FBI, LICENSED BROKERS, BANKERS, LAWYERS AND MORTGAGE FRAUD

FBI, LICENSED BROKERS, BANKERS, LAWYERS AND MORTGAGE FRAUD

By Coach Mitchell Goldstein
October 22, 2011
NewsWithViews.com

Coach Mitch’s Editorial Comment

The sections of the report I comment about are provided in full and within context. To read the entire 52 page report click here.

Targeting mortgage fraud

The idea behind the study is excellent: to determine who perpetrated mortgage fraud so as to prosecute the culprits and stop it from continuing.

Sadly, the fix was in and the finger of blame is fixed on those carrying out policy instead of blaming the makers of the policy. In finance, just as in politics, nothing happens unless the bosses want it to happen. The real culprits of the mortgage crises, the CEO’s of the banks and Wall Street, are entirely ignored. Instead, the finger of blame is pointed at underlings. Such are the perks of power. RHIP. (Rank Has It’s Privileges)

Federal Bureau of Investigation

2010 Mortgage Fraud Report

The purpose of this study is to provide insight into the breadth and depth of mortgage fraud crimes perpetrated against the United States and its citizens during 2010.

Mortgage Fraud

Mortgage fraud is a material misstatement, misrepresentation, or omission relied on by an underwriter or lender to fund, purchase, or insure a loan. This type of fraud is usually defined as loan origination fraud. Mortgage fraud also includes schemes targeting consumers, such as foreclosure rescue, short sale, and loan modification.

Key Findings

• Mortgage fraud continued at elevated levels in 2010,…fraud schemes are particularly resilient, and they readily adapt to changes in lending practices.
• Mortgage fraud perpetrators include licensed/registered and non-licensed/registered mortgage brokers, lenders, appraisers, underwriters, accountants, real estate agents, settlement attorneys, land developers, investors, builders, bank account representatives, and trust account representatives.

Coach Mitch:

Missing from the list of perpetrators are the policy makers. As I read the report I was interested to see that, IMHO, the FBI has some suppositions correct, but they fail to point out the big reasons for the banking crises - bank CEO and Wall Street mortgage fraud. Why am I not surprised that CEO's and Wall Street types are not targets of this fraud investigation.

You will see that the above mentioned fraud perpetrators are all licensed professions. The government’s number one crime prevention tool is to demand that everyone is licensed.
Since it is obvious that licensing does not stop a criminal mind from doing crime, why have licensing? Licensing is one of government's main tools to control the workforce, that's why.

• Prevalent mortgage fraud schemes reported by law enforcement and industry in FY 2010 included loan origination, foreclosure rescue, real estate investment, equity skimming, short sale, illegal property flipping, title/escrow/settlement, commercial loan, and builder bailout schemes. Home equity line of credit (HELOC), reverse mortgage fraud, and fraud involving loan modifications are still a concern for law enforcement and industry.

Coach Mitch:

The above schemes are all approved programs. When reading the report, even an innocent misstatement is labeled "mortgage fraud."

For a loan originator to do a loan successfully, significant financial information is needed and often the details are manipulated to show the applicant in the most favorable light. This is being labeled as mortgage fraud.

There are limits however. Banks want to know about an applicant’s assets, which can be hyped, but it is not smart to list $100,000 of imaginary stock and then state that money is not available for a down payment. The bank will be suspect were the applicant to not want to sell some stock to raise the down payment. Besides, I always got a statement from the brokerage house showing the value of the asset, which also proved that the asset existed.

