Thousands of people visit this site each week, which makes for some interesting comments. From Cindy Schnackel of Homeowners Against Deficient Dwellings, commenting on “Cash Back at Closing Deals Lead to Mortgage Firm’s Closure in Arizona”:

IMO [in my humble opinion] the housing industry needs to be investigated for all the deceptive business practices going on. Not only lenders but builders, real estate agencies, title companies…all of it. There has been a ton of news over the past few years of fraud, kickbacks, etc, going on. The people left holding the bag have been home buyers. When banks started to get burned, law enforcement suddenly took the view that this is a crime. When it was just mere consumers getting harmed, it was “a civil matter,” and people were told to get a lawyer even though that was prohibitively expensive, often fruitless, and suing was often cut off as an option thanks to arbitration clauses in contracts.

From Tim, commenting on “New Study Finds Fraud Linked to Early Loan Default”:

What is your recourse if your property was over appraised during refinance? Greentree is the lender and won’t change the rate. We are “upside down” because of them and no other bank will refinance us because of this. Can we sue?

From Chris Lengquist of the Kansas City Real Estate Blog, commenting on “The Elephant in the Room: Looming Foreclosure Epidemic”:

Sadly, the enemy is in the mirror. So long as the deal closes many agents, mortgage brokers and sellers simply “don’t see” what is going on.

Fiduciary duty seems to track back to the REALTOR’s finances. Clients don’t seem able to stop themselves. And the real estate industry as a whole has looked the other way for too long. While NAR predicts a rebound 2007 I predict more of the same as record high foreclosures here in KC will drag down any minimal increases the neighborhoods and cities may experience.

Happily, the issue seems to be getting more and more attention and maybe loan standards are beginning to tighten.

And from Joba, commenting on “Real Estate Fraud in Virtual Space?”:

Not to justify the actions of Unabomber Ted Kaczynski, but didn’t he describe our technology-driven society as doomed to failure? His manifesto doesn’t specifically describe the deleterious effects of fraud fueled by technology, but this is another way in which technology has encroached on human freedom… one more way in which the technologically savvy can exploit the less sophisticated members of society.

Anyone else care to comment?

Still want to argue with me about the legality of Real Estate deals involving cash back at closing? That’s fine because now I am going to bring the Arizona Department of Financial Institutions’ superintendent, Felecia Rotellini, to the table. Rotellini’s department–which is responsible for the licensing, supervision and regulation of state chartered financial institutions and enterprises–just shut down a Mesa, Arizona, mortgage firm with 75 branch offices for, among other things, promoting cash-back deals. From reporter Catherine Reagor at The Arizona Republic:

Regulators have shut down Mesa-based Eagle First Mortgage and its more than 75 Valley branches, citing illegal lending practices. The Arizona Department of Financial Institutions pulled the license of the mortgage firm and its broker, David Sanchez, last week. Regulators described more than 100 illegal money transactions, loan activities and hiring practices. The firm, one of the largest that Financial Institutions has shut down, has until March 14 to finish any outstanding loans and close its doors.

“Eagle First is surrendering its license as a result of multiple and repeat violations,” said Felecia Rotellini, superintendent of the Department of Financial Institutions, which regulates mortgage firms. A wave of mortgage fraud started spreading across the Valley last year that could cost lenders millions of dollars and erode values and confidence in Arizona’s real estate market and economy.

Most of the fraud is coming from cash-back deals that involve obtaining a mortgage for more than a home is worth and pocketing the extra money. But there are other types of fraud such as faking and forging documents and lying about income and other personal information for loans.

For more on this situation, read Mortgage Company Shut Down.

Last week, the Federal Reserve Board alerted the public to instances of questionable solicitations directed at homeowners. The Federal Reserve has received inquiries and complaints from recipients of direct mail solicitations that suggest there is a “Community Reinvestment Act (CRA) program” that entitles certain homeowners to cash grants or equity disbursements. Some of these solicitations may be read to indicate that the Federal Reserve endorses or supports the offers they contain. These solicitations appear to be a deceptive effort to encourage consumers to apply for a mortgage loan secured by the consumer’s home.

The Federal Reserve cautions the public about loan solicitations or other offers from lenders or mortgage brokers that offer consumers cash grants or equity disbursements as part of a “CRA Program.” No such federal programs exist and these programs are not required by the CRA.

The Community Reinvestment Act is a federal law that was enacted in 1977. It encourages depository institutions to help meet the credit needs of their communities, including low- and moderate-income neighborhoods, in ways that are consistent with safe and sound banking operations. The CRA does not entitle individuals to any grants or loans.

The Federal Reserve also wants consumers to know that it does not endorse or sponsor mortgage loan programs. Consumers should be very suspicious of conducting business with lenders or mortgage brokers that make deceptive claims. Individuals who are considering taking out a loan using their house as security are urged to shop around. Comparing loan programs offered by a variety of different lenders can help almost always you to get a better deal.

