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True Lies: Stated Income Loan Gets Originator Indicted

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Mortgage and Lending with NONE

Stated Income Loans Gets Originator Indicted - That was the eye catching title of a December 20th 2006 article by a staff writer at the Originator Times.  Was I shocked, or I was appalled, and sick to my stomach... and just a little bit curious. 

While the few kindred spirits of Active Rain who know me, and actually take valuable time out of their day to read some of my long and exhausting blog posts probably already know my feelings about the mortgage industry's growing problem that is stated income loans, I was still slightly shocked, and a little bit frightened, to find out somebody in my industry, has been indicted and charged with a crime for doing something that thousands of loan originators do every day, knowingly lying about a borrowers income in order to get them approved for a mortgage.

The Originator Times article was brief and to the point, and read like a eulogy.  "Kourosh Partow, a former originator and branch manager for American Home Mortgage and Countrywide Home Loans was indicted last week for allegedly inflating incomes of borrowers that applied through him for financing."

I'll say it again...I was frightened, and I wasn't the only one.  Headlines like this one were jumping around the message boards over at the Broker Outpost: "Disturbing!!!  Are banks setting up loan officers?" Even though I don't use these loans very often, I do still use them for the reasons they were intended; self employed borrowers, borrowers who are in predominantly cash businesses, like waitresses or bartenders,  or maybe the occasional married couple where a spouse works, but has poor credit and can't qualify on the loan.  I ran into my co-worker Mario Rea's office and screamed..."did you read this?"  "How can they arrest one of us for doing something that many of us do on a regular basis...something that is basically encouraged by our industry?"  The article gave me no answers, and I think it was written in as deliberate a method as to not offer any.  So I started doing one of my favorite things...researching the TRUTH.

It didn't take me this long to find this article in the Anchorage Alaska Daily News, from a week earlier by Richard Richtmyer entitled: A seventh linked to mortgage fraud ring.  It seems Mr. Partow wasn't indicted for simply originating "stated income loans" as the previous articled explained so simply, but in fact Kourosh Partow was part of a 7 person "mortgage fraud ring,"  To be more specific, "Prosecutors allege that Partow overstated income and assets on the mortgage applications of 6 co-conspirators, and also for  falsifying documents."  A June of 2006 article at JuneauEmpire.com written well before the indictment shed even more light on the situation by explaining according to public records Partow had his license revoked in Wisconsin 4 years ago for forging loan documents as well, but found a job again in Alaska which is the only state to not regulate the lending industry.

And so it appears for now the mortgage industry is still safe, There isn't a  stated income witch hunt going on and I won't be arrested anytime soon for originating a "stated income loan," but this might be a taste of what is coming down the pipeline and I can say I'm not frightened anymore, not even a little bit, because when used properly, these are an excellent tool to help people by houses, but  I still strongly feel that until lenders severely scrutinize and limit the process of stated income loans, then we are still light years away from fixing the growing mortgage problem in this country.

 

Comments(35)

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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Joshua.... excellent post and well written. I like how you tied everything together. There needs to be a basic message sent not only to the general public, but to realtors stating.... have faith in the loan officers that orginate these loans, for the most part. Joshua, you brought a great point in regards to why these loans are so great... and not only to certain self-employed people, but to those that have cash businesses.... but also to those that might have a 2nd job or someone part of the household that has income that can't be proven.

But it's part of our job to still research this and question it. For the most part though, most companies do want some type of proof of these so-called jobs. This is where fraud comes in more so, because clients or loan officers will forge documents to get loans done. I knew a loan officer that had a CPA write up accountant letters telling the lender that the client had a certain business or job for over 2 years and that they had been doing their taxes for 2 yrs and that they had this job for over 2 years. I always try to get a little more proof to cover my arse....  aka, a license of some sort, receipts of work, etc etc. 

