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Third Party Verification of Occupancy???? Fannie issues notice to lenders!

Got a client???????? Know a friend?????? Thinking of trying to "fudge" on the occupancy declaration when you're buying a home??????

I have never seen the logic or understood the rationale of anyone willing to sign fraudulent loan documents and risk activation of the "Due On" clause in the fine print of all mortgage documents that can (will) call the entire Note due in the event of fraud or sale.

Moreover, the mere idea that a loan officer or broker would jeopardize their career or license is pure lunacy!

It appears Fannie is getting REALLY serious about preventing occupancy fraud and are advising lenders that they "may" (code for "should") want to hire a third party service to verify occupancy AFTER the closing of the loan....and they (lenders) might want to hold funds for third party originators (that would be mortgage brokers) until occupancy is verified.

Most (if not, all) broker agreements with mortgage banks have buy back clause that the lender can hold over a broker's head for a specified period of time (usually 12, 24 or 36 months...but, I have seen a few with "forever" in the fine print)....There may come a time when your loan officer/broker has to be convinced about the occupancy of your new home purchase before they will originate the loan!

Have to wonder how restrictive and pervasive this practice will become. Freddie Mac? VA? FHA? Let's see, how long after funding would I be willing to wait for a commission?

Frank and Brian at www.tbwsdaily.com have a great video today and I highly recommend checking out their site. (BTW, I check them out everyday. Sometimes a little over the top...but their info is spot on and I appreciate not having to hit the news wires for all my industry news).

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Posted by Deborah "Dee Dee" Garvin New American Mortgage on 06/11/2010 02:48 PM

Comments (48)

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Originally posted at: TheLoanMonarch'sBlog: Third Party Verification of Occupancy???? Fannie issues notice to lenders!

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48 Comments on Third Party Verification of Occupancy???? Fannie issues notice to lenders!

JUN

2010

This could prove a very important issue in the near future. Thanks for posting. Suggesting it for feature.

No matter who you are and what you do always tell the truth. It will come back to "bite" you if you don't. Fannie Mae may be the one biting!

Great information. The restrictions & verifications keep on coming.

Deb: Glad this post got featured. I know in the olden days, these rules were routinely ignored by lenders and buyers. I am glad this is getting serious.

OK we have started another industry.

Deborah. My job right now is working short sales. It seems like every seller I speak to had intentions of moving into their property but never did. Of course we know what they really mean is they bought an investment property by saying they were moving in. They never did and they couldn't flip it for a profit. Now it's a distressed property. I understand completely why FNMA is cracking down on this.

Started another industry #6...that's right.. there are alot of people making alot of money off this economy...i hear teeth chattering though for those that tried to decieve...ooops

Michael, thank you for suggesting it. It could end up being a very BIG deal. Of course, it WILL cut down on fraud, but sometimes there are reasonable explanations to occupancy and other issues on files....I can just see the day when a file is declined for occupancy issues when the borrowers REALLY are going to occupy. Agents will be lining me up for the firing squad. LOL!

Jody, I have never met a client or seen a large enough loan to give up my career. Don't do the crime unless you are prepared to the time!

Pat and Steve: You are very welcome!

Agent Aaron: I am grateful for the feature. Actually, in the "olden' days", occupancy was taken very, very seriously. In my wholesale days, I once got a loan approved through corporate (for a broker) because everyone agreed to a post closing inspection. The DR. was buying a home in Bainbridge Island, WA...worked in downtown Seattle and owned a home in Bellevue, WA. My local Seattle underwriter refused to believe the DR. was buying a primary residence. As a AE, I won the case for my broker because of logic and the full disclosure that if the DR. wasn't living is the house he was going to pay the loan off...immediately. Dr. signed specific papers on this.

Harry: And, Thank Goodness! I will have to be doing something to earn some money while I am waiting for my commission check! LOL!

Why is it so difficult for people to just be honest? I don't understand it at all. In our business, we don't bend the truth, we don't tell little white lies, and we do everything above board, as it should be. And we are thriving. What a novel concept.

