By Michael Hathman
Chief Compliance Auditor for Eagle Audit Services
MARYLAND HEIGHTS, MO - After reviewing several files, I have found some amazing information that is as shocking as it is disturbing. Sure, a lot of people talk about mortgage fraud. Examples have been uncovered in the news concerning forged documents fabricated by companies such as DOCS in the recent Robo Signing Scandal that just recently took place.
Unfortunately, the fraud and the crookedness of the mortgage industry runs very, very deep indeed.
While reviewing my clients mortgage docs, I have found the following violations that mortgage lenders had committed as unconscionable and terribly ethically corrupt:
- Clients were promised a certain interest rate much of the time at the beginning of the application loan process. However, the rate went up at the closing table.
- Many times, the closing agent would give clients a copy of documents that were not executed and did not have client signatures on them (including, but not limited to): the Deed of Trust, the Note, the Good Faith Estimates (GFE), Truth in Lending Act ("TILA") Disclousure.
- At times, I've ran across clients who did not understand what type of mortgage documents that they were signing. One gentleman, who was a pastor at a local church, 85 years old, signed a mortgage he could not have possibly afforded which was an Adjustable Rate Mortgage (ARM) and the broker said that it was a fixed mortgage and implied that it was "permanently fixed" and just go ahead and sign the documents. The ARM adjusted and the family was struggling to make the houose payments. They will be filing a Mortgage Fraud Affidavit with the lender (with the aid of my firm) to remedy this problem.
- Many disclosures are not made to borrowers as they should be (including, but not limited to): Itemizations of Amounts Financed; the Hazard Insurance Disclosure; Escrow Disclosure; Servicing & Transfer Disclosure; Note to be Sold at a Profit Disclosure; Affiliated Business Disclosure; Equal Credit Opportunity ("ECOA") Act & Home Mortgage Disclosure Act ("HMDA") Disclosures ; Privacy Disclosure - (which may be either the Lender's Privacy Policy or the Gramm Leach Bliley ("GLB") Disclosure; Fair and Accurate Credit Transactions Act ("FACTA") Disclosure; Patriot Act Disclosure; Fair Credit Reporting Act ("FCRA") Disclosure and Negative Credit Reporting or Adverse Action Impact; Application Fee Disclosure; (If Refinancing): Homeowners Equity Protection Act ("HOEPA") Disclosure that advises clients about equity stripping; IRS Income Discrepancy Reporting Disclosure; Handbook on Adjustable Rate Mortgages (ARMs) should be given to borrowers and a borrower's signed delivery receipt should be made in the file - which, so far, 100% of the time doesn't happen; HUD Booklet on Home Buying and Settlement Costs - with a delivery receipt made as part of the file); Pamphlet on What You Should Know About A Home Equity Line of Credit - with a delivery receipt made as part of the file); (If Refinancing): 3 Day Right of Recission Disclosure,
The worst part about many of predatory loans generated in the 2000 - 2008 time frame were not properly underwritten as well. I have had responses from banks with regard to the Qualified Written Requests (QWRs) that I have sent out that much of the disclosure and underwriting documenation was either completely missing from my client's files or simply never executed. Many of these loans should have had: copies of Federal & State Tax Returns; Verifications of Deposits (VODs); Copies of Paystubs; Verifications of Employment (VOEs) and/or a Transmittal Summary (Form 1008) showing the "affordability reasoning" behind extending credit to borrowers. None of these things (in many cases) were not in the file either because of the any of the following reasons: (1) Documents were never executed; (2) Documents were lost by the Lender; (3) Documents were lost by the borrower (which most of my clients had "everything" (I use this word very loosely) given to them by the loan officer and at the closing table.
Furthermore, with regard to clients who bought investment properties, the following documents were also missing from the client files: the Transmittal Summary (Form 1008); copies of leases which were enforce at the time purchase or refinance - along with the renter's application for renting; copies of renter drivers licenses to accompany the leases to verify that both the leases and the renters weren't "fictitious characters" along with paystubs, VOEs, VODs, tax returns, etc.
