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Is Obama’s Foreclosure Plan Ripe for Mortgage Fraud?

Robert L.Image via Wikipedia

If you believe some lawmakers, President Obama’s $75 billion foreclosure rescue plan is an open invitation for people to commit real estate and mortgage fraud. From CBS News:

House Republican leadership and Senator Charles Grassley (R-IA), ranking member of the Senate Finance Committee sent letters to administration officials asking for assurances that anti-fraud measures will be put in place to guarantee that taxpayer dollars are not used to re-do mortgages that were originally based on fraudulent documentation. Grassley notes that experts in mortgage lending say that anywhere from 30-70% of all mortgages inked in the last few years were based on fraudulent claims of assets or income.

The Treasury Department is considering a new computer program developed by Smithfield and Wainwright, a real estate business out of Florida known as “Mo-Mod.” A company spokesperson says the product can modify up to a million loans per month.

Some in the mortgage industry doubt that an automated program could catch fake documentation.

“You’ve got to get a human into there and look at it to underwrite it so that you can properly assess the risk,” Jon Daurio of Kondaur Capital Corporation in Southern California told CBS News. “I do a full documentation. I am verifying that income, getting tax forms, bank statements, etc. and I want to verify that that gross income is accurate,” he said.

But the “Mo-Mod” automated system under consideration by the Treasury Department will not re-examine the original W-2s or paystubs.

Hogan Copeland who goes by the name “Big Hogan” developed “Mo-mod” through his company Smithfield and Wainwright. Copeland told CBS News if his company is involved they will only be conducting appraisals not determining the homeowner’s true income or credit history. “We are not forensic accountants, that’s the bank’s determination, that’s not Big Hogan’s determination,” he said. “We will be evaluating the house, that’s the piece in question, that’s the hottest button right now.”

Copeland says if the government uses “Mo-Mod”, his team of 23,000 “independent and unbiased” appraisers nationwide would immediately begin to appraise foreclosed homes or those on the edge of foreclosure. Copeland notes that his network of appraisers would use a nationwide set of standards based on at least 20 data points to get at the new value of each home, “It’s just coming back to reality,” he said.

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Posted By: Ralph Roberts @ 12:21 am Comments (11)
Filed under: Legislation,Mortgage Fraud,Mortgage Meltdown

11 Comments »

  1. this mortgage plan actually seems very scary to me

    Comment by condos — February 19, 2009 @ 11:22 am

  2. Senator Grassley seems mostly concerned that homeowners will commit fraud–he’s barking up the wrong tree. Most home buyers don’t have the financial knowledge to commit fraud on this scale as we saw during the past few years, even if they wanted to. The FBI found years ago that most of the mortgage fraud (80%) was done BY the industry. And, even if the home buyer initiated the fraud, which wasn’t the case usually, the industry should not have approved the loan. In many cases lenders altered documents, etc. It was the industry who was the “liar” in liar loans in many cases and congress should be investigating widespread and economially unsound practices by the industry.

    There are criminals there who should go to jail, and if the govt fined these wrongdoers they might recover a healthy portion of the cost of these bailouts. USB just agreed to pay over 700 million in fines. A few yrs ago KB Home paid about 3 million to HUD for lending violaltions and last year several builders paid some-millions to HUD for RESPA violations. If the govt isn’t going to punish crooks with jail, at least make them pay for the bailouts.

    Comment by CS — February 19, 2009 @ 8:57 pm

  3. CS, I could not agree with you more. Very, very well said.

    As an add on, there is fraud going on in the court room. Lenders foreclosing illegally. One county in Florida has pretty much taken away anyone’s due process. See my post on this story and the complete Wall Street Journal story at http://www.TheMortgageCorner.blogspot.com.

    What is happening is just not right. Two wrongs don’t make a right – my motto as I fight illegal foreclosures. One may be in default of the terms of their contract but only the true contract holder can sue them for recovery. Just because the borrower is i default does not give just anybody the right to foreclose on them.

    If that were the case then we should all go out and sue someone for foreclosure. We just need to tell the court, the note was lost, stolen or destroyed, but trust me your honor, I did own the note.

    Let’s stop fraud on ALL levels, bring normalcy back to our society and give the people back their constituional rights.

    Comment by Larry Rubinoff — February 19, 2009 @ 9:29 pm

  4. I agree with both of you. However if the homeowner, who is not a victim of unscrupulous lending practices, will not or cannot make their payment, should they be allowed to keep their home even if the current servicer cannot produce the note? If so, that sure doesn’t seem fair to the rest of us that are struggling to make our payments, but still do.

