Real Estate Agent with Lenn Harley,, MD & VA Homes and Real Estate 303829;0225082372


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. 

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:  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:  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. 

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Lenn Harley
Lenn Harley,, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

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. 

Sep 29, 2007 01:08 PM #36
Phyllis Pafumi
ReStyled to Sell Home Staging New Jersey - Old Bridge, NJ
ReStyled to Sell Staging Homes NJ

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  

Sep 29, 2007 01:19 PM #37
Bruce Miller
Friendly Appraisals - Acworth, GA


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!


Sep 29, 2007 01:35 PM #38
Rich Kruse
Gryphon USA, Ltd. - Columbus, OH
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.
Sep 29, 2007 01:48 PM #39
Lenn Harley
Lenn Harley,, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

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. 

Sep 29, 2007 01:52 PM #40
Lenn Harley
Lenn Harley,, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland
Rich.  Good for you.  I agree too that fraud is far too common. 
Sep 29, 2007 01:55 PM #41
Joan Mirantz
Homequest Real Estate - Concord, NH
Realtor, GRI, CBR, SRES - Concord New Hampshire

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!

Sep 29, 2007 03:05 PM #42
Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude

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.


Sep 29, 2007 03:24 PM #43
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services
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 29, 2007 04:17 PM #44
Darrel Quebedeaux
Evergreen Realty & Associates Inc. - Newport Coast, CA

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.

Sep 29, 2007 05:31 PM #45
James R. Gill
Manhattan Beach, CA
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.
Sep 29, 2007 05:58 PM #46
Randy Prothero
eXp Realty - Mililani, HI
Hawaii REALTOR, (808) 384-5645

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.

Sep 29, 2007 06:22 PM #47
Patrick Canavan
Keller Williams Realty - Yorba Linda, CA
Orange County Real Estate Voice

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.

Sep 29, 2007 08:49 PM #48
Patrick Canavan
Keller Williams Realty - Yorba Linda, CA
Orange County Real Estate Voice

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.

Sep 29, 2007 08:49 PM #49
Boomer Jack Boardman & Carl McIntyre, the Codgers
Noted Curmudgeons - Saint Paul, MN

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!


Sep 29, 2007 10:23 PM #50
Mary Kent~Five Star Michigan Realtor


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!

Sep 29, 2007 10:49 PM #51
Lenn Harley
Lenn Harley,, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

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.

Sep 29, 2007 11:24 PM #52
Matthew J Blum - (retired from the business)
Palm Beach Gardens, FL

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.

Sep 30, 2007 02:57 AM #53
Kerry Jenkins
Prime Properties - Crestline, CA

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.

Sep 30, 2007 06:21 AM #54
Faina Sechzer
Henderson-Sotheby's International Realty - Princeton, NJ
Real Estate Expert - Princeton, Montgomery ,Hopewell, NJ
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.
Sep 30, 2007 07:16 AM #55
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