This Mortgage Broker Spells T-r-o-u-b-l-e

Q: I went through a mortgage broker when I purchased my house. I just closed on July 30. A week after I closed, I received a letter stating that the company that they sold my loan to went out of business. My mortgage broker asked me to send my first payment to them while they looked for a new company to service my loan.

Yesterday (August 24), I received a call from my mortgage broker. They said that they just needed me to sign one more document, which they sent as an attachment to my e-mail address. The body of the e-mail didn’t explain the document, just asked me to sign it and return it to them asap. The document is called a “Mortgage Broker Fee Agreement”. The document lists all of the fees that I paid directly to the broker at the closing. However, it also lists a new 2% YSP that has not been on any of my paperwork until now.

When I chose to work with this broker, I asked questions about the YSP right away and was assured that there would not be one on my loan. I checked my paperwork again last night and could not find any mention of this 2% YSP.

My mortgage broker already dated the document that they are asking me to sign for July 27, 2009. My feeling is that they are trying to get this extra 2% commission from whatever new company they sell my loan to. While this is unethical, it doesn’t effect me directly. However, I’m wondering if it can somehow effect me directly if I sign it. Is there any way that this can change what I owe and require me to pay more?

I’m really confused. What is your take on this? Thanks for your help!

A: You shouldn’t send payments to anyone other than the lender or the new servicer. What your mortgage broker has asked you to do – send the payment to him – is as close to a felony as you can get.

The same thing applies to the mortgage broker fee agreement, which you should have received when you first applied for the loan. The 2% YSP is an underhanded attempt by the broker to make an additional commission on your loan.

This mortgage broker spells t-r-o-u-b-l-e, and I’d stay away from him.

Mortgage Scamster Sentenced in New York

 LEV L. DASSIN, the Acting United States Attorney for the Southern District of New York, announced that DOMINICK DEVITO was sentenced to 51 months in prison on May 19, 2009, by United States District Judge BARBARA S. JONES in Manhattan federal court for mortgage fraud, insurance fraud and obstruction of justice.

According to Counts One, Thirteen and Fourteen of the Indictment, the charges to which DEVITO pleaded guilty; other documents filed in the case; and statements made during the guilty plea and sentencing proceedings: From January 2002 through November 2004, DEVITO was the leader of a fraudulent real estate investment scheme that purchased multimillion-dollar residential properties in various communities in Westchester County — including Purchase, New York — with loans obtained through the submission of false and misleading information to banks and other lenders. DEVITO identified properties for sale, orchestrated the purchase of the properties, and performed construction work at the properties.

In addition, from January 2003 through February 2005, DEVITO engaged in a scheme to defraud insurance companies by submitting false and misleading insurance claims and supporting documents for water damage caused by broken pipes at several of the homes he and his co-conspirators had purchased as part of the mortgage fraud scheme. DEVITO obstructed justice in connection with his sentencing in 2003 in Manhattan federal court for racketeering and mortgage fraud in an earlier case. Specifically, DEVITO submitted false and misleading information regarding the value of his assets and his personal net worth following his sale of a property located in Purchase, New York.

DEVITO, 45, pleaded guilty before Judge JONES on July 22, 2008. In addition to his 51-month prison term, Judge JONES ordered a supervised release of 3 years and ordered DEVITO to forfeit a total of $1.4 million.

Mortgage Fraud: Should the Lender be Sued by the Borrower?

A mortgage broker submits a fraudulent loan file to a lender, which promptly funds the loan. The borrower – whose identity has been stolen by the mortgage broker – doesn’t even know that he is now the proud owner of an overpriced white elephant, which promptly goes into default.

Sounds familiar? The mortgage broker/realtor/closing agent used the stolen identity of the “buyer” to defraud the lender, and is now being sued by the man whose identity he had stolen. But should the buyer add the lender as a defendant?

The plaintiff’s attorney thought of the lender as a fellow-victim, and was about to suggest to the bank to join the suit as a co-plaintiff, but something which caught his eye made him change his mind: the appraisal.

The appraisal, forged by the mortgage broker, raised more questions that it answered. The comps were all inappropriate and any trained underwriter would have recognized it immediately as a work of fiction. Instead, the lender (one of the largest savings banks in the U.S.), accepted it as is without reviewing it.

The lender’s carelessness helped the mortgage broker pull off the scam. After careful review, the plaintiff’s attorney decided to add the lender to the lawsuit – not as a co-plaintiff, but as a defendant.

Say Goodbye to “Stated Income” Sub-Prime Loans

On December 18 the Fed endorsed new rules that would give people taking out home mortgages new protections against shady lending practices.