It is rampant and I am not sure what to do about it. Just hope they do not try to make us the occupancy police Sometimes I think the less I know about what the buyer and the mortgage officer/broker do amongst themselves, the better. Sad to say, but with some of the stuff going on you have to wonder.

I am glad that your are a buisness woman with integrity. I am not a reaitor, but I agree that integrity is crucial in business and in life. Your reputation can make you or break you. I have total respect and sympathy for realtors. I have a few friends in the biz and they have expressed concerns for some of the pratices and laws lately. I live Southern California, so I hear a lot about this stuff from them.

I want to say thank you Deborah for your support of my blog as well. Let me know if I can return the favor.

Thank you!

Bryant, Believe me, I do understand why FNMA is taking this action. The irony is that the vast majority of mortgage peeps who played this game with consumers are out of the business. Now, you and I will pay the price for their games for some time to come.

Ellen, note my response to #6....waiting for checks does not seem like a fun time!

Christianne, I have to tell you that the vast majority of people are honest and forthright. (I know, I sound like Polly Anna!). I have had a few people in my 20 plus years ask me to do something that was unethical or illegal...but, 95% of them didn't realize the implications of what they were asking until I explained the process and requirements to them. The other 5%? I fired them and they went down the street to meet people who would play out side the rules. As Grandma used to say: "Birds of a feather, flock together"!!

John, how sad is that! I want full disclosure across the board on all of my transactions. But, I do understand your comment. All the more reason to ensure your clients are working with people you know and trust. There is a little of the "witch hunt" mentality in finance and real estate these days...protecting our certification and licensing is crucial for all RE professionals.

Sylvia, thank you for your kind comments. You might want to check out my post "Nanny nanny boo boo..." (it's about loan officer reputation). It is a scary and confusing time for a lot of Realtors...I try to blog about things that could impact their transactions, with a serious bent towards de-mystifying the lending process.

You are very welcome...and welcome to ActiveRain. I have only been active on AR a few months and I am loving it. I love it because I am learning something every day and I love it because I really think the Cream of the Crop is here! I would appreciate it if you would refer your Realtor friends to my blog and my profile....I am always looking for new and dynamic partnerships. Hope to see you around in the Rain!

The problem is Deborah, that sometimes the buyers that come to me have already chosen their lender. In that case, I feel it would be inappropriate for me to push them to someone else. Suppose things went badly (and that can happen even with the best of lenders/brokers), I would be the one to be blamed by the buyers. Normally, I give them a list of other lenders I know with the advice that it never hurts to speak with several sources of financing, even though in the end they may go with the original choice.

But as I said earlier, I do not want to be the occupancy police for any lender. If they wish to do it and then go after the borrower. So be it. Perhaps if word gets out that lenders are doing this, many borrowers will tread more lightly, along with their mortgage brokers.

John, I totally get that....and, believe me, EVERY loan has the potential to go sideways...anyone who believes otherwise hasn't been doing loans very long! Don't blame you for not wanting the police role...sometimes it just ain't all that much fun. And, it's probably a good thing I have stayed on the finance side: if I got into your side of the biz I would be loathe to work with a finance person I did not know!!!! The more I know about the inside and underside of finance the less likely I would be to work with peeps I don't know!

That said, I am the occupany police...and the tax return police (ahhh, the days before the 4506!!!), the income police and the money seasoning police........LOL!

Have a great weekend!

hi Deborah -- Thanks for the link to this website, learn somethng new everyday. I'm all for catching fraud, as long as it's done with a good plan in place and efficiently, and not some new government boondoggle.

Occupancy fraud tends to rise once mortgage qualifying standards tighten. It would be nice to see this disclosed upfront rather than as part of a closing package.

Yes, tell the truth. Of course, now the census workers could probably be doing this.