• A continued decrease in loan originations…high levels of unemployment and housing inventory, lower housing prices, and an increase in defaults and foreclosures dominated the housing market in 2010… 2.9 million foreclosures in 2010, representing a …23 percent increase since 2008.
• Analysis…indicates the top states for…mortgage fraud activity during 2010 were California, Florida, New York, Illinois, Nevada, Arizona, Michigan, Texas, Georgia, Maryland, and New Jersey

Dark states have 50% seriously delinquent ARM's

Estimated fraudulent loans

FBI

FBI mortgage fraud pending investigations totaled 3,129 in FY 2010, a 12 percent increase from FY 2009 and a 90 percent increase from FY 2008. According to FBI data, 71 percent (2,222) of all pending FBI mortgage fraud investigations during FY 2010 (3,129) involved dollar losses totaling more than $1 million.

In FY 2010, HUD-OIG had 765 pending single-family residential loan investigations, a 29% increase from the 591 pending during FY 2009. This also represented a 70% increase from the 451 pending during FY 2008. Fraud schemes reported by HUD in ongoing investigations include flopping, reverse mortgages, builder bailout schemes, short sales, and robo-signing.

Coach Mitch:

Imagine, there are 2.9 million foreclosures and the FBI touts 765 residential loan investigations, and that is a whopping 29% increase over 2009. The FBI is really on the job! [sarcastic] Not only are the major bank CEO's not being held accountable, the licensed financial professionals are also not being held accountable. Our government at non-work. [sarcastic]

The only way to beat evil is to overcome it. Fight fire with a conflagration. Fight the banks by making your own money, earning more that is.

Mortgage Fraud

Mortgage loan origination fraud is divided into two categories: fraud for property/housing and fraud for profit. Fraud for property/housing entails misrepresentations by the applicant for the purpose of purchasing a property for a primary residence.

[A] Backwards Application Scheme fabricates the unqualified borrower’s income and assets to meet the loan’s minimum application requirements.

Coach Mitch:

I only saw this done regularly by one loan officer. However, when a loan program is entitled No Income Check, No Asset Check, the banking system is telling the applicant that it wants to make a loan, no matter the income or the assets of the applicant.

For the banks and the government to feint surprise that people lie to get what they want is the most hypocritical of all positions.

A CPA will maintain to the IRS that he only reports what the client gives in paperwork. The same happens with loan originators. Loan originators ask for financial data and people give what makes them look good. Wouldn't you? The fall down comes in the underwriting, the checking. This is done by the bank - but in reality, the banks don't check. If the bank did check for income or assets, the applicants would not be able to show them and because of that the bank wouldn't do loans, so the bank does not check, and loan originators understand this.

Fraudulent Appraisal schemes and
Title-Escrow-Settlement Fraud-Non-Satisfaction of Mortgage

Coach Mitch

I can't say this doesn't happen, but I never saw it. Appraisers know that they won't get continued business if their appraisals are too low and they will be wary of being in trouble with HUD if the appraisals are running too high. Appraisals that I saw were always within 10% of fair market value.

Real Estate Investment Schemes

In a real estate investment scheme, mortgage fraud perpetrators persuade investors or borrowers to purchase investment properties generally at fraudulently inflated values. Borrowers are persuaded to purchase rental properties or land under the guise of quick appreciation. Victim borrowers pay artificially inflated prices for these investment properties and, as a result, experience a personal financial loss when the true value is later discovered.

Coach Mitch

I have seen some of this. Typically it has been done in ghetto areas. Here also, the government is the villain. The government wants the ghetto inhabitants to own their home, in the hope that home ownership will stabilize the neighborhood. Since these properties usually need substantial work, an investor will pick up the property cheap, often use a government fix-up program to make the property pretty and then find an applicant who can qualify for that government guaranteed loan program. The loan must be government guaranteed because few banks want to loan in a ghetto. Government always pays the highest prices because that is the cost of implementing policy.

Sadly, ghettos remain ghettos because the inhabitants do not change habits. A person not used to paying their bills on time will continue to not pay their bills on time - especially after they get a new mortgage, because now there are even more bills that probably won’t be paid on time. There are government programs to teach applicants how to pay their bills, however old habits are hard to break.

