you possibly make a difference?”
The boy shrugs, reaches down to grab up another starfish and, before flinging it out to sea says, “I can make a difference to this starfish.” Struck
PreventMortgageFraud.com- The ripple effect of fraud is as deep as it is far-reaching.
Sincerely,
Michael S. Richardson
1. Obama's plan appears to provide no relief for any homeowner whose mortgage exceeds the total value of his home.
2. About 20 percent of America's home mortgages are now worth more than the property they finance.
3. Obama rush to the aid of those who have been hurt in this bad economy, but exempting from his proposed relief anyone who has lost his job and seen a cut in income or whose property values have dropped below the amount of his mortgage.
Analysis
We have to solve the “F” word in the industry? Do you even dare to bring the “F” word up in polite conversation? After all, if you even mention the ‘F” word it makes any honest, hard working real estate professional quiver. The “F” word is a dirty word in the mortgage industry, and for good reason. So, have you guessed it yet? What, exactly, IS the “F” word? “Fraud.” More specifically: “Mortgage Fraud.”
Mortgage Fraud. Clearly, the statistics point to nothing short of an epidemic. And yet, really, what do we know about fraud? In point of fact, it’s not what we know about fraud that’s dangerous; it’s what we don’t know. What’s worse is the staggering amount of opportunity with which the American real estate industry provides those who commit fraud.
If we are to see a light at the end of this tunnel the mortgage bankers are going to have to attack this problem head on.
The first thing that should be done is a "Forensic Mortgage Audit" on a higher percentage of loans, a comprehensive review of all loan documentation including legal documents, transactional data, and other evidence pertaining to your real estate loan that has been funded or about to be funded. Implementing this type of plan will accomplish two risk areas, existing loan issues and slow down the flow of new fraudulent loans into the funded pipeline. This process will also help flush out the fraudsters past and present.
The second area is that the government clearly knows there is a problem, but does not understand how to make whole, who could they? The government is not and does not think like a business.
A loan modification is then needed with a mutually agreed upon modification to a homeowner's existing mortgage note(s) that allows a homeowner to stay in their home, avoid foreclosure of the property and for the property to cash flow again for the investors.
It is also very obvious that most of the government people are looking for a fast fix for millions of people. The Real Estate and Mortgage Industry is a people business, the homeowners need and wants personalized attention. There is no other way than to talk with each homeowner individually.
There’s a story often told about a solitary man out taking a stroll on the beach. Eventually he comes upon a portion of the beach where millions of dying starfish have been washed upon the shore by an unusually high tide. The man is shocked by the sheer number of starfish and how many will perish because of Mother Nature’s folly.
As he continues walking he sees more and more starfish stretching as far as the eye can see. Step by step he becomes more convinced of the futility of it all. He begins to question his own mortality, and wonders if he and his vain attempts to find meaning in life aren’t a lot like all those starfish.
Finally he comes across a little boy who, much like himself, is confronted with the massive proportions of those millions of dying starfish. The two stand side by side, silently contemplating the holocaust. Finally, the boy reaches down to pick up a single starfish, flinging it out to sea.
The man snorts and says, “Why bother? You’ll never save them all. How can you possibly make a difference?”
The boy shrugs, reaches down to grab up another starfish and, before flinging it out to sea says, “I can make a difference to this starfish.” Struck
PreventMortgageFraud.com- The ripple effect of fraud is as deep as it is far-reaching.
Sincerely,
Michael S. Richardson
Author and Loan Modification Specialist
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