Spokane Mortgage Lenders Association June 15, 2021
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RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble
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Spokane Mortgage Lenders Association June 15, 2021
- 1. RESPAViolationsandMortgageFraud SchemesthatEmergeDuringaReal EstateBubble Jillayne Schlicke CE Forward, Inc. Spokane Mortgage Lenders Association June 16, 2021
- 4. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble Affiliated Business Arrangements Ownership Example: Real estate company owns a lender
- 5. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble Hometown Financial Group DBA K Loans Luisito “Louie” Flores and Joseph Kelly Joseph Kelly owns Kelly Right Realty and K Loans Source: https://dfi.wa.gov/sites/default/files/consumer- services/enforcement-actions/C-15-1827-19-CO01.pdf
- 6. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble K Loans gave 50% to 100% of their mortgage broker revenue to Kelly Right Realty in exchange for referrals. Kelly Right Realty paid ALL of the operating and marketing expenses of K Loans Other state and federal law violations Deceptive advertising, failure to provide disclosures and pay fees.
- 7. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble Joseph Kelly owns Kelly Right Realty K Loans “Affiliated Business Arrangement Disclosure Form” not given to home buyer
- 8. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble 10,000 investigation costs $50,000 fine $25,000 STAYED $25,000 due immediately $7,339 examination fee = $42,739. But wait!There’s more…. K Loans continued to violate the law The ”stay” was lifted.
- 9. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble Why did we switch from Affiliated Business Arrangements to Marketing Services Agreements? The Qualified Mortgage Rule under the Dodd Frank Act.
- 10. Qualified Mortgages ~ Regular periodic payments that are substantially equal ~ Loan term does not exceed 30 years ~ Total points and fees do not exceed 3% for loans over $100,000 ~ Total debt to income ratio does not exceed 43% ~ If loan conforms to guidelines set forth by Fannie & Freddie (aka Conventional,) FHA,VA, USDA Loan is automatically a QM Until Feb 2021. Ability to Repay: 5Years 10 Higher PRICED Mortgage Loans HPMLs Loans formerly known as Subprime Non-Traditional = Any loan that’s not a 30 year fixed rate mortgage Non-prime Non-QM A loan is an HPML When: Annual Percentage Rate (APR) is: 1.5 or more points higher on a fixed rate mortgage OR 2.5 or more points on a non- conforming loan OR 3.5 or more points higher for a subordinate lien When compared with the Average Prime Offering Rate (APOR) Ability to Repay: 7 Years High COST Mortgages ~ H.O.E.P.A. Home Owner Equity Protection Act Originally for second mortgages, also known as Home Equity Lines of Credit. These are VERY EXPENSIVE mortgages, with higher costs due to a higher risk. ~ Annual Percentage Rate (APR) exceeds Average Prime Offering Rate (APOR) by more than: ~ 6.5% for first lien mortgages OR 8.5% for first lien mortgages under $50,000. OR 8.5% for junior or subordinate liens. ~ Borrower must attend a counseling class
- 11. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble MSAs: Marketing Services Agreements Something ofValue A referral A quid-pro-quo agreement The CFPB seems to take the position that the mere entering into a contract with a person in a position to refer settlement service business is a violation of Section 8 of RESPA due to the implied quid-pro-quo built into all MSAs
- 12. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble Homestreet Bank Shareholders were complaining: A certain division was constantly unprofitable. Shareholders voted to sell that division……FDIC
- 13. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble Homestreet Bank Desk rental agreement in real estate offices and with home builders. Co-marketing online Quid Pro Quo
- 14. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble FDIC Civil Monetary Penalty $1,350,000. Source: https://www.fdic.gov/news/press- releases/2019/pr19103.html
- 15. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble Office of theWA State Insurance Commissioner v. MODUSTitle and Escrow
- 17. Fraud for Housing Intentional misrepresentation of a fact in relation to a mortgage loan. Had the lender known of the fact, the lender might not have made that loan. Example: Borrower lies about occupancy Fraud for Profit A group of individuals acting together in a group to send many loans through one or more lenders and a significant percentage of the loans default leading to large losses. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble
- 18. Whoever knowingly executes, or attempts to execute, a scheme or artifice- (1) to defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises; shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both. http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title18- section1344&num=0&edition=prelim RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble
- 19. WAState RCW 19.144.080 Mortgage Lending and Homeownership Law Unlawful actions—Fraud, misrepresentation, deceptive practices: (1) It is unlawful for any person in connection with the mortgage lending process to directly or indirectly….. http://apps.leg.wa.gov/RCW/default.aspx?cite=19. 144.080 Class B felony
- 20. Fannie Mae: Mortgage Fraud LoanTrends Loans with mortgage fraud investigative findings Third party loans 2020 findings RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble
- 30. Fannie Mae: Misrepresentation of Borrower’s Employment Fannie Mae has identified several entities listed on loan applications as places of employment that appear to be fictitious.The following list of employers contains entities / businesses that were listed as the borrower’s purported place(s) of employment but whose existence Fannie Mae could not confirm. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble
- 31. Mortgage Fraud Case Studies David Daughtrey “MLM Guru” Dana and Michael “Bubba” Roush Ronald McCord Chris Schaller “The Illinois Mortgage Man” RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble
- 32. QuiTam Action Guaranteed Rate RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble
- 33. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble The Silent Second Two versions: 1) Rapid home price increases 2) Rapid home price decreases
- 34. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble Silent Second: Rapid Home Prices Decreasing U.S. v. Century Mortgage, Spokane and Ronald Burger and Sage Gibbons (primary owners of Century) 10 LOs, real estate agent and appraiser Significant mortgage fraud. Source: https://dfi.wa.gov/news/press/spokane-mortgage-and- appraisal-fraud-case-concludes
- 35. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble Silent Second: Home Prices DECREASING • Home is not selling because price is too high. • Home is taken off the market. • Home comes back on the market at a much higher price. • Home obviously not worth that much so appraiser is involved with inflating home value. • For simplicity: Home is not even worth $80,000 because it’s not selling. Home comes back on at $100,000.
- 36. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble Silent Second: Home Prices DECREASING • Homebuyers are told by LO that they can buy with zero down. • Home sells for $100k. • Inflated appraisal at $100k • First mortgage: $80,000. • Second mortgage: 20,000.
- 37. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble Silent Second: Home Prices DECREASING • Addendum to purchase and sales agreement: “At the close of escrow, the second mortgage shall be paid off for $1.00” • Addendum to purchase and sales agreement not provided to the lender funding the loan. • Lender has made 100% LTV loan
- 38. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble The Silent Second Two versions: 1) Rapid home price increases 2) Rapid home price decreases
- 39. Silent Second: Home Prices INCREASING Home buyer cannot get offer accepted. The first mortgage loan is calculated against the lower appraised value. Homebuyer agrees to a second mortgage for the diff between sales price and appraised value. Lender is provided with purchase and sales agreement with price at the appraised value. Lender is not told about the second mortgage, because home buyer would not qualify. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble
- 40. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble Silent Second: Home Prices INCREASING Escrow closer has borrowers sign the second mortgage but it is not recorded. Loan must close, title policy must be delivered to the lender so the loan can be sold. After the loan is funded and shipped, the second mortgage is recorded.
- 41. RESPA Violations and Mortgage Fraud Schemes that Emerge During a Real Estate Bubble Money LaunderingTrends FinancialCrimes Enforcement Network FinCen.gov Payday Lenders Marijuana Bitcoin