The proposed rules, approved in a 5-0 vote by the board, are geared to providing safeguards to the riskiest “subprime” borrowers, already painfully stung by the housing and credit debacles.

The proposal is expected to apply to new loans made by all types of lenders, including banks and brokers. The plan could be finalized next year.

The Fed, which has regulatory powers over the nation’s banking system, is proposing:

• Restricting lenders from penalizing certain subprime borrowers — those with tarnished credit or low incomes — who pay off their loans early. The restriction would apply to loans that meet certain conditions, including that the penalty expire at least 60 days before any possible payment increase.
• Forcing lenders to make sure that subprime borrowers set aside money to pay for taxes and insurance.
• Barring lenders from making loans when they don’t have proof of a borrower’s income.
• Prohibiting lenders from engaging in a pattern or practice of lending without considering a borrower’s ability to repay a home loan from sources other than the home’s value.

“Unfair and deceptive acts and practices hurt not just borrowers and their families, but entire communities, and indeed, the economy as a whole,” said Fed Chairman Ben Bernanke in prepared remarks. “They have no place in our mortgage system,” he added.

Fed policymakers also are considering requiring financial disclosures to borrowers early enough to use while shopping for a mortgage. Lenders could not charge fees — except for a fee to obtain a credit report — until after the consumer receives the disclosures. The Fed also will consider prohibiting certain types of misleading or deceptive advertising for certain loans. It also would require that all applicable rates or payments be disclosed in ads with equal prominence as advertised introductory “teaser rate.”

In addition, the Fed is expected to propose barring lenders from paying mortgage brokers a fee that exceeds the amount the would-be borrower had agreed to in advance that the broker would receive.

And, the Fed would ban certain practices, such as failing to credit a mortgage payment to a borrower’s account when the company servicing the mortgage receives it. The Fed also would prohibit a broker or other company from coercing or encouraging an appraiser to misrepresent the value of a home.

Before taking effect, the rules must be voted on again following a period of public comment and possible revisions.

The Fed’s response has taken on heightened importance given the meltdown in the housing and credit markets that has led to record numbers of home foreclosures. The crisis has raised the odds that the economy might fall into a recession, roiled Wall Street and given Democrats and Republicans much fodder to blame each other.

The plan, if ultimately adopted, offers Bernanke, who took over the helm in February 2006, an important opportunity to put his imprint on the Fed’s regulatory powers. Some critics have complained that Bernanke’s predecessor — Alan Greenspan, who ran the Fed for 18½ years — failed to act as a forceful regulator especially during the 2001-2005 housing boom, when easy credit spurred lots of subprime home loans and many exotic types of mortgages.

Subprime Bankruptcies: Fertile Ground for Lawsuits

Legal issues have become a growing concern for many involved in the subprime industry. Claims from distressed borrowers against loan originators have begun to increase, as have actions pitting business partners against each other and claims against purchasers of subprime mortgage-backed securities that did not honor an agreement in some way, according to participants in a recent conference on subprime law sponsored by the American Bar Association.

The most common types of lawsuit emerging in the wake of the sunprime implosion are borrowers filing individual and class claims against mortgage lenders. Claims include allegations of federal disclosure law violations, unfair and deceptive trade practices, breach of duties or breach of contract, misrepresentation, usury, and unlawful collection practices.

Assignee liability is also a major focus for business lawyers as lender and Wall Street cunduits try to protect their assets from future lawsuits. (Inside B&C Lending)

Ex-NFL Star Indicted for Mortgage Fraud

FIVE INDICTED IN MORTGAGE FRAUD SCHEME

[HOUSTON, TX] – A licensed Texas attorney and real estate developer, a sports agent, two bank loan officers, and a real estate appraiser have been indicted in a multimillion dollar mortgage fraud scheme, United States Attorney Don DeGabrielle, interim Special Agent in Charge Alex J. Turner of the FBI Houston Division, and Special Agent in Charge Daniel P. Salas of the U. S. Department of Housing and Urban Development announced today.

Jerome Karam, 44, of Friendswood, TX, a real estate developer and licensed Texas lawyer; Dwight Sean Jones, 44, of Beverly Hills, CA, a former NFL player and sports agent; Tommy Jay Trammel, 44, and David Ranostaj, 40, both of Houston and former loan officers with Southwest Bank of Texas, Bank of Houston and Whitney National Bank, and Jay Westrick, 44, of Houston, a real estate appraiser, have been charged in a 12-count indictment for their alleged involvement in a mortgage fraud scheme that allegedly reached every aspect of a real estate loan: seller, buyer/borrower, loan officer, appraiser, escrow officer, and title company. For the full article...

