Transcript Document
Latest Trends in Mortgage Fraud Special Agent Eric Mascari HUD Office of Inspector General (317) 226-6303 Ext. 7438 Indianapolis, IN | July 23, 2013 Latest Trends in Mortgage Fraud Introduction/Topics of Discussion Changes in the Federal Housing Administration (FHA) FHA Fraud Trends and Schemes - Reverse Mortgages (HECM) - Property Flipping - Short Sales - Deed Theft -Loan Modification Statutes Case Examples Questions and Answer Changes in the FHA Latest Trends in Mortgage Fraud FHA Changes In the early 1990’s, FHA had about 15% of the home purchase market By 2006, FHA’s market share had been reduced to 3% of all loans nationwide Currently, FHA’s market share is in excess of 30% Current Single Family Loan Limit in Marion County is $271,050.00 Latest Trends in Mortgage Fraud FHA by the #’s 2007 – 580,813 FHA Loans 2008 – 1,467,252 FHA Loans 2009 – 2,022,250 FHA Loans 2010 – 1,623,934 FHA Loans 2011 – 1,150,724 FHA Loans 2012 – 1,239,874 FHA Loans Latest Trends in Mortgage Fraud FHA Loan Volume 2006 -2012 Latest Trends in Mortgage Fraud Latest Trends in Mortgage Fraud FHA may need $943-million bailout (Chicago Tribune 4/10/13) The Obama administration's proposed budget projects that the FHA would need a $943-million bailout this year to stabilize its shaky long-term finances. As banks pulled back on lending during the recession, the Federal Housing Administration's role in the market expanded. Now its long-term finances are being dragged down by bad loans it backed from 2007 to 2009. Above, a foreclosure sign at a bank-owned home for sale in Las Vegas in 2010. (Robyn Beck, AFP/Getty Images / November 8, 2010) Reverse Mortgage (HECM) Latest Trends in Mortgage Fraud Reverse Mortgage People over 62 convert portion of their equity into cash or line of credit. Credit & Employment are non-issues No repayment until the borrower no longer uses the home as their principal residence HECM can also be used to purchase primary residence Maximum Insurance amounts exceed $600,000 depending on locality HUD has insured over 395,000 HECM Loans since 2008 Latest Trends in Mortgage Fraud HECM Frauds - False Mortgage Payoff • Subject creates a fake mortgage company and “lends” funds to the borrower (No $ changes hands but the paper is filed with the County Recorder) • The Subject refinances the borrower into a HECM. At closing the title company pays all debts up to and including the fake mortgage. -Subject may file subordinate mortgages, Promissory Notes, and other paperwork to create the illusion that the borrower owes money Latest Trends in Mortgage Fraud HECM Fraud Annuity • Financial Professionals fraudulently convince HECM borrowers to invest proceeds in a financial product, such as an annuity • The financial professionals receive increased fees and divert mortgage pay outs from the HECM proceeds Latest Trends in Mortgage Fraud HECM Fraud – Unauthorized Recipient Individual, often family members, may keep HECM payments after the authorized recipient dies or permanently leaves the residence, i.e. Nursing Home or Assisted Living Home Flipping Schemes Latest Trends in Mortgage Fraud Property Flipping, Continued The policy change will permit buyers to use FHA-Insured financing to purchase HUD owned properties, bank owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities. “FHA borrowers, because of the restrictions we are now lifting have been shut out from buying affordable properties” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time home buyers, to take advantage of this opportunity.” Waiver was recently extended until 2014 Latest Trends in Mortgage Fraud Property Flipping From HUD Secretary Shaun Donovan “this change in policy is temporary and will have strict conditions and guidelines to assure that predatory practices are not allowed” In today’s market, FHA research finds that acquiring, rehabilitating and the reselling of these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA Mortgage Insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant for a 90-day period of time. Latest Trends in Mortgage Fraud Property Flipping, Continued Investor buys & sells property on same day or shortly thereafter Second sale had questionable appraisal/s Second buyer prepares false documents in order to qualify for mortgage loan Second sale immediately goes into default Creates a artificial market/high property taxes/losses to the Government and the lender Latest Trends in Mortgage Fraud Appraisal Fraud Latest Trends in Mortgage Fraud Appraisal Fraud Appraiser does not look at previous sales Comparables are used for multiple files Figures are backed into contract price Pictures vary widely from comparables House appraised “as is” when contingent upon stipulations Appraising house you own by hiding ownership interests Appraiser ID Theft Short Sale Fraud Latest Trends in Mortgage Fraud Short Sale Fraud Investor Purchases property from bank at a lower price while new buyer is recruited Many of the offers are “low balled” Seller/Buyer/All Parties to the transaction fraudulently advise lender: Sale is “Arm’s Length” No Hidden Agreements Involved No Party will received proceeds except as set forth on the HUD-1 Latest Trends in Mortgage Fraud Short Sale Fraud Fraudster will find an end buyer Double closing is possible, i.e. (A to (B) to C) Broker Price Opinion (BPO) is influenced to yield a lower value Lender is defrauded into accepting an artificially “LOW” price on the property Warranty Deed Theft Latest Trends in Mortgage Fraud Warranty Deed Theft Property researched to ensure vacancy In many cases, the property is in foreclosure or near foreclosure Property has warranty deed recorded, which indicates the property is in receivership Property transferred to an individual through a second warranty deed Latest Trends in Mortgage Fraud Warranty Deed Theft Schemes Cash out refinance (HELOC) Subsequent sale to straw borrower Section 8 Rental Conventional/Market Rate Rental Security Deposit Collection Earnest Money Deposit Collection Loan Modifications Latest Trends in Mortgage Fraud Loan Modification Red Flags 99% Success Rate Charging fees up front Money Back Guarantee Attorney Based Legal Team Federal and State Mortgage Statutes Latest Trends in Mortgage Fraud Federal Statutes 18 USC 1010, False Statements to HUD (Felony) 18 USC 1012, False Statements to HUD (Misdemeanor) 18 USC 1341, Mail Fraud 18 USC 1343, Wire Fraud 18 USC 1344, Bank Fraud 18 USC 1014, Loan Fraud (Statute is now 10 years) Latest Trends in Mortgage Fraud Indiana State Statutes IC 35-43-5-8, Fraud on a Financial Institution Class C Felony IC 35-43-4, Theft Class C Felony IC 35-43-5-2 Forgery Class C Felony Latest Trends in Mortgage Fraud Questions?? HUD OIG WEBSITE www.hudoig.gov