Entries Tagged 'Mortgage Fraud' ↓

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

While we in the real estate blogosphere try to figure out why the mortgage crisis is not resolving itself, the reason might be staring us in the face.

The consumer never learned the rules of the game.

Real estate agents and mortgage brokers got so caught up in the frenzy of selling and doing deals that they forgot to educate the consumer. This let the honest people turn deals quickly but it also let the unscrupulous amongst us scam buyers.

Remember the Sy Sims line from the annoying ads, “An educated consumer is our best customer.”

Well, according to this study by the Federal Trade Commission, the typical mortgage buyer was not an educated customer, and now we are all paying the price for this lack of education. So take the extra time now to make sure your clients are being served and educated. It is in all of our best interests.

The study, put together by the Federal Trade Commission for the Federal Reserve, contained some startling statistics: Of those surveyed, 25% could not identify the annual percentage rate of their mortgage, and 25% could not identify the amount of settlement charges. Half could not correctly identify the amount of the loan. Two-thirds were unaware of prepayment penalties that could be charged during refinancing. Three-quarters did not recognize that the loans included charges for optional credit insurance. via Forbes.com

Mortgage fraud was rampant in the beginning of the century, that is very obvious to anyone who has watched the real estate market recently. That is why the new legislation coming out of Missouri is good to see. 

Missouri is going to make the crime of mortgage fraud it’s own category of law with enforcement and very specific penalties. The legislators were smart and kept the scope of the law looking forward to stop rampant fraud from happening again instead of a cumbersome legislation that would have tried to right the ills of past issues. Some legislators were hoping to add language that would have funded foreclosure protection and subprime legislation in the bill, but that would have diluted any affect on stopping mortgage fraud in Missouri in the future.  

The legislation defines mortgage fraud as making false statements or failing to disclose material facts. It creates fines and allows for the licenses of real estate brokers, agents and appraisers to be revoked. It also bars attempts to influence real estate appraisals through extortion or bribery.
The bill, which had already cleared the Senate, was endorsed 141-5 by the House on Thursday and now goes to the governor.
“What we were really focusing on were people who were breaking the law,” said Pearce, R-Warrensburg.
Pearce’s bill allows for civil fines of up to $2,500 per violation for those who commit mortgage fraud. It also makes mortgage fraud a felony punishable by up to seven years in prison. via the Houston Chronicle.

Is this any surprise, both Freddie Mac and Fannie Mae are now being told to moderate their aggressive accounting methods and be more prudent on the numbers they are reporting. The issue is a bit esoteric but coming after the accounting scandals that enveloped the agencies in the past year, any hint of impropriety should be taken seriously.

With the housing and credit markets in trouble, Fannie Mae and Freddie Mac’s role is to be the rock in the sea of turbulence. If they are committing shenanigans and/or fraud they could further undermine the housing markets and create even more turmoil. No one is expecting the companies to post stellar profits, but they expect them to be the ethical foundation of the housing industry.

The regulator for Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), the Office of Federal Housing Enterprise Oversight, told the government-chartered buyers of mortgage debt Monday that they must be judicious in using fair-value accounting rules or they will be barred from them.

At issue is accounting standard No. 159, known as the Fair Value Option for Financial Assets and Financial Liabilities. The standard allows a firm to shift its accounting of an asset from “book value” to “fair market value.” The practice can, in certain situations, produce gains when the value of a security declines.

“It is important that Fannie Mae and Freddie Mac apply fair value in a sound and consistent manner,” said OFHEO Director James B. Lockhart. “Although Fannie Mae and Freddie Mac are using fair value for only a portion of their assets and liabilities, the use of fair value should help dampen fluctuations in earnings caused by their large derivative portfolios.” via Atlanta Business Chronicle:.

The tangled web of the housing market and politics is getting deeper. Hillary Clinton is proposing a 30 billion dollar bailout of the housing market. This obviously is a move to gain a populist edge in the coming election. Typical politics, nothing to see here, right?

Well not so fast. Her campaign manager and chief adviser, Maggie Williams, was a director of one of the largest subprime lenders in the country. Delta Financial was the 8^th largest subprime lender and had a track record of lending in urban areas that were hit hard with foreclosures.

So as the politicians fight over who has the high ground in the housing debate, be very cautious. But when Hillary Clinton will there was a lot of fraud in the housing market take her word for it.

