What is mortgage fraud?

It can of course come in many forms, some of which I’m sure we haven’t even caught yet.  Sometimes it’s very obvious, sometimes it’s not as easy to spot.  Unfortunately it costs all of us money!  And even worse, at times it is encouraged (or at least facilitated) by the person on the other side of the desk from the borrower! 

As you may recall on September 7, 2008 the Treasury Department seized control of both Fannie Mae and Freddie Mac.  This means “we the people” now own Fannie Mae and Freddie Mac.  This was due to multiple influences to be sure not the least of which was what I call organized fraud.  I remember describing to a reporter what lending was like back in the middle of 2005 and 2006.  I said “I used to have a little mirror in my office that I pulled out and asked the person to try to fog it.  If they were able to fog the mirror I would exclaim ‘you’re approved!’”.  The reporter looked back at me with wide eyes apparently not knowing whether to believe me or not.  I reassured her I didn’t actually have a mirror.  However, it was just about that easy to be approved for a loan back then.  Now fast forward….

 These days it isn’t nearly as easy to get a loan.  It’s unfortunate as now in some cases I have to delay financing for some people that actually deserve to be approved far more than many folks did 2 years ago.   The old adage is true, a (relatively) few bad apples spoils the whole barrel.  I came across one of these bad apples recently and thought I’d tell the story about “Pat” who committed mortgage fraud at our (and Pat’s) expense.  Way back in December of 2003 while living out of state….

 Pat bought a condo in Destin.  It was a 1,200 square foot $210,000 condo that Pat financed as a “second home” with a 7 year ARM.  Pat’s timing was, while totally accidental, entirely perfect!  Before Pat actually sold the condo Pat must have realized the potential of this get rich quick program because Pat bought another 1,200 square foot condo in August of 2004, financing it as yet another “second home” when it was only a mile away from the other “second home” she bought just 9 months earlier and still owned.  Just 14 months after the purchase Pat sold the first “second home” for $195,000 more than Pat paid for it.  Unbelievable huh?  Imagine how much time Pat spent counting money both in hand and yet to come!!!  Why not get richer???

 2 months later while still owning one “second home” condo Pat bought a third 1,200 square foot condo very nearby calling it a “primary residence” and financing it with a monthly adjustable negative amortization loan where the payment was far below the actual amount of interest accrued and did nothing to pay down the principal.  She got this aggressive loan on a property Pat intended to live in?  Hmmm… Well “primary residence” means something different to Pat as Pat listed the condo for sale just over a month after purchasing it.  Unfortunately for Pat the housing market that made Pat rich is also the housing market that financially ruined Pat.  Now with 2 condos on the market the law started knocking…

 Pat has been foreclosed on one property and the other is in pre-foreclosure.  The list of legal action against Pat from lenders, taxing authorities, and homeowner associations is very lengthy.  Now where was the actual fraud?

• A good underwriter will not let someone finance multiple homes calling them “second homes” or “primary residences” that are similar and are close by each other.  An ethical Loan Officer won’t even take an application from a borrower trying to get preferred financing by calling the home a residence when it obviously won’t be.

o        The Underwriter was committing fraud, or just didn’t care enough to actually look at the file.  The borrower could fog a mirror….

o        The Loan Officer either coached this borrower this way (fraud), or was so poorly trained that he or she didn’t know how to look at things logically.

o        The borrower committed fraud when the borrower signed forms stating the condos were a type of residence they weren’t intended to be.

• Reasonable Underwriting guidelines would never allow a person to finance these homes this way.

o        As all of these loans were with Countrywide Home Loans, we can reasonably assume that this single school teacher financed these homes using Countrywide’s “Fast and Easy Program” which allowed a borrower and Loan Officer to claim an income that made the deal work, whether it was a legitimate income or not was immaterial.  This was like a petri dish for fraud!

 It’s true that lending is more difficult these days.  It takes more documentation, more signatures, and more patience.  It’s because of people like “Pat”, the unethical Loan Officers that helped facilitate the behavior, and incautious loan programs like Countrywide’s now famous “Fast and Easy Program”.  Hopefully all 3 have disappeared.

 We are working extra hard to make sure we think of everything these days.  This is one of the many ways we continue to provide a professional approach to mortgage finance.

 

We’re providing a professional approach to mortgage finance!  How can we help you?

Debt For Sale.

Are you buying?  The U.S. is selling treasury notes en mass this week, and so far there are lots of eager buyers!  Today for instance, the Fed sold $38 billion worth of 3 year T-notes and the auction went very well.  In fact, demand today exceeded that in the recent past.  Later in the week, we’ll see another $30 billion worth of 10 and 30 year bonds.  It’s anticipated that these auctions will also be well received. 