Not exactly surprised with all the underlying occupancy fraud that went on here during the boom. Every time there is a risk variable involved, they will find out. Haven't heard of any due on clauses used but if they are serious about it I am sure I will hear about it. This is definitely worthy of a reblog!

Deborah- I have never had an issue with this. As a mortgage gal who works mostly with o/o buyers, I know for a fact, all of my o/o actually moved into the property. The occasional investor I get (usually a referral and quite often parents of former clients) isn't out to scam or fraud anyone.

The small handful of scammers that I have had the unpleasant misfortune of meeting, I make sure they understand the ramifications of what they just asked me to do and then I tell them I can't and won't work with them.

I can understand this....and out-and-out fraud should be dealt with. But....I bought a home once will all intentions of moving, then my husband didn't take the job when his employer offered him a better one to stay....so it was rented. On the other side of the country....it happens. I just hope the few-and-far-between times to true change in circumstances are not sued. I'm tired of the government entities trying to decide what I'm thinking and holding me accountable for what THEY think I intend.

Deborah,

Great Post! I have had a Home Owners Insurance request proof the client was going to use the home as a second home when after they did a drive by and still saw the for sale sign in the yard. They had 3 business days to provide proof the utilities were on in their name. They had already done this and were waiting for their vacation to start which was one week from the insurance inspection.

Mr. and Mrs. X moved from SoCal to NorCal to live near daughter. They did not sell thier SoCal house because they wanted to remodel the NorCal house before moving in.

Remodel would be taking place on Nor Cal house while SoCal house was on the market for sale. They easily qualified for both houses, and we closed on the NorCal house, they put the SoCal house up for sale.

Underwriter called for a post occupancy check by a third party. Loan officer (ME) was informed that the occupancy check "FAILED" because borrowers had not moved in. They wanted me to somehow "force" my borrowers to move into their new house, because FANNIE says they have to move in within 30 days.

You would think that FAIL would be they knocked on the door and a renter answered the door? But NOOOOOOOOO....

FAIL is when you are wealthy enough to carry 2 houses, and to take your time selling one house, while your decorating/remodel crews make your new house perfect.

And the irony??? LOL!! Buyer was a fraud investigator to the banking industry that frequently travels to Washington DC to testify.

Deborah...

I see nothing wrong with verifying occupancy after closing ... as long as it is done on a case by case basis and not under some blanket rule. Most people have never fudged on anything!

Fannie is also now sending a separate statement to the listing agents of their REOs to have the buyer sign that they are going to live in the property.

Things seem to be changing weekly right now. Great post. Thank you for sharing.

Thanks for the post today. I enjoyed it.

Patricia

I have mixed feelings about this after reading Janet's comment #23. The government is too much in our business. The people who lied and left their homes for others to clean up the mess have gotten off and the rest of us are paying their penalty.

It's good that they are cracking down now. Anything that keeps this from happening to the economy again is a good thing. Maybe if they had given it the same attention to this problem 5-10 years ago we wouldn't have had such a mess. Just a little late. LOL. But better late than never I guess.

I'm with Sharon above. Although I believe everyone should follow the law, I'm frustrated by those watching over our shoulders.

JUN

2010

Deborah: I think that every home buyer should be subject to a Fraud Occupancy inspection after settlement. If that had been done in every case during the booming bubble markets... regardless of how hard it would have been... I think it really would have helped... and I think that many of those who had committed fraud by stating they were going to occupy the house... would have been stopped from making their NEXT fraudulent purchase.

And... congratulations on the Featured Post and your Gold Star. Hooray for you !

I understand the lender is trying to protect themselves, but look at Janet and Karen's stories. This is not always fraud, and how long should the lender have to wait for commission while a new buyer remodels?

I actually had buyers that were going to allow the Sellers to stay in the house for 60 more days after closing (as the Sellers were waiting to get into another house) and they told the lender and the lender was actually able to grant them the 60 days for occupancy. No lying, no hiding the facts. So check with your lender, there may be a grace period that buyers have after closing.

