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: 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?
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.