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MORTGAGE FRAUD THRIVES - THE PLAYERS ARE THE SAME

MORTGAGE FRAUD HASN'T BEEN ELIMINATED.
MORTGAGE FRAUD IS ALIVE AND WELL AND THE PLAYERS HAVEN'T CHANGED.

There was never anything wrong with any of the mortgage programs made available to borrowers. The problem was mortgage fraud.

Who facilitates mortgage fraud? This post was inspired by Bryant Tutas' report of the loan application with his buyer this week. Bryant witnessed first hand some of the causes of the present mortgage loan debacle; mortgage loan officers who write the loans, knowing full well that the loan application is fraudulent, buyers' agents who don't get the training necessary or be willing to supervise their buyer's financing, builders who facilitate fraud by using preferred lenders without supervising the work of the loan officers, mortgage companies who exercise no supervision over their loan officers and often reward their representatives for the high profit loans written. Broker Bryant did what I've been advocating for 20 years, don't send buyers to make a loan application, take them.

THE MORTGAGE LOAN OFFICER: The mortgage loan officer knows everything there is to know about a prospective borrower, or surely should. So, if bad loans were made, they were made with full complicity and often at the instigation of the mortgage loan officer.

THE BUYER'S REAL ESTATE AGENT: As long as the home buyer's agent believes that they have done their job by giving out a few business cards for a few lenders and they do not understand mortgage basics, they will continue to facilitate mortgage fraud. I believe that there would be a lot less mortgage fraud if agents simply accompanied their buyers to the mortgage loan application. If the application is taken by phone, the agent could at least review the Good Faith Estimates and compare them. If my buyer has made a telephone application, the loan officers are usually quite surprised when I ask for a Good Faith Estimate. On my most recent sale, the Good Faith Estimate was shopped and the builder's lender agreed to lower the interest rate and eliminate about $1,500 in loan fees. There was no loan fraud involved, but there was surely gouging.

THE HOME BUYER: As long as home buyers are willing to "do what they have to do" to get into their dream home, they will continue to be like Lambs going to the slaughter. I do not expect home buyers to understand mortgage instruments or to be able to identify fraud, but when a buyer is willing to inflate their income in a "Stated Income" loan application, they deserve what happens later. Further, buyers who submit phony documentation, or cooperate with the use of phony documentation, deserve what happens when they can't make a payment.

THERE IS NOTHING WRONG WITH THE MORTGAGE LOAN ALTERNATIVES
ARMs have also always been around. All a buyer or agent or lender or agent has to do is look at what the payment could be in 2-4 years and then the buyer makes the decision of to buy or not. The Truth In Lending isn't too helpful and most buyer don't have this disclosure explained until settlement. All it takes is an amortization table at the time of loan application showing the payment for every stage of the adjustments and how much of that money is applied to reduce the amount owed.

"GOOD GRIEF!, do you mean that my mortgage payment could be $700 higher in two years? I can't pay that kind of a payment."

Transparency in mortgage loans would help. Obfuscation has been the practice for far too long for too many involved in the home buying process.

Courtesy: Homefinders.com. Serving Home Buyers in Maryland and Virginia

Lenn Harley, Broker, 800-711-7988

ADDENDUM * ADDENDUM * ADDENDUM

One of the comments is so interesting, I want to add it to this post. Some folks never get to the comments.

~~~~~~~~~~~~~~~~~~~~~~~~~~COMMENT~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Comment: With all due respect to Lenn, it's the same pressure a loan officer gets from an Agent that gets past on to the appraiser and others to "make the deal work".

I've heard too many times that "lender pressure on appraisers is awful". It is, I should know. But lets all be realistic about the source of that pressure on a purchase transaction.

Does any agent here truly believe that their lives have not been enriched by mortgage fraud?

~~~~~~~~~~~~~~~~~~~~~~~~~END COMMENT~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Michael. Thanks very much for commenting. I appreciate it. But, with all due respect, no one, absolutely no one is going to get me to put my real estate license at risk for one lousy contract. Either the buyer is qualified or they are not. No, Michael, MY LIFE HAS NOT BEEN ENRICHED BY MORTGAGE FRAUD. My life has been made more complicated and a lot of time out of my life has been lost because agents, loan officers or buyers wanted to commit mortgage fraud, but, I know how to say "I will not be involved in mortgage fraud.

Comment: "make the deal work".? Response: Sure, if it can be done within the guidelines.

