If there was one major takeaway from the National Crime Prevention Council’s 2013 Mortgage Fraud Virtual Conference, it was this: The mortgage market, while no longer a wicked stepchild of the housing crisis, must still be carefully monitored. Though its tantrum-throwing days may be over, the $1.1 trillion government loan industry has the potential to cause serious economic damage should fraudulent mortgage activity persist unchecked.
“What is old is new again,” says Michael Stolworthy, Director of Fraud Prevention for the U.S. Department of Housing and Urban Development. “We’re starting to see some disturbing trends. The same old type of mortgage cases are coming up.”
False statements on loan applications, inflated appraisals, and loan modification schemes are just some of the ways fraud is reappearing in the mortgage market. And with government loans on the rise—the number of mortgages insured by the Federal Housing Administration has nearly doubled since 2006—the potential for mortgage fraud increases, especially among applicants in shaky financial condition.
“Back during the mortgage boom, people who had taken out second and third mortgages were living the champagne lifestyle on a beer budget,” says Robert Simken, a former real estate practitioner turned police officer in Eustis, Fla. “Now, those same people are living in homes that are underwater and willing to do just about anything to get out of their bind.”
Problems arise when that “anything” includes turning to loan counselors, lenders, and alleged real estate professionals who make promises they never plan to keep. “If an opportunity comes along that seems too good to be true and the little hairs on your neck stick up and say ‘danger,’ don’t just ignore them,” Simken warns.
Through public outreach campaigns and educational seminars, organizations like the National Crime Prevention Council stress the importance of using an accredited real estate professional when contemplating any property transaction. “Half the people haven’t checked the qualifications of the individual helping them buy a home,” says Ann Harkins, CEO and President of NCPC.
Simkens agrees that home owners should seek advice from a noted professional. “You don’t go to the butcher for brain surgery and you don’t go to a brain surgeon for chopped meat,” he says. “It’s important to find an expert and not just someone who shows up and can recite the jargon.” Continue reading »
By Robert Freedman, senior editor, REALTOR® Magazine
The affidavit that Freddie Mac requires servicers to obtain in short sales has been changed at NAR’s request to reduce what was seen as an unreasonable amount of liability risk to practitioners. Freddie Mac requires the affidavit to reduce illegal flipping and collusion between buyers and sellers but NAR members said the language held them liable for situations over which they had no control. (See a past blog post.)
Months ago NAR brought these concerns to the company’s attention, and the result is the revisions to its required language.
The biggest change has to do with what’s known as joint and several liability. In essence, this extends to agents liability for false statements made by others involved in the transaction, even if agents know nothing about the statements. To be sure, agents can fight to get the liability removed, but you can imagine the work and headache that’s required to win that argument.
The company made other changes to its language, and the bottom line is, the liability risk now is much more appropriately aligned to practitioners’ role in the transaction.
NAR has since created a resource page with more information on the change. There’s a link to Freddie Mac’s policy and to a bulletin the company put out on the change. There’s also a copy of NAR’s letter expressing its concerns.
In the video above, NAR Managing Director of Regulatory Policy Jeff Lischer talks about the new language and what to do if you’re in a transaction and the servicer is using the old language.
By Robert Freedman, Senior Editor, REALTOR® Magazine
Bank of America has started requiring buyers and sellers to sign an addendum to its short-sale agreement. The addendum has raised some questions among real estate sales associates and brokers, so to learn more about what the bank is trying to accomplish with the form, REALTOR® Magazine spoke with David Sunlin, senior vice president and operations executive for short sales, deed in lieu, and real estate management for Bank of America.
REALTOR® Magazine: What’s the reason you’re asking for this additional document as part of your short-sale approval process?
David Sunlin: It’s entirely about fraud prevention. We want to ensure that the transaction is at arm’s length and that the property isn’t immediately flipped for a higher price without there being any repairs or upgrades. It’s not punitive in any way and has nothing to do with deterring any part of the transaction, and certainly not the compensation that goes to the agent. We think they’ve earned every penny of that commission and we’re not trying to interfere with that.
RM: Can you go into detail about the kinds of fraud the addendum is intended to curb?
Sunlin: There are two main categories. First, there’s flipping, and then there are schemes in which parties collude or otherwise try to keep the home owner in the home or else pass along some kind of benefit to the home owner from the sale of the property. For example, the parties find a buyer at current market value [which is considerably lower than what the owner originally paid] and that buyer flips the property back to the home owner, or they allow the owner to stay in the home, or they feed the owner some cash out of the deal so that the owner can stay in the home. When you have losses that are on average in the hundreds of thousands of dollars, and in the vast majority of these cases those deficiencies [losses] are being waived [by the investor] to allow the sale to happen, it’s reasonable for us to want to know if there is a hardship, and if the owners were to receive cash payments on the side, arguably that money should go to the investor as the debt that’s being forgiven. In every case, that amount [to the investor] would be much less than the total amount of debt owed, so the investor isn’t made whole by any means. But if someone is saying, “Hey, do this and we’ll throw you five grand,” [that’s not appropriate]. We’ve certainly got programs that will help home owners as they exit. In fact, we’re getting ready to roll out a really nice information packet that we’re going to mail to delinquent customers that advises them of their options to avoid foreclosure and can connect them to some of our social services network partners. We certainly recognize people are in default and experiencing hardship. They need help. We want to be able to connect them to that help, and provide it directly to them as much as we can, but we certainly don’t expect them to use a short sale as a means to walk away with more cash or to purchase the property back at current pricing.