Wow, Thanks for the comments and feedback! I had a great phone conversation with Lenn Harley yesterday and she summed it up perfectly: "Finance people brought this on themselves". I could not agree more! In 1995 I was on the WAMB (Washington State Mortgage Brokers) Legislative Committee and was an wholesale Account Executive. I was forever dismayed with the fact my broker clients used the "Fog Test" (as in fog a mirror) for their hiring criteria. As the clouds started to gather around finance (yes, even back then) I kept telling my clients: "If you don't want others managing your business, police yourselves." I know, it's not polite to say "I told you so......." LOL

Chris: You are welcome. Brian and Frank really do provide some great material and information. 'Tho they are a bit corny at times.....

Rodney: I have seen many a loan officer try to play the occupancy game, regardless of the lending climate. Don't get it, never will. 1.5% point add on for non owner is hardly a deal breaker as far as I can see.

Jill: Good point!

Renee: Thank you for the re-blog! It is far more likely that a broker/lender would be put in a buy back than the due on sale clause triggered (however, the bank has the option!). The current climate is geared at broker/lender/loan officer fraud....not necessarily the consumer. I presume the stance is that no consumer could commit the fraud without complicity from the finance person. ...True, oh so true.

Donne: We are soooooo cut from the same cloth!

Karen: Excellent example. A couple points: Most of lending is based upon "intent"...what is your (consumer's) intent with the purchase of this property. If I buy a house today, meet Prince Charming next month and move into his castle in 90 days, the fact of the matter is that my "intent" was to occupy the property. Secondly, and most importantly, disclose, disclose, disclose! Tell me (or your finance person) the truth about your intent! There are so many "exceptions to the rules" that I never get out and out fraud. Gee, if there is a will...there is a way.

In your particular example (excellent and realistic, btw), I would strongly recommend keeping all documentation on the changes in employment and, at the very least, contact your finance partner PRIOR to any subsequent inspections or ramifications. It's hard to say if I would recommend contacting your lender, but sure would want to know if there is a train coming down the tracks towards me (as a finance person).

John: I have had the same issue with my own second home near Yosemite. Great info to share.

Janet: Okay, it is probably my psique (sick) sense of humor, but your post had me falling off my chair! Hysterical! Hey, we have to laugh at this stull! FYI, I lived in Crow Canyon CC when I lived near you...it was absolutely customary for the new buyers to buy and rehab prior to move in! Prime location for retirees and the only single level in the area in the midst of Blackhawk, Alamo, Diablo, Round Hill...can we hear "downsize" anyone?

Richard: I don't see this being a "blanket issue". There are trigger flags...and if a finance person addressed them initially there probably would not be an issue. Say it again: Disclose, disclose, disclose!!

Cameron: Wow! Great info! Now the listing agent is accountable for the buyers???? Incredible!

Dean and Sonia: You are most welcome! Thank you for stopping by!

Patricia: Glad to be of service! Appreciate your post.

Sharon (of Frank and Sharon): Hey, Janet's post had me rolling in laughter....we have to find the clarity in insanity at times. But, I could not agree with your comment more!

Nathan: The pendulum went too far left, now it is too far right. Things will moderate in time...I just hope we don't forget our follies of the past.

Sharon: Ditto......

Karen Anne: I wish the finance peeps who facilitated all the fraud had been run out of town on a rail! But, they made their $$$$ and are living on a tropical island (think Anthony Mozillo of Countrywide, to name one). It's the poor schmucks like me that have to deal with mess they left. If I (or any finance person) doesn't play the fraud game most consumers would not get the house in the first place. And, if the consumer actively fraud me and the underwriter, I would lead the pack for activating the due on sale and any criminal prosecution possible.

And, thank you! I have not realized I got a "Gold Star"! Whoo Who!

Christine: Janet and Karen's examples are perfect and sometimes lending can just get nuts...but overall the key is still: Disclose, disclose, disclose. How long a lender would wait...who knows. For me, I would not originate a loan that I wasn't going to be paid on. But, that's me....