Comment: "lender pressure on appraisers is awful".? Response: In that case, appraisers need to follow their guidelines and if pressure is put on them, they need to report it.

This isn't rocket science. No offense to folks who believe that it is, but it is not.

For Agents: This is a matter of training and ethics. Agents either have the ability to understand a Good Faith Estimate or do not. If they do not, they need training. If they can't understand the training, they need to get a job and go into another line of work.

For Lenders: Most of the attempted mortgage fraud I've witnessed has been designed by the mortgage loan officers. Most agents don't have the knowledge base to dream these things up. Pressure comes from agents when a buyer isn't qualified.

For Buyers. When explained that the loan designed to help them buy that home that they can't qualify for is fraudulent, most buyers are going to either get out of the market, change mortgage companies, lower their price range or take a chance they will win the lottery. Yes, I've heard that one.

For Brokers: Monitor your agents. If someone comes to you with questions about why a loan was rejected, find out why. If the agent is responsible, get rid of them. If the lender is responsible, establish a policy that no loans are to go to them. If the buyer brings the lender, get on that lender and make them clean up their act. It can be done. Make noise, nice noise. Have the lender explain why what they are doing is NOT mortgage fraud. It won't be long before they'll come up with an alternative. If the lender is sticking to mortgage fraud, let the buyer know that you, personally, will not cooperate.

What can happen if loan fraud is discovered in an audit?

VA Loans: If that loan is audited and fraud is discovered, if it's a VA loan, the Veteran's Administration will cancel their guarantee and the loan will have to be kept by the mortgage company that approved the loan as a conventional loan.

FHA Loans: If the loan is FHA, the lender can lose their FHA authorization. They may also have to take the loan back and hold it in their portfolio.

Conventional Loans: If the loan is conventional, the lender may have to take the loan back and hold it in their portfolio. If they are a broker, that's bad news.

There are other penalties, but I don't know all of them and they vary from state to state.

I'm not responsible for what loan officers, appraisers, buyers or agents want to do. I'm only responsible for myself and I do not participate in mortgage fraud. Further, it isn't necessary. When I see contracts presented by agents for buyers that don't qualify, my seller rejects them. If I have a lender suggest fraud, I replace the lender (I've done that). If a buyer suggests fraud, I don't work with that buyer. If I have an agent who suggests something fraudulent, whether they know it or not, that agent either gets more training or another broker. I've had that happen too.

NOTE: The contract we're working on now is not the last one that will every be written.

Posted by Lenn Harley, Broker, Maryland and Virginia on 09/29/2007 11:32 AM

Comments (55)

mortgage loans, settlement, mortgage fraud

55 Comments on MORTGAGE FRAUD THRIVES - THE PLAYERS ARE THE SAME

SEP

2007

I hope that this new "shift" in the lending industry puts some of this fraud to rest.

This is a great post Lenn. EVERYONE nees to read this. Its so true. Its such a shame....this isn't helping anyone. Mortgage fraud?! I had to stop doing business with a couple of mortgage people when I saw how they conducted business. What was really interesting was how many hateful emails they sent me threatening me to keep my mouth shut.

It is amazing how fraud has actually flourished instead of diminishing these past months.

I agree with your assessment but will go further in the fact in the state of california I believe the requirements to sell real estate is to lax.

Department of corporations oversees the mortgage brokers.

Perhaps there should be one entity over everything and more investigators hired to do audits.

Lenn,

I don't think we can write about this too often. Shout it from the rooftops. Post it on the internet. Anything to get the problem infront of as many people as possible. Thanks for another great article.

Mark

Powerful....well written and full of Reality......everyone needs to be held accountable. Transparency, absolutely, if you have nothing to hide, then why hide it!

Unfortunately Florida still leads the pack when it comes to this crime. I am still asked at least once a month to commit mortgage fraud and of course I won't be a part of it. I warn all my clients against it and when I'm on the radio we constantly talk about the dangers out there for our listeners.

Mortgage fraud is instituted by many angles. I've had realtors suggest I structure a loan a specific way to get it done, which would have led to mortgage fraud by the way they wanted it done. I've had the borrowers ask to structure the financing in various ways to hide negative information or to hide additional debt that they had. I've seen mortgage people lean people toward mortgage fraud to get better results or get the loan closed. I've had actual lenders Reps try to tell me how to "structure" the loan application to get it accepted, which would have caused Fraud if uncovered. I've even had an underwriter for a lender tell me to list the home as a "second Home" instead of an "Investment" to get the file to be accepted. Basically what I am saying is that mortgage fraud comes from every aspect of the mortgage process. What it comes down to is people committing fraud to get a loan closed, because in this business very few people get paid if it doesn't close. No matter what laws or disclosures are instituted, there will ALWAYS be mortgage fraud. If there is a will, there is a way .... unfortunately.