Did You ‘State’ Your Income On Your ‘Stated Income’ Loan?

Well, for those of you who live in Arizona, we hope you did not inflate your income on your loan application. House Bill 2040 – about to be signed by the Governor – makes that a felony in your state. Arizona is among the top 10 states in the number of foreclosures filed this year.

Eric Forster

From the FBI: All You Need to Know About Mortgage Fraud

MORTGAGE FRAUD INDICATORS

Inflated Appraisals
• Exclusive use of one appraiser

Increased Commissions/Bonuses – Brokers and Appraisers
• Bonuses paid (outside or at settlement) for fee-based services
• Higher than customary fees

Falsifications on Loan Applications
• Buyers told/explained how to falsify the mortgage application
• Requested to sign blank application

Fake Supporting Loan Documentation
• Requested to sign blank employee or bank forms
• Requested to sign other types of blank forms

Purchase Loans Disguised as Refinance
• Purchase loans that are disguised as refinances
requires less documentation/lender scrutiny

Investors-Short Term Investments with Guaranteed Re-Purchase
• Investors used to flip property prices for fixed percentage
• Multiple “Holding Companies” utilized to increase
property values

COMMON MORTGAGE FRAUD SCHEMES

Property Flipping – Property is purchased, falsely appraised at a higher value, and then quickly sold. What makes property illegal is that the appraisal information is fraudulent. The schemes typically involve one or more of the following: fraudulent appraisals, doctored loan documentation, inflating buyer income, etc. Kickbacks to buyers, investors, property/loan brokers, appraisers, title company employees are common in this scheme. A home worth $20,000 may be appraised for $80,000 or higher in this type of scheme.

Silent Second – The buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage. The primary lender believes the borrower has invested his own money in the down payment, when in fact, it is borrowed. The second mortgage may not be recorded to further conceal its status from the primary lender.

Nominee Loans/Straw Buyers – The identity of the borrower is concealed through the use of a nominee who allows the borrower to use the nominee’s name and credit history to apply for a loan.

Fictitious/Stolen Identity – A fictitious/stolen identity may be used on the loan application. The applicant may be involved in an identity theft scheme: the applicant’s name, personal identifying information and credit history are used without the true person’s knowledge.

Inflated Appraisals – An appraiser acts in collusion with a borrower and provides a misleading appraisal report to the lender. The report inaccurately states an inflated property value.

Foreclosure Schemes – The perpetrator identifies homeowners who are at risk of defaulting on loans or whose houses are already in foreclosure. Perpetrators mislead the homeowners into believing that they can save their homes in exchange for a transfer of the deed and up-front fees. The perpetrator profits from these schemes by remortgaging the property or pocketing fees paid by the homeowner.

Equity Skimming – An investor may use a straw buyer, false income documents, and false credit reports, to obtain a mortgage loan in the straw buyer’s name. Subsequent to closing, the straw buyer signs the property over to the investor in a quit claim deed which relinquishes all rights to the property and provides no guaranty to title. The investor does not make any mortgage payments and rents the property until foreclosure takes place several months later.

Air Loans – This is a non-existent property loan where there is usually no collateral. An example of an air loan would be where a broker invents borrowers and properties, establishes accounts for payments, and maintains custodial accounts for escrows. They may set up an office with a bank of telephones, each one used as the employer, appraiser, credit agency, etc., for verification purposes.

Mortgage Fraud Prevention Measures

General Fraud Tips

Mortgage Fraud is a growing problem throughout the United States. People want to believe their homes are worth more than they are, and with housing booms going on throughout the U.S., there are people who try to capitalize on the situation and make an easy profit.

Tips to protect you from becoming a victim of Mortgage Fraud

• Get referral for real estate and mortgage professionals. Check the licenses of the industry professionals with state, county, or city regulatory agencies.
• If it sounds too good to be true, it probably is. An outrageous promise of extraordinary profit in a short period of time signals a problem.
• Be wary of strangers and unsolicited contacts, as well as high-pressure sales techniques.
• Look at written information to include recent comparable sales in the area, and other documents such as tax assessments to verify the value of the property.
• Understand what you are signing and agreeing to–If you do not understand,
re-read the documents, or seek assistance from an attorney.
• Make sure the name on your application matches the name on your identification.
• Review the title history to determine if the property has been sold multiple times within a short period–It could mean that this property has been “flipped” and the value falsely inflated.
• Know and understand the terms of your mortgage–Check your information against the information in the loan documents to ensure they are accurate and complete.
• Never sign any loan documents that contain blanks–This leaves you vulnerable to fraud.
• Check out the tips on the Mortgage Bankers Association’s (MBA) website at http://www.StopMortgageFraud.com for additional advice on avoiding mortgage fraud.

