PART 1 of 2
Coach Mitchell Goldstein
October 22, 2011
Coach Mitch’s Editorial Comment
The sections of the report I comment about are provided in full and within context. To read the entire 52 page report click here.
Targeting mortgage fraud
The idea behind the study is excellent: to determine who perpetrated mortgage fraud so as to prosecute the culprits and stop it from continuing.
Sadly, the fix was in and the finger of blame is fixed on those carrying out policy instead of blaming the makers of the policy. In finance, just as in politics, nothing happens unless the bosses want it to happen. The real culprits of the mortgage crises, the CEO’s of the banks and Wall Street, are entirely ignored. Instead, the finger of blame is pointed at underlings. Such are the perks of power. RHIP. (Rank Has It’s Privileges)
Federal Bureau of Investigation
2010 Mortgage Fraud Report
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 is a material misstatement, misrepresentation, or omission relied on by an underwriter or lender to fund, purchase, or insure a loan. This type of fraud is usually defined as loan origination fraud. Mortgage fraud also includes schemes targeting consumers, such as foreclosure rescue, short sale, and loan modification.
Mortgage fraud continued at elevated levels in 2010,…fraud schemes
are particularly resilient, and they readily adapt to changes in lending
• Mortgage fraud perpetrators include licensed/registered and non-licensed/registered mortgage brokers, lenders, appraisers, underwriters, accountants, real estate agents, settlement attorneys, land developers, investors, builders, bank account representatives, and trust account representatives.
Missing from the list of perpetrators are the policy makers. As I read the report I was interested to see that, IMHO, the FBI has some suppositions correct, but they fail to point out the big reasons for the banking crises - bank CEO and Wall Street mortgage fraud. Why am I not surprised that CEO's and Wall Street types are not targets of this fraud investigation.
will see that the above mentioned fraud perpetrators are all licensed
professions. The government’s number one crime prevention tool is
to demand that everyone is licensed.
Since it is obvious that licensing does not stop a criminal mind from doing crime, why have licensing? Licensing is one of government's main tools to control the workforce, that's why.
• Prevalent mortgage fraud schemes reported by law enforcement and industry in FY 2010 included loan origination, foreclosure rescue, real estate investment, equity skimming, short sale, illegal property flipping, title/escrow/settlement, commercial loan, and builder bailout schemes. Home equity line of credit (HELOC), reverse mortgage fraud, and fraud involving loan modifications are still a concern for law enforcement and industry.
The above schemes are all approved programs. When reading the report, even an innocent misstatement is labeled "mortgage fraud."
For a loan originator to do a loan successfully, significant financial information is needed and often the details are manipulated to show the applicant in the most favorable light. This is being labeled as mortgage fraud.
There are limits however. Banks want to know about an applicant’s assets, which can be hyped, but it is not smart to list $100,000 of imaginary stock and then state that money is not available for a down payment. The bank will be suspect were the applicant to not want to sell some stock to raise the down payment. Besides, I always got a statement from the brokerage house showing the value of the asset, which also proved that the asset existed.
A continued decrease in loan originations…high levels of unemployment
and housing inventory, lower housing prices, and an increase in defaults
and foreclosures dominated the housing market in 2010… 2.9 million
foreclosures in 2010, representing a …23 percent increase since
• Analysis…indicates the top states for…mortgage fraud activity during 2010 were California, Florida, New York, Illinois, Nevada, Arizona, Michigan, Texas, Georgia, Maryland, and New Jersey
Dark states have 50% seriously delinquent ARM's
Estimated fraudulent loans
FBI mortgage fraud pending investigations totaled 3,129 in FY 2010, a 12 percent increase from FY 2009 and a 90 percent increase from FY 2008. According to FBI data, 71 percent (2,222) of all pending FBI mortgage fraud investigations during FY 2010 (3,129) involved dollar losses totaling more than $1 million.
In FY 2010, HUD-OIG had 765 pending single-family residential loan investigations, a 29% increase from the 591 pending during FY 2009. This also represented a 70% increase from the 451 pending during FY 2008. Fraud schemes reported by HUD in ongoing investigations include flopping, reverse mortgages, builder bailout schemes, short sales, and robo-signing.
Imagine, there are 2.9 million foreclosures and the FBI touts 765 residential loan investigations, and that is a whopping 29% increase over 2009. The FBI is really on the job! [sarcastic] Not only are the major bank CEO's not being held accountable, the licensed financial professionals are also not being held accountable. Our government at non-work. [sarcastic]
The only way to beat evil is to overcome it. Fight fire with a conflagration. Fight the banks by making your own money, earning more that is.
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.
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.
Appraisal schemes and
Title-Escrow-Settlement Fraud-Non-Satisfaction of Mortgage
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.
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.
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.
Foreclosure rescue schemes are often used in association with advance fee/loan modification program schemes. The perpetrators convince homeowners that they can save their homes from foreclosure through deed transfers and the payment of up-front fees. This “foreclosure rescue” often involves a manipulated deed process that results in the preparation of forged deeds. In extreme instances, perpetrators may sell the home or secure a second loan without the homeowners’ knowledge, stripping the property’s equity for personal enrichment. For example, the perpetrator transfers the property to his name via quit claim deed and promises to make mortgage payments while allowing the former home owner to remain in the home paying rent. The perpetrator profits from the scheme by re-mortgaging the property or pocketing fees paid by desperate homeowners. Often, the original mortgage is not paid off by the perpetrator and foreclosure is only delayed.
According to FBI case analysis, mortgage fraud foreclosure rescue investigations comprised 2 percent of all mortgage fraud cases opened in FY 2010.
I have never seen a foreclosure rescue scheme, nor have I heard of anyone doing it in my area; however a loan officer recently told me he knew of many situations where fraudulent foreclosure rescue occurred. In NY a law was passed that makes it so onerous to do foreclosure investing that it dried up. More government misapplied overkill. The government should have come down hard on any perpetrators of fraud. Instead, the government eliminated any hope a person in foreclosure has of selling to an investor, usually their only potential buyer. Now the banks get all the properties. I am told that the banks are not in the real estate business – more nonsense.
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I found out about this law a bit too late. I had arranged an interview with the chief assistant to the gubernatorial candidate of the NYS Republican party along with another prominent investor, expressing misgivings about this potential law. The other investor said that the main witness for the law, who had testified before the state legislative committee, had been a client of his and the testimony was a complete fabrication and he could prove it. The chief assistant called to get a status report on the law and said that the law had been passed on the last day of the session along with hundreds of other laws and the governor had signed it into law just a few days previous. In the future, I will write a complete analysis of this law, which is being copied in other states. I believe the law is totally unconstitutional. For part two click below.
� 2011 Mitchell Goldstein - All Rights Reserved
Coach (Mitch) Mitchell Goldstein is a Nationally Recognized Expert in tax delinquent property investing and a Real Estate Investor since 1972 in commercial and residential properties.
Coach Mitch is dedicated to helping would be real estate investors to attain their financial goals through investing in tax delinquent real estate and has created various products and services to facilitate the tax delinquent real estate investor.
Mitchell is a Jewish American of Hungarian and Polish extraction and a fan of Locke, Jefferson, and Madison, whose instincts against accumulated power have proven prescient; and of Washington, and Hamilton, whose notions regarding consolidated power required that honor and the highest moral behavior be the hallmark of those exercising power.