    I don’t think someone should get a free pass just because the current servicer can’t immediately produce the note. It still doesn’t erase the fact that someone is not meeting their contractual obligation to repay a debt. As long as the homeowner has been given every opportunity available to rectify the situation and cannot, then I think foreclosure has to take place. I would expect no less from my mortgage company should I be in a place where I cannot make my mortgage payment or any terms of a workout plan. My eyes were wide open when I signed the note, that does not give me the right to cry foul if I cannot live up to the agreement I entered into just because the foreclosing party is not the same party I intially entered the agreement with. The contract is still the same and the money is owed still the same.

    As far as the Mo-Mod program… sounds to me like the government is still in the habit of spending thousands for toilet seats and hammers. I wouldn’t trust an automated engine to research home values. As far as having a team of 23,000 unbiased and independent appraisers… uh, last time I checked we have an entire country full of appraisers, what makes his group any different than any other? And “a nationwide set of standards based on at least 20 data points” isn’t that was USPAP is for? Sounds like one mans way to profit further from this mess. Nothing wrong with that, but once again our government is willing to throw good money after bad and pay for unnecessary “services”.

    You know those jobs President Obama wants to create, how about putting all those unemployed underwriters back to work doing the forensic underwriting on all the loan modifications. It isn’t hard to find the fraud when a trained human being is allowed to do so. Trust me, I did more FPD and EPD audits in my day than I care to remember, if there is fraud it doesn’t take too much digging to find it. With the results prosecute those guilty of fraud and modify loans for those victimized by fraud. But that’s too simple a plan, government officials will find a way to foul that up.

    Comment by former underwriter — February 21, 2009 @ 3:46 pm

  5. I checked out the Mo Mod and the website of Smithfield and Wainwright, if you look closely, this firm is a member of the Appraisal Institute which holds the highest standards of the industry. I would like to know the fraud tool they have in place, believe me what I have read about them, a fraud tool is in place, maybe CBS can interview them again and find out that question. This will employ hundred of thousands of people to get the system back working again. I applaud this company on taking the first step to proper valuation. This will set the standard back to the basics of the banking industry, proper valuation, proper underwriting and risk management, something we lost sight of in the last decade or so, Hats off to the Mo Mod, lets get this thing going before a total run on the banks.

    Comment by Justin — February 21, 2009 @ 10:30 pm

  6. Former Unerwriter:
    You say, “It still doesn’t erase the fact that someone is not meeting their contractual obligation to repay a debt. As long as the homeowner has been given every opportunity available to rectify the situation and cannot, then I think foreclosure has to take place.”

    I do agree with you however, the point being that the homeowner is not being given “every opportunity to rectify the situation.” This is the problem. Loan Modifications are being talked about, large numbers are being thrown around but a relative few are being done. Of several hundred thousand loan modifications one lender spoke of, only 25 were actually accomplished. (Sorry, I have to go back and get the source to quote it more accurately – but I do remember the figures).

    By fighting the foreclosure based on ownership of the note and having the right party in standing take the action – it may force more legitimate loan modifications.

    By fighting the foreclosure based on the above – forcing more modifications hence more performing loans – then maybe the housing market will begin to stabilize at some realistic price level. Stabilizing the market can get the market moving again beginning a true economic recovery.

    Let us not forget that the actual lenders/Wall Steeters made hundreds of billions of dollars by handing out loans – causing this inflated home values then urged everyone to then do cash out refinances of their homes so they could make even more billions on the same properties they made their original billions on and who, through subsidiary companies called serivicing companies, continue to generate huge profits for themselves. Then they foreclose, taking the properties at auction without ever paying for them. REMEMBER, if they don’t own the note and mortgage to begin with because they sold lit, HOW are they taking ownership of the property and holding it as a bank owned REO (Real Estate Owned)? Then the question remains, what are the “true” owners of the notes – the investors – getting or are they just being written off wit the bank keeping all the profit again.

    And last but not least, the story about Lee County Florida is one of “legal rights”. If they can be so easily removed then they don’t really exist and if they don’t really exist then the laws and the courts are just playgrounds for the appearance of our constitutional and legal rights. They are just there for show.

    The law is the law. Isn’t that why we are all here on this blog fighting fraud – because fraud is illegal? Illegal is illegal no matter what the circumstances and if a foreclosure is illegal then it is illegal even if the home owner owes the money. I say, try to work it out, do what you can and if the situation canoot be worked out then you should foreclosure BUT DO IT LEGALLY. If you can’t do it legally, then shame on you for not doing everything legally and correctly to begin with. The law is the law for EVERYONE and we must all protect this concept.

    NO ONE and NO ENTITY no matter how large is above the law. That goes for our government as well.