Sean Allen

Lenn,

Great post! Transparency...and at the outset!

What scares me are 'the one stop shops'! If you get a buyer's agent that performs as you suggest, he's going to spend a lot of his time handholding! We've made a 'factory' of the home buying process instead of a 'team of professionals' working together. If you're a buyer and your agent is a 'one stop shop', you better know when to 'switch cars'. Thanks, Fran

The fraud and deception is one of the causes of our current Real Estate slowdown.

Lenn you have the most useful blog... I want to know more, can you put together a little series on things realtors can look for in regards to Mortgage fraud? Details, specifics! Pretty please with sugar on top!

When you start to go after the agents that committed fraud criminally, the abuse will stop

Lenn,

Sometimes I question whether some of my clients were told but also wonder if they really read it and listened.

I really like the idea of showing the prospective buyer what the payment will look like when the ARM adjusts up, a good reality check

Great post Lenn! You are correct, we need transparency in the mortgage industry.

I have been questioned along with one of my agents when asking for a GFE. The loan officer actually stated he did not have to give us that or tell us anything about the loan process.

Unfortunately, he learned that our State's contract has a very clear clause in it that the buyer gives the loan officer/mortgage broker/lender the authority to disclose all information about the loan process.

Hence, he finally gave in and we got the GFE. When we saw it, it was no surprise why he didn't want to give it.

Another lender did the loan after we sat down with the buyer and explained everything. Buyer was happy, the loan officer wasn't....too bad. If he had been upfront and not try to hide anything, he may have had a deal.

We all need to be aware of what is going on and stay on top of the brokers & loan officers.

And we can hold their hand and go with them! I've done that on more than one occasion...and you know what? I sleep very well at night.

Hi Lenn - sing it from the rooftops!! It always seems that there's someone or another company waiting in the wings to take advantage of someone else's sad situation. Why is that? You just wonder how on earth those kinds of people look themselves in the mirror and how they sleep at night........

Thanks for this post - and I'm glad it was featured. More and more need to read it!

Ann

Thanks for adding the bit about the buyers, and the agents. Some times that buyer do want a home at any cost. On the other hand some don't exactly understand what they are doing.

Excellent post Lenn. I've had two other questionable deals the past couple of weeks. First: I received an offer requesting the seller to pay 6% towards closing costs. Of course I called the LO only to find out the lender will only allow 3%. I called the BA and told her this and she said the buyers really need the money so do what I need to do to get it done. Well, I did. My seller rejected the offer with no counter.

The second one I reviewed a potential buyers GFE only to see that the taxes were off by $100 a month, there was no figure for insurance and the HOA was off by $25 per month. I asked the buyer what they were expecting to pay and they said $1,200 was their maximum. The revised GFE (by me) came in at $1,600 not even taking into the consideration the "teaser rate" the LO used. The buyer is on a fixed income and currently pays $650 a month in rent. I guess the LO didn't care that their housing expenses were going from $650 to over $1,600!!! The buyer decided to take my advice and wait for a year while they save the difference between $650 and what they feel they can afford ($1,200). At the end of the year they will know they can afford $1,200 plus they will have $5,000 in the back. They may have to wait but at least they have a workable plan.

I don't need any more foreclosed properties on the market in Poinciana Fl.

Some of the problems that consumers are having with the subprime loans that they look out 2 years ago are their own D$# fault. If the borrower would have just grown up and acted like a adult, paid their bills and mortgage on time, their credit rating would be much higher now, and they would be able to refinance. I know of 2 families who this is affecting, and I really don't have much sympathy, they have the time and money to go out for dinner regularly and on vacations, but they don't pay their bills on time. Both have sub prime loans from 2005 and early 2006 and both are in big trouble now, and both are going to get what they deserve.

Mariana. I believe it has to start with some Perp Walks. All of these foreclosures might get a rise out of regulators to start covering their butts too.

Pamela. One of these days I'm going to post about the attempted mortgage fraud I've run into.