Her chief adviser was in the middle of committing some of the worst of it.

Hillary Clinton spends considerable time on the campaign trail bemoaning unscrupulous lenders who have left millions of Americans scrambling to keep their homes but all the while her campaign manager, Margaret “Maggie” Williams, has sat on the board of one of the nation’s once-largest and now-bankrupt sub-prime mortgage lenders.

Clinton Communications Director Howard Wolfson told FOXNews.com late Sunday that Williams, a longtime Clinton ally, didn’t join Clinton’s Democratic presidential campaign as a volunteer until after Delta Financial Corporation — for which Williams is a director — went bankrupt in December 2007.

…
But as it turns out, Clinton’s top aide is on the board of what had been — until its bankruptcy — the ninth-leading sub-prime lender in the nation, handling almost $800 million worth of sub-prime lending in the third quarter of 2007 alone, according to National Mortgage News. via Americas Election HQ.

Folks, if my political prognosticating hat is on correctly, our real estate industry is going to be front and center in the 2008 Presidential Race. The New York Times, the paper of record and the barometer for how the media covers things, has 2 big articles on foreclosures today as their top stories.

On one hand the article, McCain Warns Against Hasty Mortgage Bailout, they talk about how McCain, the Republican candidate, is coming out against a government intervention in the foreclosure crisis.

Drawing a sharp distinction between himself and the two Democratic presidential candidates, Senator John McCain of Arizona warned Tuesday against vigorous government action to solve the deepening mortgage crisis and the market turmoil it has caused, saying that “it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.” via the NYT

Meanwhile the next story on their morning email news blast is the article, Swift Steps Help Avert Foreclosures in Baltimore, discussing how the evil mortgage companies are attacking and defrauding the poor and lower middle class.

When Wilbert and Patricia Savage missed two mortgage payments on their tidy row house here last fall, Mr. Savage, 75, despaired that they could ever catch up. Wilbert Savage outside his home in East Baltimore. He and his wife, Patricia, recently sought help when their loan payments rose.

But he remembered Roy Miller, a nonprofit housing counselor with a nearby storefront office who had helped other neighbors in trouble. The Savages visited Mr. Miller, and he called their lender and was able to work out a repayment plan for the missed payments, something Mr. Savage said he could never have managed on his own.

“Without Roy, we’d probably be out of the house or close to it,” he said. via the NYT

Now my years of blogging about politics on an old site tells me this, expect on your local news, national news channels, and human interest shows to grab onto the foreclosure story as a battle. One one side you have the beholden to corporate America Republicans. On the other side, the defenders of the embattled Democrats. The foreclosure crisis is going to morph from a story of irresponsible lending and borrowing into an epic struggle between the powerful and the downtrodden.

With Iraq off the table for the media, the economy and housing crisis is going to be center stage. Which also means that any improvement in the housing market will be drowned out in the cacophony of political rhetoric over the coming few months.

The FBI has been sleeping through the mortgage fraud crisis hoping the elephant in the room would just go away. The banks lose a few million, homeowners end up with reduced property values, and we do not have to get our budgets blown out.

However, the elephant has started tearing things up just a little too much and now the FBI has had to react. What a surprise. Now the FBI is there to protect homeowners from mortgage fraud in Nevada as the degree of fraud is just too great to ignore.

The end result is that home buyers purchase properties in communities that are greatly over valued, and they are then unable to sell or refinance the property, eventually leading to foreclosure. The lending institution or the federal government is left to suffer massive economic losses.”
It said that as of February Nevada led the nation in investor-owned mortgage defaults.
The FBI said its task force would work with Las Vegas metropolitan police, the Internal Revenue Service, the Nevada Attorney General’s office and other federal agencies. via Reuters.

That is the question that is being asked over at Smart Money. They have gone through the balance sheet of the public private mortgage guarantor are concerned. Creative accounting and overly positive projections paint a picture that could be far from reality.

This would not be as worrisome but the past history of Fannie Mae has been checkered. Billions of dollars of losses left a mess from the Franklin Raines days and now with the housing situation weakening the risks to Fannie Mae could be real.

