Mortgage Blog

Ever since the housing market started to turn sour increasing emphasis has been placed by the authorities on combating the various scams that target consumers. We have set out to list some of the most common types of mortgage fraud below in the hope that we might warn the unsuspecting.

Rescue Scams: This may be the most despicable of all types of mortgage fraud. In this case the scammers contact homeowners in distress promising to assist them. Instead of helping them they have them sign a “quit claim deed”. Then the home is taken from the owners and resold for a profit.

Fraudulent Flipping: This is one of the most common types of fraud; although the downturn in the housing market and greater diligence by Lenders has made it much harder to execute. A property is purchased at a low price and little or no renovation work is done. Next an appraisal is falsified to make it appear that the property value is much higher than the true value. For example a home worth $150K may be “appraised” for $250K. When the home is sold the fraudsters pocket the profit.

Straw Buyers: A “straw buyer” is offered a payment or fee to put their name on a mortgage application. The purpose is to hide the identity of the real buyer and after the loan closes the criminal assumes ownership of the home. In some instances the straw buyer may not be aware that their name is being used on the mortgage application, in which case they are victims of identity theft.

Silent Second: In this scam a Lender is led to believe that the borrower is making a downpayment from their own funds when in fact the money is borrowed from another party. This misleads the Lender as to the true financial risk of the loan.

Double Sales: A swindler can record a deed and arrange a mortgage before those transactions show up on record, file another deed and arrange another loan. Weeks can pass between the filing of a property record and its appearance in computerized registries used by title-search companies.

Air Loans: This is the ultimate con in mortgage fraud. “Air Loans” are mortgages on non-existent properties. Usually everything involved in the transaction is fraudulent. The perpetrator may set up phones and pose as borrower, employer, appraiser and credit agency when the lender calls to verify.

Don’t get caught up in any of these scams. Criminal prosecution will usually follow and jail terms can be lengthy. Never lie on a loan application and don’t sign something you know to be untrue. If you feel you have been scammed or that someone is attempting to scam you, contact a real estate attorney or your State Attorney Generals office. And remember the vast majority of people involved in the real estate industry are honest so just do your homework. The old adage applies; if it sounds too good to be true it probably is.

After months of negotiations between the House and Senate, as well as an initial veto threat by the White House, the President dropped his opposition and signed H.R. 3221 into law. The new bill is more commonly referred to as the Housing and Economic Recovery Act of 2008.

H.R. 3221 is perhaps the most significant piece of housing-related legislation we have seen in recent years. It implements necessary consumer protections while promoting stabilization of the current market and industry through reforms to the Government Sponsored Enterprises, Fannie Mae and Freddie Mac, (GSEs) and the Federal Housing Administration (FHA) program.

Here are some of the Bills most significant provisions:

• All-Originator Registry: Establishes a nationwide loan originator licensing and registration system that will set minimum standards for loan originator licensing substantially improving the oversight of all originators. In addition, all loan originators - lenders, banks, credit unions and mortgage brokers - must register with the Nationwide Mortgage Licensing System and Registry and go through a criminal background check (except loan originators working for Federally-chartered institutions).
• First Time Homebuyer Credit: Allows first-time homebuyers of a principal residence in the United States to take a tax credit of 10 percent of the purchase price of the residence (not to exceed $7500). The credit will begin to phase out if single taxpayer's income exceeds $75,000 per year or the couple's income exceeds $150,000. The credit will be paid back over 15 years and applies to residences purchased between April 9, 2008 and July 1, 2009.
• FHA Modernization: Effective January 1, 2009 it increases FHA loan limits for single-family residences to the lesser of 115 percent of the local area median home price (but no lower than a floor of 65 percent of $417,000) or 150 percent of the GSE high cost loan limit of $417,000 or $625,500 (similar increases for other 2-4 unit single-family properties); establishes a 12-month stay on FHA's proposal for risk-based premiums; sets the down payment requirement at 3.5 percent; and prohibits seller-funded down payment assistance (both direct or through a third party). Authorizes a $25 million appropriation to improve technology, processes, program performance, eliminate fraud and provide appropriate staffing.
• GSE Loan Limit Increases: The loan limits were set at the greater of 115 percent of the local area median home price or $417,000 for a mortgage secured by a single-family residence, $533,850 for a 2-family residence, $645,300 for a 3-family residence, and $801,950 for a 4-family residence. These limits will take effect January 1, 2009. For high-cost areas, the loan limits are adjusted to a cap of 150 percent of the GSE limit of $417,000 for a one-unit property or $625,500. These limits will take effect January 1, 2009.
• GSE Oversight Reform: Creates a new regulator (five-year term, appointed by the President, confirmed by the Senate) with oversight authority similar bank regulators, establishes a new affordable housing fund and capital magnet fund to be funded by a 4.2 basis point fee on all new loans, significantly changes the affordable housing goals and raises the conforming loan limit to the higher of $417,000 or 115% of the local median home price, not to exceed $625,500 (effective January 1, 2009).
• FHA Rescue: Creates a voluntary program for lenders to write down the loan balance in exchange for an FHA guaranteed loan not to exceed 90 percent of the newly appraised value of the home. The lender would pay a 3 percent FHA loan origination fee. To qualify, the borrower must have a debt-to-income ratio above 31 percent on the original loan. The program is capped at $300 billion.
• GSE Stability: Authorizes the Treasury Secretary to temporarily increase the GSEs' line of credit and to, if necessary, buy equity in the GSEs in order to provide confidence to credit markets. Also provides a role for Treasury and the Federal Reserve in GSE oversight to ensure safety and soundness.
• TILA Reform: Requires Truth in Lending Act disclosures to be delivered seven days prior to loan closing, requires that disclosures include examples of how payments would change based on rate adjustments in addition to disclosing the maximum possible payment under the loan terms and mandates that the consumer receive early disclosures before paying anything more than a nominal fee that covers the cost of a credit report.

We are hopeful that this Bill will benefit the majority of American homeowners and help to stabilize the nation's housing market.

Information provided by National Association of Mortgage Brokers (NAMB)

The HUD-1, also known as the settlement statement, is a prescribed form from the U.S. Department of Housing and Urban Development (HUD). This form itemizes all charges imposed on the borrower and all charges imposed on the seller in connection with the settlement of your real estate transaction. One business day before the settlement, you have the right to inspect your HUD-1 Settlement Statement.

The HUD-1 is filled out by the settlement agent who will conduct the settlement. The fully completed HUD-1 Settlement Statement generally must be delivered or mailed to you at or before the settlement. In cases where there is no settlement meeting, the escrow agent will mail you the HUD-1 after settlement.