Terry. I believe the solution is to make some news with a few high profile arrests.

Thanks Mark. My pleasure. Thank Bryant Tutas. His post earlier about his buyer's application inspired me.

Kathy. Agreed. But, with some training, agent could help their buyers avoid some of the bad loans.

Simon. Good for you. Get the word out.

Sean. You're right. It's pervasive.

Fran. For the pay check we get when we get paid, we can spend a bit of time "hand holding".

Jason. Thanks. I agree. I believe that 9/11 is one of the causes of the real estate industry mess, but I witnessed a lot of mortgage fraud long before that.

Keith. I write from inspiration. Inspire me.

Neal. I am an absolute pain in the neck for loan officers. But, I know what's going on. I don't tell them how to do their job. I just want to know what's happening.

Michael. That and their estimate of what their income will be when the loan adjusts can be an eye opener. I'm surprised that so many of these ARMs are still qualified at the start rate. That's not a good idea.

Chris. I've had loan officers resist giving a GFE to me. I just get it from my buyer. Often to find out that they don't even have one. You gotta love that. In that case, the buyer will be speaking with another lender in minutes.

Sally. I submit that we can close more contracts if we know what we're doing. Funny thing about that.

Ann. I don't believe that they have mirrors, just photos of themselves.

Teresa. Thanks for dropping by. I know from experience that, when buyers understand, they don't want to risk default.

Bryant. Good job. I have absolutely no hesitation telling a buyer that they don't qualify. Most of the loans aren't going to close anyway. If a buyer's "comfort level" is $1,200 a month, how long are they going to want to pay $1,600? We can save everyone a lot of grief and bad publicity if these things don't get off the ground.

James. I don't have any sympathy for buyers who will do anything to "get the house" but do nothing needed to keep it either. One of these days, I'll write about a couple that lost a new home opportunity because they simply wouldn't listen.

I rarely run into buyers in the subprime market. I know in New Orleans they prey on African Americans because they know they will fall for the programs that they do not understand. I met a 94 year black man several years ago that got a refinaced loan. His home was woth 38k at tops,his loan was for 48k. He was on social security and did not work much. His note went from 300 to 750 when the bump came. His social security check was less than $800 per month. He figured it out quickly when I sat down with him. He went inot a nuring home and left the house. He said they could have it and that they overpaid for the home that would soon be theirs. This goes on a lot, you just have to look into the zip codes where these lenders want to go. Live in a heavy minority community and there seems to be few regulators and inaction.

Lenn - Amen to this! As a buyer's agent, it's my responsibility to make sure my client understands the entire homebuying process and that especially includes the loan and all its implications. About 85% of my buyers work with my preferred lenders and I am always on top of their GFE, irregardless of who they're working with. The loan officer, the buyer and I are all in sync with what the ultimate goal is...to get the borrower the funds on THEIR terms and ability to repay...no surprises. Shame on any agents who think it's sufficient to get a bogus letter with no terms specified from some ABC Lender with no moral fiber. We all want the deal to work - but not if it means the buyer (and our client) can't afford a hamburger from the Dollar Menu at McDonalds after closing!

Lenn- Another outstanding consumer post.. just too bad most consumers aren't being more pro-active and getting this information. I believe there is a law that is soon to be passed that will require lenders to fully disclose how payments will adjust and how much the payment will be if the loan adjusts..the sooner this becomes law the better. It amazes me that with the current market there are still lenders who would fudge figures on a loan application.. it beyond stupid and borders on criminal.

I understand that the SEC has decided to investigate the subprime problem.. and you might just see the FBI begin looking into fraud so a few of these guys may wind up taking a vacation in a Federal institution..

I wrote a blog post not too long ago about a Realtor that referred their client to me and then got very involved in shopping the loan with their client. I was a little miffed because I thought I had established a history of integrity and value that meant I earned the agent's trust.

Lenn, you commented that it was absolutely a responsibility of the buyer's agent to do this, and so did other Realtors on that post. Now, with this blog post you wrote, I understand why.

Mortgage fraud, frankly, hasn't been on my radar. Well, a bit...as when I have to help (or can't help) a client that was taken advantage of during their last process.

Clearly, from the response to this post, mortgage fraud has touched Realtors in a big way.

I stand corrected. Time to get creative in how to heal this industry from the damage done by all parties: buyers, sellers, lenders, loan officers, Realtors, escrow, etc.