In our view, the rapid decline in home prices and soaring level of foreclosures might cause the wave of credit losses to hit far sooner and with greater ferocity than many imagine, potentially submerging the income Fannie is expecting to harvest from volume growth and higher lending fees.
A new phenomenon of widespread negative equity — homeowners owing more on their mortgage than the underlying property is worth — has wrought a sea change in borrower behavior. Borrowers, whether subprime or prime, financially stretched or flush with cash, are walking brazenly from their l obligations in stunning numbers.  via SmartMoney.com.

The business practices of Countrywide Financial are being investigated by the FBI according to Bloomberg. While it is hard to keep track of everything, the charges of security fraud are hard to get out of if Mozilo selling a huge chunk of his stock right before the share price tanked does raise a red flag.

With Bank Of America looking to buy Countrywide would a large scale investigation give them the out if they did not want to go through with the deal? The clash of cultures and rot under the surface of Countrywide must be raising some red flags in the boardroom of Bank of America. A large scale investigation into securities fraud would be just the thing to allow BoA to scuttle the deal.

Investigators are focusing on whether Countrywide officials misrepresented the company’s financial position and the quality of its mortgage loans in securities filings, said the person, who declined to be identified because he wasn’t authorized to speak about the probe. He described the inquiry, reported earlier today by the Wall Street Journal, as preliminary.
Countrywide is among at least 14 companies that the FBI is checking for possible accounting violations related to the subprime lending crisis, including mortgage lenders, housing developers and Wall Street firms that package loans as securities. The FBI announced the review in January without identifying any of the companies.  via Bloomberg

The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money. Alexis de Tocqueville

We are getting closer and closer to the end of the republic and into a world of quasi socialism as the politicians pandering increases. The most recent example is the New York State Legislature looking to enact a 1 year moratorium on foreclosures.

That’s right, essentially they are telling the lenders that they have to suffer an additional governmental tax by having to subsidize homeowners that have essentially no interest in the home. So think about it.

• First, you sign a liars loan and fradulently get a mortgage. (Not all are liars loans but enough to make the point.)
• Second, you fail to pay the mortgage sufficiently and are in foreclosure.
• Third, the lending institution has to absorb the losses that come with processing a foreclosure.
• Fourth, the lending institution may now have to provide you a year of housing free due to the mandate by the government with no confidence that it may be extended.

New York’s one-year moratorium, if passed, would not take effect on a case-by-case basis; it would be mandatory for court-ordered foreclosures. It would impose a one-year delay from the time a lender has proved its entitlement to foreclosure to the time the court order allows the foreclosure to proceed.

The bill, which has been referred to the Judiciary Committees of the Assembly and Senate, calls for the lenders and the homeowners in foreclosure cases to work out monthly payment schedules in the interim under terms that are “equitable and just.”  via New York Times.

With the onerous property taxes that are imposed in the state of New York they would be more ethical by giving a pass on all property taxes to those in foreclosure. For many these taxes are more than their mortgage.

But that would be quite illogical, wouldn’t it.

Hattip to Moke at Altos

It looks like the big fish has rolled over in the Penland land scam. Neil O’Rourke, ringleader of the  100 million dollar land scam has plead guilty in US District Court on the condition that he will testify against others charged in the probe.

This is one of the largest frauds committed in the United States and has the potential to bring many of the participants down. The only thing that I dislike is the leniency that O’Rourke has received. Come on, he is the leader of a 100 million dollar theft ring and only has  to pay a 250,000 fine and a maximum of 5 years in jail?

I do hope the hurt parties leave him and his cohorts penniless through the civil courts after their scamming and destroying the name of Penland.

Neil O’Rourke, 40, pleaded guilty in U.S. District Court in Charlotte to a single count of conspiracy involving charges of securities, mail, wire and bank fraud.
O’Rourke is a former president of Peerless Real Estate Group, which oversaw a development in Mitchell County called The Village of Penland, located about an hour northeast of Asheville.
When the project was halted in May, it left dozens of individual investors from the Triangle and throughout the country owing banks more than $100 million and it triggered three lawsuits.
O’Rourke, an attorney in private practice before he joined Peerless, agreed to cooperate with federal investigators as they seek additional indictments against others in the company.
No date was set for his sentencing. He faces a maximum of five years in prison, three years of supervised release and a $250,000 fine.
“In a case like this, the government is trying to get information that is credible and useful in nailing somebody higher up the line,” said James Cox, a securities law expert at Duke University. “So you try to reach a plea with someone as high up as you can. It sounds like they hit the target squarely here,” Cox said. via Charlotte Observer