Short Sale Schemes

A real estate short sale is a type of pre-foreclosure sale in which the lender agrees to sell a property for less than the mortgage owed. Short sale fraud consists of false statements made to loan servicers or lenders that take the form of buyer or seller affirmations of no hidden relationships or agreements in place to resell the property, typically for a period of 90 days. One of the most common forms of a short sale scheme occurs when the subject is alleged to be purchasing foreclosed properties via short sale, but not submitting the “best offer” to the lender and subsequently selling the property in a dual closing the same day or within a short time frame for a significant profit. Reverse staging and comparable shopping techniques are currently being used by fraud perpetrators in the commission of short sale frauds. The fraud primarily occurs in areas of the country that are experiencing high rates of foreclosure or homeowner distress.

Industry sources report that in the process of committing short sale fraud, fraudsters are manipulating the Broker Price Opinions (BPOs) and MLS; engaging in non-arms-length transactions; using LLCs to hide their involvement in short sale transactions; failing to record short sale deeds of trust; using back-to-back and multiple real estate agent closings; selling properties to an LLC or trust months before the sale; selling the property to a family member or other party the fraudsters control and deeding the property back to themselves; engaging in escrow thefts, simultaneous double sales to Fannie Mae and Freddie Mac, and failing to pay off the original loan in a refinance transaction; property flipping; bribing brokers and appraisers; refusing to allow the broker or appraiser access to the property unless the fraudster is present; providing their own comparables to the appraiser; taking unflattering photographs of the property and pointing out defects in the property to the appraiser; providing false estimates of repair, rebuttal of appraisal, and selection of poor comparable properties; and facilitating the partnership of attorneys with non-attorneys to split fees acquired during short sale negotiations.

Coach Mitch

Real estate professionals work hard, trying to make a living by selling shorts. The banks make it almost impossible, and then there is the government, making it even worse. Providing comparable housing figures to an appraiser is part of an investor’s job - but the FBI calls it mortgage fraud. Ridiculous! On many occasions I pointed out defects in the property or made sure that a property’s good features were noticed. That is now called mortgage fraud. A few times I rebutted the appraisal and asked the appraiser to justify his numbers. Even that is termed mortgage fraud. Absolute nonsense! This is governmental interference in commerce, something they are used too.

There are serious situations where a group of persons will manipulate the property and the financing to make fraudulent profits. These should be prosecuted to the fullest extent of the law and I wish they were, we would all be better off. I was the president of a large real estate investors association for a long time and I did mortgages for a long time; but I only heard of a handful of these types of situations.

Foreclosure Rescue

Foreclosure rescue schemes are often used in association with advance fee/loan modification program schemes. The perpetrators convince homeowners that they can save their homes from foreclosure through deed transfers and the payment of up-front fees. This “foreclosure rescue” often involves a manipulated deed process that results in the preparation of forged deeds. In extreme instances, perpetrators may sell the home or secure a second loan without the homeowners’ knowledge, stripping the property’s equity for personal enrichment. For example, the perpetrator transfers the property to his name via quit claim deed and promises to make mortgage payments while allowing the former home owner to remain in the home paying rent. The perpetrator profits from the scheme by re-mortgaging the property or pocketing fees paid by desperate homeowners. Often, the original mortgage is not paid off by the perpetrator and foreclosure is only delayed.

According to FBI case analysis, mortgage fraud foreclosure rescue investigations comprised 2 percent of all mortgage fraud cases opened in FY 2010.

Coach Mitch

I have never seen a foreclosure rescue scheme, nor have I heard of anyone doing it in my area; however a loan officer recently told me he knew of many situations where fraudulent foreclosure rescue occurred. In NY a law was passed that makes it so onerous to do foreclosure investing that it dried up. More government misapplied overkill. The government should have come down hard on any perpetrators of fraud. Instead, the government eliminated any hope a person in foreclosure has of selling to an investor, usually their only potential buyer. Now the banks get all the properties. I am told that the banks are not in the real estate business – more nonsense.