But the healing begins with something not so creative at all. It comes from just doing your job.

Well said, Lenn.

Lenders are no different than children, realtors, doctors, lawyers....they all behave the way they are allowed to behave...if the media spent as much time actively reportng fraudulent lending practices as they do bemoanng market conditions, we might actually have some adherence to good practice !

Irene. That was music to my ears. I have loan officers contacting me almost daily looking for business. I don't know how the believe that I could sent them business just because they call me. I couldn't.

As it is today, with the Internet, most buyers that contact me have already made a connection with a loan officer. I never do anything to interfere with that relationship. But, I do look at the GFE and if it appears to be out of kilter, that's when I have to speak with my buyers about the line items that are "out of line". That's the time to speak with the loan officer and mention that I think he "may have made a mistake" on this GFE and would he please send another one to me so I can explain it to my buyers in detail.

You have to have good communication with your buyer client. It's critical that they know that they can shop a loan and that lender fees are negotiable.

Joey. Sometimes, it's simply a matter of awareness. Loan officers put buyers in loans because they make more profit? Agents push the loan officers because they need to settle? Loan officers and agents push appraisers because the lender isn't protected? The underwriter sees the thing and asks for more comps and the entire thing is goind to fall apart anyway because there are none.

Sally and David. Great point. Where is 20/20?? Don't they like to do this stuff?? If they went after any mortgage companies, it would probably be for Fair Housing. It's sexier.

Excellent post. I interview my loan officers and appraisers before I use them I let it be known that I not tolerate anything other then full professionalism and a major part of that is a Good Faith Estimate and a pre-qualification letter. If I get a lot of hemming and hawing my clients will not be using that loan officer. I will not put myself and my clients into the hands of a shady individual. We all have to me very mindful of this and make sure that we do our utmost to protect our customers on this matter and others

Thanks Laurie. I had some experiences back in the 1980s and early 1990s that made me want to puke. You're right about the players protecting each other. I had an in-house lender invite me to breakfast one day and said his plan to get my latest buyer approved was to have his wife, a VP of a major bank provide him with a VOD showing that my buyer had $20K on deposit. I almost lost my Egg McMuffin. I politely got out of there, went to my broker and reported the indecent.

Of course, nothing happened. Other agents in the company continued to use him for their loans. I never got involved in any fraudulent loans because, I can be pretty independent and my brokers let me do my thing. Good thing, because they all, to a man, were more interested in cronyism than the buyers.

I've got several more experiences like that. This is one reason I get involved in my buyers financing, often to the consternation of the loan officers. Too bad. Like you, when I speak of loan fraud, I speak from experience.

Chris. Thanks for commenting. It isn't necessary for agents to get involved with fraudulent loans, but they often don't know the difference.

Too many loan officers.... If we made it harder to be a loan officer, I think we would make a dent.

And more lender audits of files post closing. Maverick Mortgage is doing this!!!

Excellent post! The issues and reasons for all the defaulting mortgages are varied. Some comes from the loan originators, some from the appraisers, some from overzealous agents. People always understand when I teel them to shop rates but they don't always understand when I say rates and fees. I saw agressive selling about 16-17 years ago when agents I worked with were listing houses they had sold 8-18 months prior. At that point, it was all about getting a commission but I realized my focus was finding the right property. Now I counsel about the financing, rates, fees so that "if you love this house, it will be the right loan that can outlast your ownership. I spoke with a buyer who said that she'd talked with a lender who said she could manage an ARM for 1-2 years, then refi into a more permanent loan. I told her there was no need to look at refinancing in a year or 2. Get that permanent loan now. There no problems with her credit to keep her from that "permanent" loan.

Tom. Good idea. Too many loan officers and too many agents.

I sometimes believe that the NAR believes that more means better. In the case of too many agents chasing too too little business, I believe it's just the opposite.

I'm sure it's the same with lenders.

My son is a loan officer and he has lost clients simply due to being honest. He has told clients EXACTLY what their closing costs could be because he basically does a PRE HUD SETTLEMENT STATEMENT and factors in survey, title, attornery fees, all tax and hoi escrows and recording fees as well. Most officers don't factor in these costs and therefore they have the buyers believing their closing costs will be less if they use them.