Everybody knows that discriminating against anyone based on race, color, national origin, religion, sex, familial status, or handicap (disability) is illegal and immoral, but discrimination continues. The passage of the Fair Housing Act in 1964 curbed some of the abuse, but it simply forced a few holdouts to be more careful and subtle.

If someone doesn’t want to sell their house to a particular person or family, or rent them an apartment, they can simply steer you clear of considering it by uttering a few remarks that, on their surface, may seem completely innocent, such as:

• “Your family might not feel comfortable living in this neighborhood.”
• “Too bad, we just rented out that apartment yesterday.”
• “We rent primarily to ‘professionals.’”
• “Houses in this neighborhood are a little pricey. You may want to look for homes in a more affordable area.”
• “There’s really no way to add wheelchair access to the building.”

If you suspect that you are or were a victim of housing discrimination, take action. What should you do? Here are some suggestions:

1. Realize that housing discrimination is illegal.
2. Write down everything you can remember about the incident, including the date, the names of the company and individuals you suspect of discrimination, and what was said.
3. Keep detailed records, including application forms and receipts.
4. Act quickly while the incident is still fresh in your mind.
5. Report the incident and your suspicions to authorities. The HUD (Housing and Urban Development) website has a Fair Housing and Equal Opportunity page at www.hud.gov/offices/fheo with an index of state and local organizations you can contact.

Keep in mind that laws have little effect on people’s behavior unless those laws are enforced, and enforcement begins with concerned citizens who take action. If you suspect discrimination, report it.

There was an interesting article in yesterday’s Wall Street Journal about how efforts by major U.S. banks and investment firms are trying to unload bad housing loans, and about its speeding up a shakeout in the subprime mortgage industry. Excerpted from the Wall Street Journal:

As more Americans fall behind on mortgage payments, Merrill Lynch & Co., J.P. Morgan Chase & Co., HSBC Holdings PLC and others are trying to force mortgage originators to buy back the same high-risk, high-return loans that the big banks eagerly bought in 2005 and 2006.

Investment-banking firms and investment firms that bought mortgage-backed securities are hiring firms to scrutinize subprime portfolios for loans that violate contracts.

Clayton Holdings Inc. is working with a half-dozen investment-banking firms to identify loans that should be repurchased. Clayton has also been hired by two hedge funds to review mortgage bonds they own for potential repurchases.

“Nobody was doing this in earnest before late last year,” says Kevin Kanouff, president of Clayton Fixed Income Services, adding that he expects the volume of putbacks “to trail off in the third or fourth quarter. The carnage that you are seeing…is not over.”

In a push to recoup losses, HSBC, which last week added $1.76 billion to its bad-debt costs for 2006 to cover ailing mortgages, has sued several small lenders in federal court in Illinois after they refused HSBC’s repurchase requests. Credit Suisse analyst Rod Dubitsky said he expects repurchases to continue to rise for the next six months.

You know what they say… you can’t get blood from a stone, and you can’t get something from someone who doesn’t have it!

Earlier this month I wrote about First American Real Estate Solutions’ strategic alliance with CoreLogic Systems. Another company strategically aligned with First American is BasePoint Analytics, a provider of scientific fraud analytics and consulting services. Yesterday, BasePoint released the results of a new study that shows that up to 70 percent of early mortgage payment defaults can be linked to significant misrepresentations on loan applications.

According to BasePoint, loans that contain significant misrepresentations are up to five times more likely to default in the first six months than loans that do not. In all, BasePoint analyzed over 16,000 loans that were confirmed to contain serious misrepresentations and that later led to a default. These misrepresentations included inflated income, overvalued property appraisals, fictitious employer referrals, and falsified tax returns. As one might expect, the study concludes that misrepresentations grossly affect the risk of a real estate loan.

It took nearly 13 months and a change in administration, but Florida’s Attorney General’s Office has finally issued an official consumer advisory warning Floridians of common mortgage fraud scams. Back in January of 2006–as evidenced by this blog entry, I sent a letter to each and every states’ Attorney General warning of the growing problems associated with real estate and mortgage fraud. Last Friday, Florida’s recently elected Attorney General, Bill McCollum, revealed that mortgage fraud-related scams are included among the top ten categories of complaints received by his office over the last 12 months, and encouraged residents to be aware of scams and fraud aimed at Florida homeowners.