Builder Bailout Schemes

I found out about this law a bit too late. I had arranged an interview with the chief assistant to the gubernatorial candidate of the NYS Republican party along with another prominent investor, expressing misgivings about this potential law. The other investor said that the main witness for the law, who had testified before the state legislative committee, had been a client of his and the testimony was a complete fabrication and he could prove it. The chief assistant called to get a status report on the law and said that the law had been passed on the last day of the session along with hundreds of other laws and the governor had signed it into law just a few days previous. In the future, I will write a complete analysis of this law, which is being copied in other states. I believe the law is totally unconstitutional.

Builders are employing builder bailout schemes to offset losses and circumvent excessive debt and potential bankruptcy as home sales suffer from escalating foreclosures, rising inventory, and declining demand. Builder bailout schemes are common in any distressed real estate market and typically consist of builders offering excessive incentives to buyers, which are not disclosed on the mortgage loan documents. In a common scenario, the builder has difficulty selling the property and offers an incentive of a mortgage with no down payment. For example, a builder wishes to sell a property for $200,000. He inflates the value of the property to $240,000 and finds a buyer. The lender funds a mortgage loan of $200,000 believing that $40,000 was paid to the builder, thus creating home equity. However, the lender is actually funding 100 percent of the home’s value.

The builder acquires $200,000 from the sale of the home, pays off his building costs, forgives the buyer’s $40,000 down payment, and keeps any profits.

Coach Mitch

The bank underwriting [checking] is at fault, again. The bank merely needs to insist upon the actual verification of funds from the buyer. However, if the bank did this, then very few loans would close, so they just wink. But the FBI chases the builder instead of going after the bank. The FBI also is not going after the appraiser who must over appraise the property by the $40,000.

Debt Elimination/Reduction Schemes

FBI reporting indicates a continued effort by sovereign citizen domestic extremists throughout the United States to perpetrate and train others in the use of debt elimination schemes. Victims pay advance fees to perpetrators espousing themselves as “sovereign citizens” or “tax deniers” who promise to train them in methods to reduce or eliminate their debts. While they also target credit card debt, they are primarily targeting mortgages and commercial loans, unsecured debts, and automobile loans. They are involved in coaching people on how to file fraudulent liens, proof of claim, entitlement orders, and other documents to prevent foreclosure and forfeiture of property.

Coach Mitch

There is a legitimate line of philosophic thought surrounding the idea of the citizen as a "sovereign." Learn about this issue yourself. The FBI labels these sovereign citizens "extremists." See what you think about how our vaunted FBI mislabels citizens, the very people they are sworn to defend.

Legislative Issues

Dodd-Frank Act

The Dodd Frank Act (DFA) was created to address various issues that occurred during the financial crisis. According to MBA, the DFA will establish the Consumer Financial Protection Bureau (CFPB) and set strict standards and regulations for processing mortgage loans. To protect consumers from fraud, the CFPB will: (1) regulate strict guidelines for appraisers and licensing to appraisal management companies; (2) oversee and have total responsibility for consumer financial protection laws; (3) add more layers to disclosures, licensing, and process regulation with loan originators, reverse mortgages, mortgage companies, and advertising practices; and (4) harmonize the TILA and RESPA disclosure.

The new act will prohibit the use of BPOs as the primary benchmark for the value of a property being purchased. Additionally, the CFPB will oversee consumer protection laws, including TILA and RESPA. The DFA will require lenders to be accountable for the cost it provides to borrowers during the loan application process. The legislation will modernize the real estate appraisal regulation by enforcing actions against states and appraisers that do not abide by the new regulation. Also, there will be a new appraisal standard board and appraisers should follow the new regulations. The DFA is set to better regulate consumer protection laws and help reform Fannie Mae and Freddie Mac.