Much of the fraud during this time of loose and reckless lending had a lot of motivating factors: the loan officer's commissions, management decisions to lower standards in lending and banks wanting to cash in on multiple refinancing (engaging in equity stripping) and gouging borrowers with very high (and in some cases) shockingly high interest rates.
Corrupt Appraisers were also a large part of the general problem as well. Banks would hire their own appraisers who would inflate the values of the houses that they were appraising - not just to make the real estate agents and sellers who were involved more money, but so that the bank could fraudulently lend more money at very high interest rates and profit even more. While I know that there are many honest sellers, agents and appraisers who worked during this time, there were also a tremendous number of fraudsters working also.
Fair Dealing was needed in the majority of these transactions. The borrower should have been advised as to costs, options, comfort, financing and all of the other things that accompany mortgage loan origination. Many times, the borrowers weren't given enough information (either by operation of neglect, forgetfulness or even fraudulent omission of the fraudulent concealment of facts).
Another issue is: Stated Income Loans. These are fine products that are great for persons who are self-employed or who own their own businesses. The caution here is that if a bank is going to sell these types of loans, that's great - but the underwriting needs to be solid. This kind of loan is inappropriate for persons who are employed as a W-2 employee. The loan should mostly be backed up by a few things: VODs, Bank Statements and (if applicable): financial statements certified by a certified public accountant (CPA). Furthermore, if the self-employed person is a landlord, then leases and leasing applictions need to be examined as well as renter verification by copies of driver's licenses.
It is my hope that my company will be able to assist more clients out of this terrible mortgage mess. It's been nearly 5 years since the banking and credit collapse of 2007. We are still in a significant recession. God help us that it ends soon and we can find our way to back to prosperity and that some sort of justice will find its way back to the frauds that perpetrated this financial quagmire. I am certain that in the end, justice and prosperity will again prevail.
Chief Compliance Auditor for Eagle Audit Services
MARYLAND HEIGHTS, MO - After reviewing several files, I have found some amazing information that is as shocking as it is disturbing. Sure, a lot of people talk about mortgage fraud. Examples have been uncovered in the news concerning forged documents fabricated by companies such as DOCS in the recent Robo Signing Scandal that just recently took place.
Unfortunately, the fraud and the crookedness of the mortgage industry runs very, very deep indeed.
While reviewing my clients mortgage docs, I have found the following violations that mortgage lenders had committed as unconscionable and terribly ethically corrupt:
- Clients were promised a certain interest rate much of the time at the beginning of the application loan process. However, the rate went up at the closing table.
- Many times, the closing agent would give clients a copy of documents that were not executed and did not have client signatures on them (including, but not limited to): the Deed of Trust, the Note, the Good Faith Estimates (GFE), Truth in Lending Act ("TILA") Disclousure.
- At times, I've ran across clients who did not understand what type of mortgage documents that they were signing. One gentleman, who was a pastor at a local church, 85 years old, signed a mortgage he could not have possibly afforded which was an Adjustable Rate Mortgage (ARM) and the broker said that it was a fixed mortgage and implied that it was "permanently fixed" and just go ahead and sign the documents. The ARM adjusted and the family was struggling to make the houose payments. They will be filing a Mortgage Fraud Affidavit with the lender (with the aid of my firm) to remedy this problem.