Again, great post and some key things to keep in mind. As a few of you, I don't do that many stated... I do bank statement loans for sub prime clients, that at least show income coming in, hence the reason why they get better rates. And karl said... maybe they should make No Docs more afordable... some are. But you need very good credit scores. Hell....with 5% down, I could put you in the high 7's as a No Doc for a 30 yr fixed rate. That's not bad for proving no income.  Just an FYI....

Jan 24, 2007 02:30 PM
Ed Brophy
Ed Brophy, REALTORĀ® - Palm Springs, CA
Realtor - DRE #01344385
On all stated income loans I have the borrower sign a written statement verifying that I in no way coached or told them what to state as their income.  If anyone would like a copy of it I'll send it out, it's a great protection for later down the road when the loans of the past couple of years go through yet another fraud audit because it's being sold again.
Jan 24, 2007 02:33 PM
Patricia Beck
RE/MAX Properties, Inc., ABR, GRI, SRES - Colorado Springs, CO
Colorado Springs Realty

Thanks for the post.  It seems like more and more people are getting in trouble for mortgage fraud, scary.

Jan 24, 2007 03:56 PM
Anonymous
Mikey

I told a friend of mine to read AR because I was heartened by the number of people doing the right thing and frightened by the number of people doing the wrong thing (most unknowingly, a few others I'm not so sure). And I think this post is a perfect example of the second point.  

You are committing mortgage fraud -"or maybe the occasional married couple where a spouse works, but has poor credit and can't qualify for the loan"- THAT is fraud pure and simple. You are hiding a negative from the lenders in order to qualify a borrower. How is that different than inflating income? The RISK is less than income inflation, therefore the risk you will get caught is less, but it is fraud. Since the risk to the lender is higher, they fairly expect to be compensated for the higher risk with increased interest rates (or rejecting them outright). Saying one person makes the money of two people and not including the other person in the loan scenario is dishonest.

Over on brokers outpost you see the scenarios all the time where lenders have programs with using the high mid-score of one spouse and taking both spouses on the application. Sure, the pricing may be higher, but it should be.

Check out http://mortgagefraudblog.com , the lenders are slowing working there way up the food chain starting from the bottom up. They expect Brokers to honestly qualify people and they really have been lax on double checking what they have been given, but times are changing. When "things are good" these "white lies" are ignored because everyone is making money, but as people start losing money the cycle reverses itself and those slow to change will be caught up in it.

Jan 24, 2007 05:55 PM
#19
Danny Smith
DISCOVER TEXAS HOMES - Round Rock, TX
It's the same thing when you apply for that credit card. Do you give your true income? Or do you fudge? What your basically doing is giving a stated income and could be fraudulent if you give false info.
Jan 24, 2007 08:59 PM
Maureen Francis
Coldwell Banker Weir Manuel - Bloomfield Hills, MI
Coldwell Banker Weir Manuel
JP, You coming back, or what??? Hello!
Jan 24, 2007 11:04 PM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

This has absolutely NOTHING to do with stated income loans.  This has to do with MORTGAGE FRAUD.  You don't need stated income loans to commit mortgage fraud.  I've know loan officers that offered to inflate buyer's income on fully documented loans.  One works with one of the major lenders owned by a major real estate company in my area. 

Look to the culprit, not the excuse.  This loan officer simply found an easy way to do it.  The stated income loan is just an easy way to acheive mortgage fraud.

Lenn

Jan 24, 2007 11:26 PM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Great post. Have seen lots of these loans - fraud is rampant.

Good point, Lenn

Jan 25, 2007 01:06 AM
John Occhi
AZ Veteran Notary Services - Marana, AZ
Mobile Notary Public/Certified Loan Signing Agent

Joshua,

Mortgage fraud is a big problem - I wrote an article recently that uncovered a huge ring that will undoubtedly effect thousands of homes and thousands of families, even before the ripple effect takes over.

Mortgage fraud is definitely not a victimless crime.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR
www.JohnOcchi.Com

PS - I subscribe to an email at Mortgage Fraud Blog - that monitors mortgage fraud all over the country - some really good stuff is in their if anyone else is interested.

