FBI: Licensed Brokers/Bankers/Lawyers doing mortgage fraud. Part 2 Post 178

Coach Mitch’s REFLECTIONS™

 

Part 2 of 4

Federal Bureau of Investigation

2010 Mortgage Fraud Report

Read the entire 52 page report: FBI: licensed brokers/bankers/lawyers do lots of mortgage fraud

The purpose of this study is to provide insight into the breadth and depth of mortgage fraud crimes perpetrated against the United States and its citizens during 2010.

 

Mortgage Fraud

Mortgage loan origination fraud is divided into two categories: fraud for property/housing and fraud for profit. Fraud for property/housing entails misrepresentations by the applicant for the purpose of purchasing a property for a primary residence.

[A] Backwards Application Scheme fabricates the unqualified borrower’s income and assets to meet the loan’s minimum application requirements.

Coach Mitch:

I only saw this done regularly by one loan officer. However, when a loan program is entitled No Income Check, No Asset Check, the banking system is telling the applicant that it wants to make a loan, no matter the income or the assets of the applicant.

For the banks and the government to feint surprise that people lie to get what they want is the most hypocritical of all positions.

A CPA will maintain to the IRS that he only reports what the client gives in paperwork. The same happens with loan originators. Loan originators ask for financial data and people give what makes them look good. Wouldn’t you? The fall down comes in the underwriting, the checking. This is done by the bank – but in reality, the banks don’t check. If the bank did check for income or assets, the applicants would not be able to show them and because of that the bank wouldn’t do loans, so the bank does not check, and loan originators understand this.

 

Fraudulent Appraisal schemes and

Title/Escrow/Settlement Fraud/Non-Satisfaction of Mortgage

Coach Mitch

I can’t say this doesn’t happen, but I never saw it. Appraisers know that they won’t get continued business if their appraisals are too low and they will be wary of being in trouble with HUD if the appraisals are running too high. Appraisals that I saw were always within 10% of fair market value.

 

Real Estate Investment Schemes

In a real estate investment scheme, mortgage fraud perpetrators persuade investors or borrowers to purchase investment properties generally at fraudulently inflated values. Borrowers are persuaded to purchase rental properties or land under the guise of quick appreciation. Victim borrowers pay artificially inflated prices for these investment properties and, as a result, experience a personal financial loss when the true value is later discovered.

Coach Mitch

I have seen some of this. Typically it has been done in ghetto areas. Here also, the government is the villain. The government wants the ghetto inhabitants to own their home, in the hope that home ownership will stabilize the neighborhood. Since these properties usually need substantial work, an investor will pick up the property cheap, often use a government fix-up program to make the property pretty and then find an applicant who can qualify for that government guaranteed loan program. The loan must be government guaranteed because few banks want to loan in a ghetto.  Government always pays the highest prices because that is the cost of implementing policy.

Sadly, ghettos remain ghettos because the inhabitants do not change habits.  A person not used to paying their bills on time will continue to not pay their bills on time – especially after they get a new mortgage, because now there are even more bills that probably won’t be paid on time.  There are government programs to teach applicants how to pay their bills, however old habits are hard to break.

 

Short Sale Schemes

A real estate short sale is a type of pre-foreclosure sale in which the lender agrees to sell a property for less than the mortgage owed. Short sale fraud consists of false statements made to loan servicers or lenders that take the form of buyer or seller affirmations of no hidden relationships or agreements in place to resell the property, typically for a period of 90 days. One of the most common forms of a short sale scheme occurs when the subject is alleged to be purchasing foreclosed properties via short sale, but not submitting the “best offer” to the lender and subsequently selling the property in a dual closing the same day or within a short time frame for a significant profit. Reverse staging and comparable shopping techniques are currently being used by fraud perpetrators in the commission of short sale frauds. The fraud primarily occurs in areas of the country that are experiencing high rates of foreclosure or homeowner distress.

Industry sources report that in the process of committing short sale fraud, fraudsters are manipulating the Broker Price Opinions (BPOs) and MLS; engaging in non-arms-length transactions; using LLCs to hide their involvement in short sale transactions; failing to record short sale deeds of trust; using back-to-back and multiple real estate agent closings; selling properties to an LLC or trust months before the sale; selling the property to a family member or other party the fraudsters control and deeding the property back to themselves; engaging in escrow thefts, simultaneous double sales to Fannie Mae and Freddie Mac, and failing to pay off the original loan in a refinance transaction; property flipping; bribing brokers and appraisers; refusing to allow the broker or appraiser access to the property unless the fraudster is present; providing their own comparables to the appraiser; taking unflattering photographs of the property and pointing out defects in the property to the appraiser; providing false estimates of repair, rebuttal of appraisal, and selection of poor comparable properties; and facilitating the partnership of attorneys with non-attorneys to split fees acquired during short sale negotiations.

Coach Mitch

Real estate professionals work hard, trying to make a living by selling shorts.  The banks make it almost impossible, and then there is the government, making it even worse. Providing comparable housing figures to an appraiser is part of an investor’s job – but the FBI calls it mortgage fraud.  Ridiculous!  On many occasions I pointed out defects in the property or made sure that a property’s good features were noticed.  That is now called mortgage fraud.  A few times I rebutted the appraisal and asked the appraiser to justify his numbers.  Even that is termed mortgage fraud.  Absolute nonsense!  This is governmental interference in commerce, something they are used too.

There are serious situations where a group of persons will manipulate the property and the financing to make fraudulent profits.  These should be prosecuted to the fullest extent of the law and I wish they were, we would all be better off.  I was the president of a large real estate investors association for a long time and I did mortgages for a long time; but I only heard of a handful of these types of situations.

 

The only way to fight evil is to overcome it. Fight fire with a conflagration. Fight the banks by making your own money.

See Coach Mitch’s “Ridiculously Simple System…” ™ for details.

Gird your loins – the battles await,

See Part 3 of 4