There are several variations of home equity scams which homeowners everywhere should be aware. Equity Stripping occurs when a lender encourages a prospective homeowner to manipulate their loan application in order to qualify for a greater loan amount. Loan Flipping involves lenders who repeatedly encourage homeowners to refinance their loans, which may require them to borrow more money and as a result, accumulate higher fees. Other scams include baiting and switching, where the lender offers one set of terms prior to the loan application and then pressures consumers to agree to a different set of terms after the application is signed. Deceptive Loan Servicing, another common complaint, happens when lenders do not provide their clients with accurate or complete account statements and payoff figures.

Consumers shopping for a mortgage loan should take into consideration high interest rates and additional costs which could place undue financial burdens. Always shop around before choosing a lender and do not sign a loan agreement if the terms are not the same as those you were given when you applied. You should also always ask for explanations of any dollar amount, term or condition you don’t fully understand, and if you’re using a broker, research the brokers’ credentials to ensure they are properly licensed and certified before entering into a contract.

In addition to tips, strategies, and warnings that can be found throughout FlippingFrenzy.com, Florida’s Attorney General’s Office provides the following tips to consider when applying for home equity loans:

• Keep careful records of any amount paid
• Lenders should never pressure applicants
• Read all items on the contract or application carefully
• Never sign an application or contract with blank spaces
• Ask specifically if credit insurance is required as a condition of the loan
• Check contractors’ references for any construction and get more than one estimate

Florida’s Home Ownership and Protection Act of 1994 addresses certain unfair and deceptive practices in home equity lending. The law establishes requirements for certain loans with high rates or high fees. Additionally, the act prevents balloon payments, which are large lump-sum payments scheduled at the end of a series of considerably smaller periodic payments and negative amortization which arises when the mortgage payment is smaller than the interest due and causes the loan balance to increase rather than decrease. The law also prevents default rates that are higher than pre-default rates and most prepayment penalties.

The First American Corporation–one of North America’s largest providers of business information–today announced that it has merged its Real Estate Solutions division with Sacramento, California-based CoreLogic Systems, Inc., a provider of mortgage risk assessment and fraud prevention solutions for the Real Estate industry. In 2006, First American’s Real Estate Solutions generated $252 million in revenues, while CoreLogic pulled down approximately $74 million. The merger is the largest transaction in a series of acquisitions completed by First American in recent years, and is a part of a larger domestic and international mortgage risk analytics strategy.

Traditionally, risk associated with mortgage lending is managed through labor-intensive quality control and due diligence reviews. First American says the newly combined company makes this process more efficient and effective by applying advanced data and analytics at every point in the lending process. (For more information on technology’s growing role in real estate and mortgage fraud detection, read my March 8, 2006 blog posting, Technology’s Role in Detecting Real Estate Fraud).

Since 2004, First American has acquired analytics companies LoanPerformance, UK Valuation and Basis100 and has purchased minority stakes in The Bohan Group, ComplianceEase, BasePoint Analytics and Australia-based RP Data. Together, these companies provide data, analytics and technology solutions that First American says address the most pressing challenges in mortgage risk management, including fraud detection and prevention.

My apologies for sharing this information so close to the time it’s scheduled to occur, but in about 30 minutes I will be interviewed by Matthew Bronson, host of AM 920/WMEL’s “At Home” in Melbourne, Florida, about flipping houses. If you have enjoyed my writing and would like to know what I sound like, or if you’d like to hear more about the tips, strategies, and warnings covered in my new book, Flipping Houses For Dummies, you can tune in at around 11:30 a.m. Eastern Standard Time this morning by visiting 920wmel.com.

For an archived version of Saturday’s interview, visit Matthew Bronson’s Featured Programs for Replay page, and click on the “Missed a show or want to hear it again” link.

A former Spokane, Washington, Realtor who claimed she was just following widely accepted practices in the real estate industry has been sentenced to serve two-and-a-half years in federal prison and pay $264,406.00 in restitution for her role in a $1.4 million mortgage fraud scheme. Sixty-three-old Sally Gibson was originally convicted in August 2004 of conspiracy and 11 counts of wire fraud associated with a home-selling scheme carried out by Century Mortgage and its two co-owners, Dale “Sage” Gibbons and Ronald Burger.

From The Spokesman-Review:

Dozens of home buyers lost an estimated $1.4 million in the fraud scheme that lasted from 1997 through 2000 in the Spokane area. Interested buyers were promised $100 if Century Mortgage couldn’t find and qualify them for a home purchase.

The scheme involved falsely appraising homes and selling them for far more than their actual value – defrauding mortgage lenders and leaving purchasers facing balloon payments, high interest rates, foreclosure and even bankruptcy.

After her conviction, Gibson was hired to work for more than a year as a “marketing representative” for the Spokane Better Business Bureau. Jan Quintrall, the organization’s executive director, confirmed she knew about Gibson’s conviction but believed it would be overturned.

The BBB’s board of directors ordered Gibson terminated last September after a published report detailed her involvement in the mortgage fraud conspiracy.