Mortgage Debt Elimination Schemes

• Be aware of e-mails or web-based advertisements that promote the elimination of mortgage loans, credit card and other debts while requesting an up-front fee to prepare documents to satisfy the debt. The documents are typically entitled Declaration of Voidance, Bond for Discharge of Debt, Bill of Exchange, Due Bill, Redemption Certificate, or other similar variations. These documents do not achieve what they purport.
• There is no magic cure-all to relieve you of debts you incurred.
• Borrowers may end up paying thousands of dollars in fees without the elimination or reduction of any debt.

Foreclosure Fraud Schemes

Perpetrators mislead the homeowners into believing that they can save their homes in exchange for a transfer of the deed, usually in the form of a Quit-Claim Deed, and up-front fees. The perpetrator profits from these schemes by remortgaging the property or pocketing fees paid by the homeowner without preventing the foreclosure. The victim suffers the loss of the property as well as the up-front fees.

• Be aware of offers to “save” homeowners who are at risk of defaulting on loans or whose houses are already in foreclosure.
• Seek a qualified Credit Counselor or attorney to assist.
Predatory Lending Schemes

• Before purchasing a home, research information about prices of homes in the neighborhood.
• Shop for a lender and compare costs. Beware of lenders who tell you that they are your only chance of getting a loan or owning your own home.
• Beware of “No Money Down” loans–This is a gimmick used to entice consumers to purchase property that they likely cannot afford or are not qualified to purchase. Be wary of mortgage professional who falsely alter information to qualify the consumer for the loan.
• Do not let anyone convince you to borrow more money than you can afford to repay.
• Do not let anyone persuade you into making a false statement such as overstating your income, the source of your down payment, or the nature and length of your employment.
• Never sign a blank document or a document containing blanks.
• Read and carefully review all loan documents signed at closing or prior to closing for accuracy, completeness and omissions.
• Be aware of cost or loan terms at closing that are not what you have agreed to.
• Do not sign anything you do not understand.
• Be suspicious if the cost of a home improvement goes up if you accept the contractor’s financing.
• If it sounds too good to be true–it probably is!

Fraud, Abusive Lending Crushes Dreams for Millions of Homeowners

MSNBC special report:

Mark and Kerrie Russo, a Jackson, N.J., couple raising two young daughters, are struggling to hang on. Less than a year after buying a home in 2005, which they financed with a 30-year fixed rate loan based on a solid credit history, a local mortgage broker began sending letters offering to refinance their loan. A new product, the sales pitch said, allowed home owners flexibility to choose from a menu of different payments from one month to the next. To read the full article…

That Option ARM loan Could Cost You Your House

By Eric Forster

I expect to see a wave of foreclosures in the next two years, as Option ARM loans reach their trigger points and are reset by the lenders. Here is what happened to one buyer in Los Angeles:

The buyer purchased a home in 2004 for $1,000,000. As this is Los Angeles, $1 mil doesn’t really buy you much of a house – in this case, a 1,200 square foot house in a typical middle-class neighborhood. The buyer took out a $900,000 Option ARM mortgage, with a starting payment rate (good for the first 12 months) of 1.00%, and a fully-indexed rate of 8.45%, adjusted monthly. A payment rate of 1.00% calls for a monthly payment of $2,895, which is quite a bit lower than the full payment, approximately $6,890 per month. The difference between the minimum payment and the full one, almost $4,000, is added to the balance of the loan.

By the end of the first year, $48,000 had been added to the balance of the loan. A year late, the balance of the loan was $990,000, and the 10% trigger was activated. Under the terms of the loan, whenever the balance of the loan gets to be 110% of the original loan amount, the option of making minimum payment is terminated immediately and the new balance – $990,000 – is amortized over the remaining 28 years using the then-current interest rate (for simplicity’s sake, we’ll assume that the full rate is still 8.45%). The new monthly payment for the next 28 years is reset to $7,577 per month – quite a jump from that original payment, and quite possibly a payment the borrower cannot afford.

The blame for getting into this kind of a loan can be assigned probably to the lender, who didn’t fully explain the ramifications of obtaining a ticking time-bomb, or the realtor who pushed the buyer into a purchase he could not afford. Either way, many attorneys will be kept busy representing Option ARM buyers who’ve lost – or are about to lose – their homes.