And, Laurie: May I suggest to all that they read your comment!! Lenders, underwriters and loan peeps are not inhumane barbarians....(well, there are a few!). Most underwrtiers want to make the deal work. Your buyers were successful because they disclosed the facts...simple as that. FYI, I would not expect a lender to grant more than a 90 day grace period. Thanks for your comment.

Deborah, this was a great post. Whenever I talk to clients about intent to occupy, I don't wink. I talk to them about Fraud and Penalties. People just need to do the right thing...always.

I have heard that Fannie and Freddie are becoming more and more difficult to deal with on the lender side lately. Last week I heard that they want lenders to guarantee the loan will perform. That is a tricky one.

Kathryn, Thank you! Some people just do not realize the implications and ramifications of their actions....thanks for directing people in the right path!

Damon: Fannie and Freddie are going to continue to get more difficult (my prediction). I have not heard about the guarantees...but would not be surprised. Tricky is right! A year or so ago, there was talk about paying MLO on a residual basis (much like insurance) based upon how long the consumer kept the loan and performance of the loan. The talk fizzled (for the time being)..and I don't know if it would ever come to realty...but, there is SOME merit to the idea. Certainly, there would be far less churning of business with multiple refinances and there would be REAL incentive to provide the consumer with loan term financing education. I am not advocating...it was just a very unique concept. Fannie/Freddie may just putting the lenders under this plan, eh?

I happen to think that the lenders are correct on this one. There are different loan terms for owner occupancy and investor. If it's an investment property, get the right type of loan. If you don't, it's loan fraud, pure and simple.

Vicky, you are correct...but do check out Janet and Karen's comments above. There are times that it look and walks like a duck, but it really is a swan. Disclosure and honesty are the keys! Thanks your your comments.

Not that this isn't an important issue, clearly it is. But I am feeling "ironic" this morning.

So, I find it IRONIC that the ring leaders of the LIARS CLUB, Fannie & Freddie, are the ones trying to sort this out!

Fraud is fraud. If you sign paperwork stating your home will be owner occupied then turn around to flip or rent it... it's still the F WORD.

I don't see them leaving the coffers unturned. This coincides with secondary credit reports just prior to closngs and additional appraisals throughout the approval process if they're timed as somewhat lengthy from contract to close. Given the opportunity who wouldn't want to protect the validity of the loan after close, especially after our recent experiences.

Deborah - HUD does this already. Buyers have to sign an owner-occupant certification, and HUD sends someone to the residence about 4 weeks after closing. Knock, knock. Punishment for fraud is up to $250,000 and/or prison for up to 2 years. I don't think it's a bad idea to follow-up, but I think it's a bad idea to withold funds.

Finance people brought this upon themselves?

No. Not going to agree with that.

That is like blaming gun control on the people who sell guns: What are they supposed to do when they know for a fact any handgun that is purchased may be purchased with the intent to kill somebody? (just like anyone can say they intend to owner occupy....)

Do they have the ability to know who is going to kill someone with the handgun they sell? Do you seriously think the majority of loan officers encouraged people to call a rental property "owner occupied"? Not from my observation.

Or do you think people took advantage of lending rules that had no teeth by telling the loan officer they had full "intent" to move in, when they did not?

Jenna, yes, ironic seems like a good word.

Erica, I would not argue with your comment.

Kevin, particularly true if we want people to continue to invest in mortgage backed securities.

Cynthia, good point...but not many loan officers and agent work with HUD homes...so they would be pretty clueless about their process.

Janet, wow, loans and guns compared....I get your point. However, I would ask you to understand that I made that statement from my wholesale, not retail, experience. I have found that in loans, and in life, birds of a feather flock together. And, knowing your area as I do (having lived ten miles down the road for over a decade) I understand that you and the loan officers you associate with are not in the category I have referred too.