Coach Mitch

The answer of government is always and in all ways to expand its own power and reach. Government does this by making up more regulations. The newest iteration is the Consumer Financial Protection Board, CFPB.

Government creates mortgage regulation, for our "protection." Bankers create ways to go around the rules so that they can do business. The result is a government created financial crises which is then "fixed" by the creation of a new super agency to make more rules.

BTW, the result of new regulation is always a business contraction and consolidation of an industry. In this case, already in New York State, fully one third of the mortgage brokers have gone out of business because of the new rules; see SAFE Act below.

Federal Trade Commission’s (FTC) Mortgage Assistance Relief Services (MARS) Rule

The FTC rule on MARS prohibits charging advance fees for loan modification services, but states that attorneys are the exception [because lawyers are known to have the highest of ethical standards ed.] to the rule and are therefore permitted to charge an advance fee provided some stipulations are met.

The Secure and Fair Enforcement Act

The Secure and Fair Enforcement (SAFE) for Mortgage Licensing Act—enacted in July 2008— required states to have a licensing and registration system in place for all loan originators by July 31, 2010, to reduce mortgage fraud and enhance consumer protection.

Coach Mitch

This requires that anyone creating a mortgage must be licensed to do so. According to the new law, a regular citizen must be licensed as a mortgage originator if he wants to carry a mortgage against his own property, making it much harder to sell your own property, especially in a market where credit is tight. When banks won't lend, virtually the only way selling can be done is if the seller carries the financing. The government has stopped this. The government makes a criminal out of someone trying to sell their home. Now that's criminal. I believe that it is also unconstitutional.

Worse; the government puts conditions on creating a private loan such that the only persons who can be given a privately created loan are those who qualify for a regular bank loan. If the buyer could get a regular loan, then they would not need a seller to create a private loan. And you can't create a private loan except with the same terms as a regular bank loan; hardly something you would do. Therefore, the government says you can still create a loan, if licensed, but they eliminate any real ability for you to do it. This bit of chicanery gets the "Miscreant Class" award for today.

FBI Response

The FBI continues to foster relationships with representatives of the mortgage industry to promote mortgage fraud awareness and share intelligence. FBI personnel routinely participate in various mortgage industry conferences and seminars, including those sponsored by the MBA. Collaborative educational efforts are ongoing to raise public awareness of mortgage fraud schemes through the publication of the annual Mortgage Fraud Report and the Financial Crimes Report to the Public, and through the dissemination of information jointly or between various industry and consumer organizations. Analytic products are routinely distributed to a wide audience, including public and private sector industry partners, the intelligence community, and other federal, state, and local law enforcement partners.

The FBI employs sophisticated investigative techniques, such as undercover operations and wiretaps, which result in the collection of valuable evidence and provide an opportunity to apprehend criminals in the commission of their crimes. This ultimately reduces the losses to individuals and financial institutions. The FBI has also instituted several intelligence initiatives to support mortgage fraud investigations and has improved law enforcement and industry relationships. The FBI has established methodology to proactively identify potential mortgage fraud targets using tactical analysis coupled with advanced statistical correlations and computer technologies.

Coach Mitch

These last two paragraphs are a good example of government double-speak disguised as agenda setting marketing. What it does not say but is doing: the FBI is the instrument of the Power in this country. The FBI will root out regular citizens trying to make a living and it will misdiagnose their actions so as to mislabel them as villains in order to not go after the real villains, their bosses - the Power.

The FBI has purposefully not gone after those who make the decisions within the banking industry, the bosses. Not a single loan closes without the bosses express approval, and the bosses only approve loans that they want to close. For every government regulation there is a banking work around. Each regulatory effort to make loans safe comes up against the desire to make a bonus. I doubt that a banking regulation goes into effect without the banker knowing how he will legally work around that regulation. It is the job of the bank to take information and check it. But checking reduces income. And why check if the taxpayer will pay the penalty? That is the problem. Sadly, a once great institution has allowed itself to be turned into an instrument of state policy to defraud US. The FBI is a functioning part of the Miscreant Class.

