Real Estate Finance
Mortgage Scams in a Weak Housing Market
Fraudsters will always finds ways to scam lenders and homeowners. And in recent years, they’ve shifted their tactics to profit from the market’s downturn.
Today, there’s less identity fraud and misrepresentation of income or employment to obtain a mortgage, mainly because of stricter validation criteria, says David Johnson, vice president of fraud and consortium solutions for CoreLogic, a provider of financial, property and consumer information. But other types of fraud are replacing those scams. Here are three:
1Foreclosure Rescue
Schemes that prey on struggling homeowners heading toward foreclosure are “ the cash cow right now,” says Yolanda McGill, senior counsel for the Fair Housing and Fair Lending Project of the Lawyers’ Committee for Civil Rights Under Law.
Some fraudsters are peddling services such as preparing documents for a loan modification. Others claim to be an attorney or say they are working with an attorney. Often, these offers sound legitimate, echoing some of the same language used by government programs and lenders to gain a homeowner’s trust. They offer a service, take the homeowner’s money, then disappear, Ms. McGill says.
The Mortgage Assistance Relief Services Rule, in effect since January, prohibits firms that offer mortgage modification or mortgage relief assistance from accepting upfront fees, Ms. McGill says. So homeowners should never pay before services are rendered. There’s an exception for attorneys, causing some scammers to pose as representatives of law offices, she says.
Other scammers try to get homeowners to sign a quitclaim deed, which transfers ownership of the home to the scammer, who promises the homeowner a situation where he or she will be able to remain in the home, Ms. McGill says. In a newer scam, those who have already lost their homes are being approached to pay money to get the home back, she adds.
2Short- Sale Fraud
A short sale can be a lifeline for a distressed homeowner heading for foreclosure. That’s because in a short sale, the lender accepts a mortgage payoff that’s lower than what the homeowner owes. But fraudsters have found ways to make a profit off these deals.
One of the most common forms of short-sale fraud happens when a seller or someone representing a seller doesn’t submit the best offer to the lender. A middleman buys the property at the lower price, then turns around and resells the property to a legitimate buyer at a higher price— often on the same day— according to a recent Federal Bureau of Investigation report on mortgage fraud. The middleman pockets the difference, sometimes sharing it with an accomplice. Some fraudsters are realestate agents marketing themselves as “short- sale specialists.” Title companies and settlement agents may be in on the scam, too, says Robert Hagberg, lead fraud investigator at Freddie Mac.
Sometimes fraudsters will try to manipulate the price lower by encouraging the homeowner to make the house look worse than it is, referred to in the industry as “reverse staging.”
3False Payoffs
Another scam is when the title or closing agent doesn’t remit payoffs as he should, Mr. Hagberg says. An example: “You refinance your mortgage, the refinance closes, you go on your way and make payments to the mortgage company, but your title company hasn’t remitted payoffs to the old company.” Fraudsters take funds for their own use, and it can be 30 to 60 days before evidence of the scam is found in the public record.
Fannie’s Squeeze Makes 4% Mortgage Too Good to Be True
Government efforts to make lenders pay for soured mortgages may be keeping potential borrowers from record-low interest rates, slowing home sales and refinancing as banks tighten standards to avoid more demands for refunds. Lenders are insisting on higher credit scores and more documents than required by the Federal Housing Administration and government-backed Fannie Mae and Freddie Mac. Quicken Loans Inc. and Vision Mortgage Capital are among firms saying they are increasing scrutiny of would-be borrowers in response to pressure to cover losses incurred on U.S.-backed housing debt. “You’ve got to take measures now to protect yourself,” John B. Johnson, chief executive officer of Birmingham, Alabama- based MortgageAmerica Inc., said during a panel discussion this month. Demands that lenders repurchase bad mortgages from Fannie Mae and Freddie Mac are “casting a pall over the market. I fear that it will face a much longer recovery because of this.” Read more
Waiting for Prices to Fall Could COST You More
Many purchasers have been sitting on the sidelines waiting for home prices to hit bottom. They want to guarantee that they are purchasing at the best possible price. Like them, we also believe that prices still have some room to fall in most markets. However, we disagree that waiting is a good financial decision. The buyer should not be concerned about housing prices. They should be concerned about cost.
The cost of a house is made up of the price AND THE INTEREST RATE they will be paying. Two different pieces of news released yesterday highlight this point.
PRICES
The National Association of Realtors (NAR) released their 4th quarter housing research report. In the release, they reported that home sales rose 15.4% in the 4th quarter over the 3rd quarter. They also showed that prices remained stable during the year:
The national median existing single-family price was $170,600 in the fourth quarter, up 0.2 percent from $170,300 in the fourth quarter of 2009.
A buyer who delayed a purchase might find solace in the fact that prices have not increased. However, the other news released yesterday paints a different picture.
INTEREST RATES
The Primary Mortgage Market Survey was released by Freddie Mac which showed that the 30 year fixed rate mortgage was at 5.05%. Frank Nothaft, vice president and chief economist of Freddie Mac said:
“Long-term bond yields jumped on positive economic data reports, which placed upward pressure on mortgage rates this week…As a result, interest rates on a 30-year fixed-rate mortgage rose to the highest level since the last week in April 2010.”
So prices have remained stable but interest rates have risen dramatically in the last 90 days. What does that mean to a buyer looking to purchase a home this year?
The price is the same. It just costs more.