 

Some folks wonder at what point will the world’s appetite for U.S. debt be satisfied?  Well, apparently not any time soon.  You see, Treasury debt it backed by the full faith and credit of the U.S. Government which is still considered to be the most powerful financial system in the world.  Foreign and institutional investors find there is no better place to invest apparently, as collectively they purchased over 50% of all the 3 year notes sold today.  This confidence in the U.S. ability to pay it’s obligations is good, because it’s allowing us to continue the life we have all grown used too.  I know some folks would say it’s all bad, but to them I say consider the alternative.  Are you ready for a complete worldwide financial system collapse?  Really??  Instead, let’s better manage our personal budgets asking the government to pay less on our behalf, and over time perhaps we can redefine the government’s role to one we’re more comfortable with (you will have to vote though!).

 

As a Professional Mortgage Originator my job has become as much that of a credit risk analyst as anything.  I have to look at every file as if I’m an underwriter.  Indeed our application to closed loan ratio is very high here at the Baker and Lindsey Niceville Office relative to the ratio I’ve heard from people at other lenders in the area.  As Superior Home Loans we were able to underwrite many of our own loan files, and if we were to make the wrong decision we would have to pay dearly for it!    There’s nothing like the very real possibility of financial hardship to motivate oneself to be diligent!  As preliminary “credit risk analysts” we make sure we’ve turned over all the rocks so we don’t have surprises.  While these surprises can hurt us, ultimately they can dash the hopes of our clients, and those that refer those clients to us.  Rest assured, we are continually striving to improve our system; from our analysis of risk, to surpassing our client’s expectations of what a mortgage company should be.

 

Interest rates are holding steady in the low 5’s.  That seems to be the mode of operation in the mortgage interest rate world.  Interest rates continue to hover in the low 5 percent range as all kinds of economic news keeps coming out.  According to Freddie Mac’s “Primary Mortgage Market Survey” interest rates were at their lowest point in April of this year.  Since that time interest rates have bounced around a bit, but have held relatively steady (especially given the market upheaval) at this unbelievably low level.  Have you taken advantage of the low rates yet?  Give us a call, we can help!

 

 

We’re providing a professional approach to mortgage finance!  How can we help you?

Would you like to be a real estate baron?

Now is the time!  There is a wave of people moving to the Northwest Florida area.  I (Bart) am associated with a couple of different organizations that are tracking and preparing for the projected growth of our area, and the numbers look good!  I am a member of the Okaloosa County “Transition Council” which has meetings on a regular basis to be sure the area businesses are prepared for – and welcome, a large influx of people.  I wanted to take a few minutes to give you some of the statistics and projections I have access too.  As I said, this may be a great time to buy real estate, as the population is coming.

 

Okaloosa County is facing unprecedented growth within the next few years.  The congressional 2005 Base Realignment and Closure Commission (BRAC) identified Okaloosa County military installations for an increase of approximately 4,500 military personnel; with their families the total population influx will be 10,000 by 2016. 

 

The majority of this growth will saturate Okaloosa County within a six month period in 2011.  That’s only about a year and half from now!!  These people are going to need housing.  BRAC is bringing people for primarily 2 new missions in our area. 

 

The Army 7^th Special Forces Group Airborne (7^th SGFA) will bring approximately 2,200 active military personnel.  With their spouses and children we expect just over 6,000.  The majority of these folks will arrive between April and September of 2011.  Because their newly built facility will be just south of Crestview, it is expected that most of them will want to live in Crestview.  However, these are (for the most part) fairly high ranking enlisted personnel with myriad income incentives.  In other words, they’ll have incomes that may support their living wherever they wish, be it Crestview, Baker, or Niceville/Destin.

 

The Air Force Joint Strike Fighter Initial Training Center (JSF IJTS) is anticipated to bring approximately 2,300 active duty personnel to Eglin Air Force base.  With their spouses and children we expect just over 4,800 people to be arriving between March 2010, and September 2016.  Many of these folks will be permanently stationed here, and will be pilots or associated maintenance people.  Either way, they’ll also have the income to purchase or rent fairly high end homes.

 

The continual defense-related industrial growth has helped our area sustain a relatively strong economy.  The Federal government’s continued employment and sending of thousands of people to our area will continue to have a very positive economic affect.  Will you be properly positioned to take advantage of this? 

 

Give our office a call and let’s talk about how you can be on leading edge of preparedness.

 

We’re providing a professional approach to mortgage finance!  How can we help you?