Many clients have called my son back to say you were right, your number were right on. Honesty is the best policy but unfortunately going stated income, stated assets has helped MANY people get their home or others to refinance them. It is up to the buyers to know whether or not they will be able to make the payment no matter what type of loan they apply for. Let's face it the days of a full doc loan are getting slim since house prices are so high. WHO can show that they make $300K a year. If a client is buying a $325K house (which is common) and they don't have a large downpayment, then this would be their scenario. This is a tough call for them. I thought they were doing away with the stated income, stated asset loan, no?

Phyllis Pafumi

Lenn,

Thanks for reminding me that there are some honest people doing business in Real Estate.................As an appraiser I have worked for +/- 20 mortgage companies and right now I am getting very little to practically NO work..........Hopefully the field reviews will pick back up!

I do not know much about the actual loan stuff(I am trying to learn) but I KNOW numbers.....when I was being trained back in 2001, my mentor told me "Sometimes you want to help folks out".....I believe she really thought she was "Helping" people by letting them "bury" themselves with inflated values.........her license has been revoked, forever.....I love that ole lady and it is sad, but deserved!

MY latest rub with fraud- I just sent in a review I did on an appraisal to "Investigations" at the Georgia Board, because it was so INFLATED........I have been an appraiser only since 2001, and my license number is almost 244000........the guys # that I did the review on was less than 500......can you imagine "HOW MANY" bad appraisals he has done? OMG!

FYI-Here in GA, mortgage fraud is punishable up to 5 years in PRISON & a $500k fine, for EACH OFFENSE! That goes for EVERYONE involved, sellers, buyers, loaners, agents, Appraisers and anyone else I may have left out.

AR-Thanks for making this a featured post!

Great topic. Unfortunately fraud is far to common these days and does take agents on both sides of the transaction to make sure that all the parties know what they are getting into. I ran into a situation a couple of years ago when as the seller I had to council the buyer not to sign the documents. The actual loan documents were very different from the GFE and increase the payment almost $200 per month. The lender and the title agent told the buyer to just sign the paperwork and it could be fixed/changed on Monday. I ended up being the one to tell the buyer not to sign. I agreed to extend the closing date on the contract so she could get it resolved.

Phyllis. Thanks for commenting. I have no problem with buyers who wish to do a stated income loan. I've had many of them. The trick is to make sure that the "statement" is true. My buyers provide me with a financial statement which has a "verification" at the bottom. If they have misrepresented anything, they will forfeit their earnest money. I also have a signed statement for their income.

Agents and brokers can't go through this business with blinders on. My license means more to me than a settlement.

Bruce. I'll tell you true, I wouldn't want the pressure put on appraisers by lenders and agents. Now, I have had appraisers make mistakes. But, that is extremely rare.

Rich. Good for you. I agree too that fraud is far too common.

Lenn...It can't be said too many times....there no such thing as just a little lie. A lie is a lie!

It never cease to amaze me how some "professionals" justify what they do...for their own gain.

Great post!

Well, Lenn, you said a mouthful. It isn't rocket science - either it's the truth or it isn't. Am I oversimplifying? I don't think so.

Jeff

I think you make many good points here Lenn. I think ultimately, the buyer is the person who is responsible for fraud! The mortgage company is the next line of defense - Do the privacy laws, I am unable to evaluate the information given by the buyer or to verify it. On the other hand, I only recommend a few lenders who I know are reputable and will be on the look out for any fraud --

SEP

2007

Great post, I for one have always believed that requiring someone to prove their ability to pay a loan was good business sense. I can't imagine who came up with the idea of stated income. That is asking for trouble.

I do not usually accompany my clients to their meeting with the loan officers but I always recommend that they get approvals from two just for the sake of keeping everyone honest.

As a loan officer, I received a lot of pressure from real estate agents to get the deal closed. I will tell you that I lost a lot of business because I was not willing to commit fraud on loans.

I know this sounds like a quiche' but... GREAT POST!

As a real estate agent, my number one job is to protect the interests of my clients. I am on the lookout for mortgage fraud. Some of my knowledge has come through this forum and the experiences of other professionals who have shared their stories. Ralph Roberts has also written few great posts on this topic.

Hi Lenn,

You have surpassed yourself again. I always attend any meetings that my clients have with Loan Officers that I do and do not know.

Hi Lenn,

You have surpassed yourself again. I always attend any meetings that my clients have with Loan Officers that I do and do not know.

Lenn: Often those defending the lender’s part in this mortgage debacle resort to the principle of caveat emptor: (“Let the buyer beware”.) “They should have known what they were signing!” Fair enough—it is clear that some knowingly and with their eyes open, entered into an ultimately fraudulent loan contract.