And, I could rattle off any number of qualified and ethical loan officers and brokers in the East Bay, Bay area, Oregon and Washington who don't resemble the statement at all.... HOWEVER, I could also list any number of brokers within thirty miles of your office who created enough havoc in lending to sink Noah's Arc. And, the thing the public would not understand is that some of these "shops" hired dozens and possibly hundreds of loan officers who were totally out of control.

For instance, while working as the Sales Manager in Walnut Creek, I "discovered" that the Number One Loan Consultant in the area, who worked for a very prominent mortgage broker, did not originate 1/10th of the business directly...but had any number of unlicensed people writting loans in their name. Do you really think the broker did not know what was going on? Or, how about the "shop" south of you by twenty miles that employed any number of ethnic, non-English speaking loan officers (not licensed) who basically raped and pillaged their respective ethnic counterparts? I am talking TWO corporate buidlings and loan officers on three to four complete floors!

In my retail world (in the past and now), I only associate with true mortgage professionals like yourself. However, I cannot back down from my statement....unfortunately, back in the day, there were 5 or 10 schmucks for every good loan officer. And, the brokers hired them.... not all of the brokers of course...but enough to do plenty of damage.

DEC

2010

Great comments all around. I originated for ten years then decided to turn coach for LO's to help conduct better applications - what I like to refer to as interviews. In the Scotsman Guide Dec. 2010 issue, a spoke person for MARI reported that there is a new potential trend, Occupancyy Fraud. To the loan officers who are out there and surviving I congratulate you, and the same to our brothers and sisters in Real Estate. We "all" need to do everything we possibly can to stem the tide of lies and deceit that has been on the front page for years. Sorry if this gets long winded but it's what I'm passionate about. Fraud is killing us! If I was still originating I would do what I used to do when someone was making appliation for a new home, owner occupied. I would ask when they thought they would be moving in during the application and then inform them to on the lookout for a pizza delivery driver who would be dropping by that day to help during the hectic move. What I never saw was "shock" or "fear" because they were really moving in, usually asap. Moving forward to today's world you might get an entirely different reaction. Why? Fraud.

Some may think this is a silly idea but guess what it works! People cannot hide, unless they are very well trained, and fraudsters are just that well trained. They're actually doing the interview on us, they know what lies they're telling and they're looking to see if you can catch them.

Another comment was on the 4506. What a great new form to use to reconize a possible problem. Let's say you've working with someone self-employed and they've juiced the books, imagine that? Now you've come to the part where you're going to introduce the 4506, not that everyone one does, but let's pretent it's always done. During your explanation of why you're going to submit it your up till now borrower has had no special body language reactions. Suddenly their feet start to move just a bit, they turn slightly towards the door, and they're not as excited as they were just ten minutes ago. Why? Well they just realized they were going to get caught if they went through with the application. Everytime I work with a group of loan officers and we get tho this part I see at lease one or two in the class get that deer in the headlight look. Then, they explain that if they had discussed the 4506 during the application they would not have had to wait for any verifications only to find the paperwork submitted was false. if you originate you may be thhinning back to that borrower you had a similar experience with in the past. Does it work everytime, no. But could it? Maybe!

Do you realize there are over 150 questions on the 1003? ( of course there are slightly less if only one borrower) but still, there's a ton of questions that "MUST" be answered and signed. Not guesses but actual information. Sorry for the rant but it drives me nuts when we say we can't do a better job of fighting fraud. Do we need the technology that companies offer? Absolutely, but it is not the only way to do it. Like it or not we need to police ourselves or big brother will. We all have choices, I hope and pray that we can learn to fight this battle own our own terms, the alternative is not a happy one.

I hope everyone has a Blessed and Merry Christmas and a fabulous New Year.

DEC

2010

Robert, Great thoughts! And, a worthy blog post in it's own right! I agree that fraud is ever apparent and we, as mortgage and real estate professionas, need to do our part in policing the industry. I have never thought of the "150 questions on a 1003" theory, but so accurate!

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