Jan 25, 2007 01:24 AM
Professor X
NONE - Ludington, MI

WOW, WOW, WOW,

Times they are a changing....and the heated response to this blog is a sign of those times.  Even at the bank where I work, we now require our borrowers to sign disclosures showing that they were not coerced or forced to state incorrect numbers on their application.

I have been called many things in the almost 10 years that I have been originating mortgages, but never in my life have I been accused of being an example of the "wrong thing." as our guest Mikey has suggested in his or her comment above.

First of all, if two people are married, and only one of them decides to apply for the mortgage in their name, THIS IS NOT FRAUD.  (if the one who applies in their name happens to have better credit and therefore has an easier time qualifying for a loan, So Be it.  Having only one member of a family put a loan in their name is not an infraction of any lending law.  nor does it represent any fraudulent misrepresentation of any kind by any legal definition yet known.)

Secondly, If one of the married people decides to apply for a stated income loan, and then proceeds to tell me what his income is, Then He is not committing Fraud.   His income is "Stated" not "Verified"  The fraud comes in if the mortgage broker or the borrower or some other third party changes the employment name to make it look like he has a job that makes more money, or gets a third party to lie in order to verify the clients job, or makes fake tax returns, etc, etc, etc,  The whole point of this article from the begining is to say, simply applying for a stated income loan does not constitute Fraud.

Finally, I usually hate defending myself because it is soooo pretentious, but I simply included the example of the married couple where one cant qualify, To give a reason why I might even consider accepting an stated application.  Since I don't like them very much at all. However...Let me repeat this for the cheap seats....

I don't like Stated Income Loans....I feel they are the #1 contributing factor to foreclosure in this country

I would never coach a borrower on what income to state on their loan application.

I would never knowingly help a borrower falsify documents or commit fraud in any way to obtain a loan.

I do feel their are certain situations where they are warranted.

I am simply saying if a client comes to me and wants to do a stated income loan, I will ask them a bunch of detailed questions about everything in their financial situation to try and find them the best loan possible, and If I determine that I feel the client will not be able to afford the house he wants, I will not in good conscience recommend or accept that stated income loan application without expressing my concerns to him, my boss, and my underwriters., However if I discover that there are other details, things in the industry we call mitigating circumstances or compensating factors...such as a person that has an additional part time job, but can't prove a 2 year history of it yet(but I know he has it). A person who works in an entirely Cash-based business (very hard to verify one way or another) Or a person that has a spouse who is not on the loan, but she makes income as well...(she will be helping to pay the house payment of course)  Then I can sleep at night and not be afraid of doing the wrong thing by accepting an application from a client who wants a stated income loan.

Jan 25, 2007 02:34 AM
Anonymous
Mikey
"Or a person that has a spouse who is not on the loan, but she makes income as well"-Can you explain to me how this isn't fraudulent? It seems to me that you are saying you would knowingly put down on a loan application that a person makes X when that person makes Y, but their spouse makes Z and X = Y + Z..
Jan 25, 2007 06:59 AM
#26
Professor X
NONE - Ludington, MI

HMMMMM Lets see.  Hopefully you start to see the entire point of this post.  These loans exist and they exist for a reason...If people always stated exactly what they make, they would go Full Doc and there wouldn't be a need for a stated income loan.  The entire existance of the program creates a big quandry doesnt it?

Lets ask this like a question.  Banks obviously offer "stated income loans"  So then What is the Purpose of a Stated Income Loan?  Why Does It Exist? 

At my bank we call our stated income loans NIV or "no income verification."   Simply put this means that a borrower can apply for a loan, "state" their income, and it will not be verified.  This is actually the purpose of the loan....only the employment is verified, not the income.

Its not fraud because I never instructed a client to lie about their income, and since I don't verify it, I have no idea how much my client makes, because the income is stated and not verified.  Therefore I don't care if the person is married, single, or a polygamist...I am simply following the program guidelines and taking an application from my client...That is the point.  They can make X+Z-Y *Q and sewer rat can taste like pumpkin pie, but I wouldn't know cause I wont eat the filthy #$@$$$$$*&%. How would I knowingly put incorrect information on a 1003 when I don't see any documentation????  Thats the whole point isn't it.