Government Overreach

The FBI, as an agent of The Power, knowingly does not examine the most important question, why banks did not and are not currently checking the information that applicants give. This glaring omission brands the FBI as culpable in the effort to enslave US. Requiring a license, restricting commerce, eliminating property rights, and creating scapegoats; these are the hallmarks of Gotcha Government. The Dodd/Frank SAFE Act enshrines these principles.

"The right to sell is one of the rights of property." --Thomas Jefferson to Handsome Lake, 1802. ME 16:395

The ability to sell is inherent within the right to sell. The terms of the sale are inherent within the ability to sell.

Government has allowed/created a financial climate whereby banks are not giving mortgages to most potential borrowers. For the foreseeable future, owner financing is virtually the only way a buyer will be able to purchase your property. You must be the bank.

By requiring a seller to have a mortgage license in order to create a mortgage on his own property, the government is placing an unreasonable burden on the seller, and has therefore severely reduced his ability to sell.

The government further stacks the deck by only allowing an owner financed mortgage to be created that has terms identical to a bank mortgage. In addition, a balloon or quick payoff is not allowed so a retired person cannot sell his property and expect to get monthly payments for a short period, five years, and then get the rest of the balance. The retired person must wait 30 years to be paid in full, a requirement that is not practical. Both of these requirements do not allow for the terms of a sale to be created by the buyer and seller. This is gross interference by the government into the rightful affairs of a free citizen.

 

The Constitution has stipulated that a “taking” of property by government requires “just compensation.” Congress has severely reduced the ability to sell our property and has thus “taken” the profit that could have been gained and therefore owes US “just compensation.” That this infamous legislation passed indicates the path of our destruction and a culpable Congress. Forces inimical to freedom are controlling our ability to sell our property. Control of the means of production, property, is called Fascism.

As outlined in the Federalist, the proper role of government is the defense of our rights to life, liberty and property, against any incursion, especially from government. A violation must have occurred and only then should the government get involved to punish the violator. This is referred to as Negative Government. Positive Government is the aggressive use of law to prevent something from happening. “Protection” is the term used by government to confuse uneducated citizens. Government creates law to protect US from a potential negative act and we become less free because we are all required to act in a certain manner. We are all presumed to be violators, eliminating our constitutionally mandated presumption of innocence. Power is thus granted to government to restrict our actions in any way it sees fit.

With the SAFE Act, the government says it “protects” US from a future mortgage crisis by restricting those who can do mortgages and limiting the terms of the mortgage. Rather, government should be defending US by aggressively prosecuting those specific individuals who created the mortgage crises and any bad mortgages. You can be sure that there would never again be a mortgage crises if the CEO’s and Boards of Directors of the Too Large To Fail Banks were now rotting in jail alongside the CEO of Goldman Sacks, et al.

The Solution

The only way to fight evil is to overcome it. Fight fire with a conflagration of your own. Fight the banks and government by earning your own money and becoming independent. In this manner, we will win the day, but only if you are a good example to fellow citizens.

Gird your loins – the battles ensue.

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Coach (Mitch) Mitchell Goldstein is a Nationally Recognized Expert in tax delinquent property investing and a Real Estate Investor since 1972 in commercial and residential properties.

Coach Mitch is dedicated to helping would be real estate investors to attain their financial goals through investing in tax delinquent real estate and has created various products and services to facilitate the tax delinquent real estate investor.

Mitchell is a Jewish American of Hungarian and Polish extraction and a fan of Locke, Jefferson, and Madison, whose instincts against accumulated power have proven prescient; and of Washington, and Hamilton, whose notions regarding consolidated power required that honor and the highest moral behavior be the hallmark of those exercising power.

Website: CoachMitch.com

E-Mail: CoachMitch@CoachMitch.com