- Many disclosures are not made to borrowers as they should be (including, but not limited to): Itemizations of Amounts Financed; the Hazard Insurance Disclosure; Escrow Disclosure; Servicing & Transfer Disclosure; Note to be Sold at a Profit Disclosure; Affiliated Business Disclosure; Equal Credit Opportunity ("ECOA") Act & Home Mortgage Disclosure Act ("HMDA") Disclosures ; Privacy Disclosure - (which may be either the Lender's Privacy Policy or the Gramm Leach Bliley ("GLB") Disclosure; Fair and Accurate Credit Transactions Act ("FACTA") Disclosure; Patriot Act Disclosure; Fair Credit Reporting Act ("FCRA") Disclosure and Negative Credit Reporting or Adverse Action Impact; Application Fee Disclosure; (If Refinancing): Homeowners Equity Protection Act ("HOEPA") Disclosure that advises clients about equity stripping; IRS Income Discrepancy Reporting Disclosure; Handbook on Adjustable Rate Mortgages (ARMs) should be given to borrowers and a borrower's signed delivery receipt should be made in the file - which, so far, 100% of the time doesn't happen; HUD Booklet on Home Buying and Settlement Costs - with a delivery receipt made as part of the file); Pamphlet on What You Should Know About A Home Equity Line of Credit - with a delivery receipt made as part of the file); (If Refinancing): 3 Day Right of Recission Disclosure,
The worst part about many of predatory loans generated in the 2000 - 2008 time frame were not properly underwritten as well. I have had responses from banks with regard to the Qualified Written Requests (QWRs) that I have sent out that much of the disclosure and underwriting documenation was either completely missing from my client's files or simply never executed. Many of these loans should have had: copies of Federal & State Tax Returns; Verifications of Deposits (VODs); Copies of Paystubs; Verifications of Employment (VOEs) and/or a Transmittal Summary (Form 1008) showing the "affordability reasoning" behind extending credit to borrowers. None of these things (in many cases) were not in the file either because of the any of the following reasons: (1) Documents were never executed; (2) Documents were lost by the Lender; (3) Documents were lost by the borrower (which most of my clients had "everything" (I use this word very loosely) given to them by the loan officer and at the closing table.
Furthermore, with regard to clients who bought investment properties, the following documents were also missing from the client files: the Transmittal Summary (Form 1008); copies of leases which were enforce at the time purchase or refinance - along with the renter's application for renting; copies of renter drivers licenses to accompany the leases to verify that both the leases and the renters weren't "fictitious characters" along with paystubs, VOEs, VODs, tax returns, etc.
Much of the fraud during this time of loose and reckless lending had a lot of motivating factors: the loan officer's commissions, management decisions to lower standards in lending and banks wanting to cash in on multiple refinancing (engaging in equity stripping) and gouging borrowers with very high (and in some cases) shockingly high interest rates.
Corrupt Appraisers were also a large part of the general problem as well. Banks would hire their own appraisers who would inflate the values of the houses that they were appraising - not just to make the real estate agents and sellers who were involved more money, but so that the bank could fraudulently lend more money at very high interest rates and profit even more. While I know that there are many honest sellers, agents and appraisers who worked during this time, there were also a tremendous number of fraudsters working also.
Fair Dealing was needed in the majority of these transactions. The borrower should have been advised as to costs, options, comfort, financing and all of the other things that accompany mortgage loan origination. Many times, the borrowers weren't given enough information (either by operation of neglect, forgetfulness or even fraudulent omission of the fraudulent concealment of facts).
Another issue is: Stated Income Loans. These are fine products that are great for persons who are self-employed or who own their own businesses. The caution here is that if a bank is going to sell these types of loans, that's great - but the underwriting needs to be solid. This kind of loan is inappropriate for persons who are employed as a W-2 employee. The loan should mostly be backed up by a few things: VODs, Bank Statements and (if applicable): financial statements certified by a certified public accountant (CPA). Furthermore, if the self-employed person is a landlord, then leases and leasing applictions need to be examined as well as renter verification by copies of driver's licenses.
It is my hope that my company will be able to assist more clients out of this terrible mortgage mess. It's been nearly 5 years since the banking and credit collapse of 2007. We are still in a significant recession. God help us that it ends soon and we can find our way to back to prosperity and that some sort of justice will find its way back to the frauds that perpetrated this financial quagmire. I am certain that in the end, justice and prosperity will again prevail.