All I said above is: 

Its not fraud for 1 member of a married couple to go on the loan and not include their spouse.

It is not fraud for that same person to apply for a stated income loan.

It is not fraud for me to take his application and then take his word for it about how much he makes

It is not fraud on my part if he is lying since his income is stated and not verified, how would I know?

I repeat I would never knowingly coax a borrer on what to put on their application, and I would never knowingly falsify documents or lie for a borrower to get a loan.

You are taking one thing out of context.  I hate stated income loans, I rarely originate them, and I look at borrowers who ask for them with a great deal of scrutiny.   Some things I look at with more scrutiny than others, because I have no desire to see a client of mine get forclosed on, have their credit ruined, their home lost, and my bank shorted thousands of dollars.  

Other than that, just because I happen to know a borrower has a wife that works, how does that mean I know that how much income he is stating on his application is a lie???

These loans obviously exist for a reason....I have never seen a bank cry fraud about a person with 750 credit scores who has a stated income loan and pays their mortgage payment on time for 30 years.

Jan 25, 2007 08:18 AM
Anonymous
Mikey
But you said one of the purpose of the loan is for a couple whose spouse had bad credit and they couldn't qualify. That is absolutely incorrect, and is fraud. And the scenario you just laid out we can both agree that ultimately the loan that is originated is based on fraudulent information. They aren't called liar loans for nothing and I would think that any broker would think twice about handing them out, because ultimately the lenders could terminate the relationship with you if they determine that bad loans have originated under your watch.
Jan 25, 2007 09:46 AM
#28
Professor X
NONE - Ludington, MI

The only thing we agree upon is to disagree.

Lets ask this like a question.  Banks obviously offer "stated income loans"  So then What is the Purpose of a Stated Income Loan?  Why Does It Exist? 

Jan 25, 2007 01:41 PM
Anonymous
Mikey

Is your position that the banks offer this program simply so they can be defrauded?

Banks will say SISA is designed for self-employed or tip/commission based workers. They also sell the "speed" aspect of the loan (since documentation is reduced so are turnaround times) and privacy (fewer people knowing your business).

Why not just go No Ratio for the married couple with one spouse with bad credit? Or NINA?

But I will tell you what, if believe 100% in what you are saying, do the following, write the lady who runs www.mortgagefraudblog.com and ask her, what do you think her response might be.. hmm?

Jan 25, 2007 04:11 PM
#30
Professor X
NONE - Ludington, MI

This is starting to get boring...and I am getting sick of repeating myself...I think that the fact that we are each repeating ourselves over and over means that we don't really understand what the other one is trying to say.

You are missing the point of this entire post.  It is to discuss the paradox of stated income loans.  Why someone can get arrested for originating a loan that basically encourages people to lie and is allowed by banks.

You didn't answer my question either.  What is the purpose of stated income loans.  you said something about what they were designed for...what is that?..besides something I didn't ask.  I asked for the purpose.  If the purpose was for self employed borrowers and borrowers who make tips to get loans, then the loan guidelines would only allow these 2 borrowers to apply for these loans.  but the truth is banks allow wage earning and w-2 borrowers to apply.  The purpose is to allow people who cannot prove their income to obtain a mortgage.  Well if a self employed borrower states that he makes 110k but really only shows AGI of 60k, then he is lying isn't he....its right there in black and white that he only makes 60k on his 1040s.  must be fraud.

Yet banks turn their head.  Banks originate loans based on risk.  since they do not verify the income, it really is a non-factor in the credit decisions on these types of loans.  They look at credit, equity, and in some cases assets. (SIVA)  The bigger problem is when loan originators take it upon themselves to find any way possible to get a loan done.  encouraging people to use stated programs, encouraging them to lie about their income, falsifying documents and perhaps forcing a person into a house that he knows they cannot afford that house and eventually no choice but foreclosure.