Let’s show you what the news means:
By sitting on the sidelines for the last 90 days a purchaser lost:
- $89.44 a month
- $1,073.28 a year
- $32,198.40 over the thirty year life of the mortgage
If you buy a $340,000 home, double all these numbers.
Bottom Line
Even if prices fall another 10% this year, the cost of a home will increase if interest rates go up more than 1%. Buyers should not worry where prices are going. They should be concerned where costs will be later in the year.
Freddie Mac Falls After Seeking $10.6 Billion From Treasury
Ouch. So much contradicting news out there. You have two sides of the fence. One stating the housing market is improving and then the other who claim it’s not over yet. It will be even more confusing this month when the housing numbers for April come out. There will be a BIG surge with the housing numbers and everyone will think “Glory Days Are Hear Again.” I’ll call this “Hope Over Reality.”
Truly, what the government incentive program has done is caused anyone who was going to purchasing a home in 2010 to up their purchase to an earlier time to be able receive the financial benefit. No one or financial prop is going to make someone wake up and say…let’s buy a home. This decision is made because of a life changing situation, period. The housing market is what it is and until the inventory is a balanced point…somewhere between 4-6 months the housing market will continue to experience the challenges and unfortunately, adjustments in prices. It is basic economics of supply and demand.
Nationwide there is a 16-24 month supply of housing inventory including residential resales, new and bank owned properties. With a forecast that housing values will decline another 10-15% nationwide in 2010.
What this all means to the homeowner who is thinking about selling is be smart and price your home so that it will be one of the few which a home buyer will buy. What’s the old saying…”information is power or is it…the correct use of information is POWER.”
Freddie Mac Falls After Seeking $10.6 Billion From Treasury – Bloomberg.com
Freddie Mac, the mortgage company operating under U.S. conservatorship, fell 8 percent in New York trading after requesting $10.6 billion more in Treasury Department aid while reporting a first-quarter loss.
http://www.bloomberg.com/apps/news?pid=email_en&sid=a7ta2rY7BkYI
Be aware of good-faith estimate’ rules, or it could cost you
If you are planning to take out a mortgage or refinance, you might want to hear this blunt message from federal officials: Don’t fly blind. When you’re shopping among competing lenders for the best terms and fees, make sure you know which quotes come with a guarantee and which do not.
Depending on how loan officers provide quotes up front — on an informal “worksheet” that carries no federal consumer protections or on a new, three-page “good-faith estimate” that comes with rock-hard guarantees — there could be a world of difference.
A loan officer might quote you fees that are low-balled by hundreds of dollars on an informal worksheet to get your business. But if the quotes are made on a GFE, they’ve got to be accurate because, under new federal rules that took effect Jan. 1, any significant excesses must come out of the lender’s wallet at settlement.
Last week, the Department of Housing and Urban Development brought together representatives of the highest-volume mortgage lenders in the country — which originate more than 80 percent of all new home loans — to review the agency’s reformed GFE and closing documents.
Among the issues discussed were the widespread use of informal worksheet estimates to quote mortgage rates and settlement fees. HUD does not object to lenders using worksheets to give casual shoppers a rough idea of what they’ll pay. But the agency says it wants lenders and loan officers to make clear to customers that worksheets are not GFEs and are not guaranteed.
At the meeting with major lenders, HUD Deputy Assistant Secretary Vicki Bott warned that under no circumstances can worksheet quotes be issued to a mortgage applicant “in lieu of a GFE.” Once a customer supplies the essential application information — Social Security number, property address and estimated value, among others — lenders must issue a binding-cost GFE rather than a worksheet, Bott said.
Also, loan officers cannot refuse to provide a GFE to an applicant who requests one, nor can they tell applicants that they can receive a GFE only if they commit to using that company to obtain the mortgage.
Loan shoppers “do not have to move forward with a lender to get a GFE,” Bott said in an interview after the lender meeting. “By no means can they say you are bound to me as your lender” after the issuance of a cost-guaranteed GFE. Why? Because the whole concept of the revised GFE is to enable home buyers and refinancers to shop intelligently, with confidence in lenders’ estimates. You can now get cost-guaranteed quotes on a GFE from one lender, then compare them with GFE quotes from competitors. The new form contains itemized boxes allowing comparison of up to four lenders’ quotes — from interest rates to loan fees to prepayment penalties and total settlement expenses.
The GFE also ties upfront estimates to later charges at closing and encourages borrowers to check line by line for any discrepancies. The form explains which fees come with zero tolerance for changes between upfront estimate and closing — generally, the loan fees and local transfer taxes — and which fees allow a 10 percent tolerance for higher charges than the estimate, such as certain title and closing-related services.
How can you be a smart mortgage shopper using the new federal rules to your advantage? If you are seriously looking for the best deal and are prepared to supply basic application information, ask for a GFE by name. If you’re merely shopping for generic rate quotes, worksheets are fine as long as you understand their limitations.
Beware of lookalike ploys and substitutes. Bott told lenders to make sure their worksheets do not “look like a GFE” and that they “be clear [to consumers] that they are not GFEs.”
Some worksheets that have been used by lenders since Jan. 1 resemble GFEs but have titles such as “estimated settlement costs” at the top of the page. Others indicate on the bottom of the form that the worksheet “is not a GFE,” but the typeface is so small that it’s barely legible.
Finally, be aware that federal law requires issuance of a GFE within three days of any application. If you don’t receive one and you signed up for a loan on the basis of a lender’s worksheet, you are truly flying blind.
Complements: Kenneth R. Harney