    Comment by Larry Rubinoff — February 23, 2009 @ 8:58 pm

  7. Point taken. But isn’t this just merely a delay tactic? News programs nationwide have aired stories about the three little words to stop foreclosure: “produce the note.” Don’t you think that foreclosing entities are going to make sure they have the note before initiating foreclosure proceedings? I’m sure legal teams are working around the clock to secure the notes.

    “By fighting the foreclosure based on ownership of the note and having the right party in standing take the action – it may force more legitimate loan modifications.

    By fighting the foreclosure based on the above – forcing more modifications hence more performing loans – then maybe the housing market will begin to stabilize at some realistic price level. Stabilizing the market can get the market moving again beginning a true economic recovery.” Very well said and if the fight does produce more of these situations, then by all means fight away. Please don’t think I’m not sympathetic to the plight of those in foreclosure, because I am. But if they can’t afford the home and the mortgage no matter how low the rate and how many extra years the term is extended, then that person has no business owning the home. Should they be given a legitimate modification agreement? Absolutely. But should they be offered a 3% rate on a 50 year term just so they can afford the loan? I don’t think so.

    As far as Wall Street is concerned, they are partly to blame, but every one of us , be it an originator, lender, realtor or borrower is in some way guilty as well. They put out products that were profitable , terms were easy and everyone was happy. Everyone took advantage of what was offered, everyone. But hindsight is 20/20 now isn’t, if Wall Street knew then what it knows now… well you get the idea. We all get the idea, just a little too late.

    Comment by former underwriter — February 24, 2009 @ 11:04 pm

  8. It IS a delay tactic. A local news station just covered this topic and the anchor was practically jumping up and down saying “they bought themselves an extra six weeks in their home!” It’s no real solution. I DO agree with Larry that it’s time to make them follow the rules, though.

    I have to agree with you. If they’re in a house they can’t afford, eventually they need to admit it and move to one they CAN afford. Loan mods don’t seem to be much of a solution, either – just another opportunity for fraud.

    Comment by Dawn — February 25, 2009 @ 8:13 am

  9. Yes, it is a delay tactic and by no means a way to get a “free” house.
    The real principle here – as far as I am concerned is not only to help force “legitimate” modifications but to uphold the canctity of our laws and court system. If you have any law that can be waived arbitrarily based on size, strength or anything else then there is no law. If only one party to a law suit has to adhere to the law but not the other, this will destroy our rights and legal system as we know it.

    I do agree with you however, that if one cannot afford the house not matter what the rate or payment, they just can’t afford it and should not be there. This is especially true of investors. But there are hundreds of thousands that could afford their homes at lower rates and loan amounts to reflect reality and this would absorb much of the housing inventory thereby stabalizing values.

    As far as all of us somewhat to blame for this cirisis – perhaps. There were many that did abuse the situation but were encouraged to do so.

    Wall Street did know what was going to happen and it took someone at very high levels to override reality and instruct the products to be created and marketed heavily to the industry. This is not a hindsight situation, it was a very well executed plan for greed. I saw the reality. I kept saying that the products were just foreclosures waiting to happen and did not originate them unless I knew they could afford them. Wall Streets “need for greed” was the culprit. They knew. I believe there was even a post here in FF about that. So far the same greed and deception continues at high levels of corporate America with absolutely no regard to how it harms anyone.

    Wall Street manipulated ALL OF US – the buyer, the loan originator, the underwriter and the country. And here we sit, millions not directly involved in the housing or finance industries unemployed losing their homes for reasons well beyond their control. These millions did not participate in the high rolling profits of this greed based lending – they just went to work each day and collected their paychecks at the end of the week. No big windfall profits in their jobs that no longer exist.

    Fighting for our rights under the constitution and our laws is our duty. Let’s also fight fraud no matter where or how high up the ladder it is.

    Comment by Larry Rubinoff — February 25, 2009 @ 2:10 pm

  10. I am a 23 yr. licensee. Most of the fraud committed in my neighborhood was with the complicity of all parties. The buyers, agents, lenders, title company with two back pages of the HUD.

    The MLS tells a story with it’s numbers.

    A home was listed at $600k. It went pending for $800k. The agent thought better of it and changed the pending sale back to $600k. It closed at $800k and the agent changed the list price.

    Report these people to the DBPR and the FBI. Let’s sweep out this dirt with a big broom.

    Comment by Patricia Behrens — March 4, 2009 @ 1:33 am

  11. The society is facing problems with such laws. This has to go legal and it’s needed to be sorted at the earlier.
    ================
    shaheen
    Ralph Roberts is Greatttttttttttttttttttttttttttttttttttttttttttt

    Comment by shaheen — October 25, 2010 @ 6:17 am

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