My question: what of the fiduciary responsibility (the relationship between a trustee and the person or body for whom the trustee acts. Trustee: a manager entrusted to control property or to act on behalf of and for the benefit of another) of each professional along the way to closing—the REALTOR®, mortgage broker, appraiser, et al, who facilitated the transaction?

It would seem to me, as a consumer, that if “fiduciary responsibility” will be trumped by “caveat emptor,” then perhaps I’d be better-served by an attorney (whose sanctions for violating his or her “fiduciary responsibility” to me include disbarment). Why then would I wish to pay a commission?

This is, perhaps, the best of several you’ve written on this topic!

Jay

Lenn,

Great post! I have experienced mortgage fraud myself and was astounded by what persons are willing to do to make the deal work! I put the kabosh on it and turned it over to my broker. If it doesn't look right or you get a bad feeling ASK questions!! ASK your broker to review!! It's not worth your name or license!

Jay. Your comment opened some doors that are too complicated for a response to a comments. I'll post about it later today. Thanks for the inspiration. Later.

Mary Kent. Good for you. I've turned it over to my broker and nothing happened. Then when I became a broker, we had policies and procedures that prevented a lot. But, it's hard to monitor.

Patrick. That is probably the most important thing you can do to protect your buyer from mortgage fraud.

Randy. Thanks. I'll read some of Ralph's posts.

James. I'm curious. How does that happen?? Does the agent tell you how to commit mortgage fraud to get the deal done? When you get a mortgage application and you tell the buyer that they can't qualify to buy that house, does the agent then say, this is how you do it?

Darrel. I don't have a problem with the stated income loan when the LTV protects the lender and the buyer. I've had a number of buyers who did stated income loans, but their financial statement showed me that they could make the payments. Often with a high down payment, a buyer will buy a home with the purpose of renting part of it to family who can't go on the loan application. A lot of scenarios make the stated income loan a good alternative. But, you just have to make sure the application is honest. Stated income is simply that they can't document their income. A self employed person with less than 2 years tax return isn't going to qualify with a full doc loan. But, if they have 30-40% down, the risk is very low for conventional loans.

Joan. I don't understand the problem with privacy laws. Privacy laws don't prevent my buyer from giving me a financial statement or from me attending the application. In fact, our buyers agency agreement states that if a buyer refused to provide me with financial information, I can cancel the agreement. An agent with their license on the line is entitled to know what's going on. Privacy laws can't be used to hide fraud.

Jeff. No, you are absolutely right. It's just a matter of doing your job and not violating the law or the duties of fiduciary.

Lenn, I believe first off that all parties should be independent from one another.

Realtor
Appraiser
Title Company
Mortgage Person

I do agree with you that it is still a live. I see a lot on my end the Realtor only carrying about the Commission. I have seen many times when you inform the Realtor that the property won't appraise out the Realtor would tell me to get another Appraiser who would make it work. When it comes to a good Faith Estimate nothing is wrong by have a Realtor look it over however, they should really know what they are looking at. I do not have any "Junk Fee's" however I do have a processor who charges $595 she is a 3 rd party fee.

When everyone works together and has a back bone and not just worry about their commission but what is best for the client. Then and only then will we see much less of this Fraudulent behavior go away.

The very first deal I ever did as a Realtor I handed the client over to a mortgage company that is well known and a sister company to our office. The client barely spoke english, and I wasn;t going to be able to explain it to him. Being that I was new and didn't have the greatest training, I have no idea what type of loan he got or how it was explained to him.

Make sure that I now know that I need to be aware of every part of my client's loan, from a Good faith on out to the final closing. Every step with the lender needs to be called on and checked. Some lenders drop the ball so much that closings are put off if you as the Realtor don't stay on top of the loan's progress.

I would never benefit from mortgage fraud. I believe that if you can't afford the house, then it isn't time for you to buy the house. The Lord has a way of not always giving you your heart's desires because it isn't in the plan for that time. I have learned that lesson time and again.

Lenn - I read all the comments and what's jumping out at me is that agents are pointing at lenders, lenders -at agents, appraisers - at both. Fraud can be perpetuated by anyone, and it's wrong and illegal. Lenders should be responsible for honest lending, agents -for honest real estate representation. Another culprit that I am not sure was mentioned: investors who had an insatiable appetite for such risky portfolios.

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