Try not to focus so much on the one sentence, and look at the point of the article.  Where we are not understanding each other obviously. 

I agree with you 100% if a borrower applies for a stated loan, and lies about his income by adding his wife's income to his, he is committing fraud.  OK, but that is irrelevant from this discussion because 1.) I am not talking about that in the article, and 2.), I would never know he is committing fraud because I have no idea how much money he makes because it is not required that I verify it.

So I repeat.  I don't really need to ask Ms. Dollar about what she thinks constitutes fraud, because I work for a federally chartered bank with clear policies and definitions about what I am allowed to do and what I am not allowed to do.

so...

If I take an application from a borrower, and do not recommend that he lie about his income, and I do not push him into a stated income loan in order for him to qualify.  I do not see any documentation, so I have no idea what he makes, and he lies about his income....and being the good company man I am I find no reason to believe he is lying...yet I am still worried about every loan I originate because I don't want any loans I originate to get foreclosed on and cost my bank money. (that is the big difference, I care about these things because I work for a bank not a broker)  and I think to myself "self, I cant find any reason to believe this loan is fraudulent, but I know in my heart that even if this guy is stretching his income, at least I know his wife works too and she will be contributing to the family income"  then at least I am able to sleep at night, I probably won't question the loan.....Since I know what my bank requires me to do to be in compliance on these programs, and I follow it to the letter, I would not be committing fraud....

My whole point of arguing with you for 2 days is that you came into my blog and accused me of doing the wrong thing.  I don't commit fraud. ever. period.  I can't help if a borrower decides to lie and commit fraud.  And believe me I care if they do...but unless they somehow show me they are lying, how would I know.  I now even have every one of them sign a letter that says I didn't encourage them to lie about income at application because I don't want to end up like the guy in this blog for something I had no idea was going on.

Jan 26, 2007 03:15 AM
Scooter Hugins
Hugins Financial - Winter Haven, FL

I understand that STATED LOANS were originally invented to make it easy for a great but complicated borrower get a loan.  I know a doctor that is self-employed at his own office AND paid by a few hospitals in the area AND has rental income AND . . .

If he has perfect credit and puts 20% down, what's the problem?  Give him the loan.  What IS his income?  What IS his net worth?  Accountants are paid a lot of cash to approximate these questions months after the year has ended.

Once the lenders loosened the rules to allow the lady that cuts (620 credit score / 5% down) my hair and has a license to do it "STATE" her income at $50,000 - The fuse was lit! 

Mar 21, 2008 03:43 AM
Kirk Westervelt
Van West Realty - Greenville, SC Realtor -Short Sale Expert! - Greenville, SC
Kirk Westervelt, Broker In Charge, Van West Realty - CDPE - Short Sale Agent - Home for Sale - Greenville, Simpsonvil...

I can totally see how you would have been scared. Like you said, though, the loan product is a good one that makes sense...IF USED PROPERLY!

Keep up your strong ethics the way you have been doing, and everything is going to be just fine!

Jun 14, 2008 05:38 PM
Valerie Spicer
Spicer & Associates Inc. Oakland, Macomb, Lapeer & Genesee - Oxford, MI
Broker/Owner, Realtor, Horse Farm Specialist, Michigan

Hi Joshua,

I know that this is an old post.  I thought you could give some insight on how the "stated income loans" are doing right.  Are there any in existance?  I am a Realtor from the Metro Detroit area and have a few clients that are in a situation that would need to be stated due to self-employement.  Give us an update if you get a chance,

Thanks..great post.

Valerie Spicer

Upland Realty

Jul 06, 2008 12:35 AM
Eric J
Eric J - Dream Home Financing - Freehold, NJ
Dream Home Financing

I am not surprised that this happened. Many loan officers lied and in my opinion, more than their customers.

Eric - Stated Income Loans

Nov 19, 2009 07:27 AM