Between 2000 and 2007, 5,306 people with criminal backgrounds became loan originators in Florida, according to an investigation conducted by the Miami Herald.
Of that group, 2,201 had committed a financial crime such as mortgage fraud, money laundering, or worse, but still managed to enter the business with little or no opposition.
This could be attributed to the fact that loan originators aren’t subject to the same licensing requirements as mortgage brokers, and as such, are significantly less regulated.
The Herald found that more than half of the 120,563 “mortgage professionals” registered in Florida joined the troubled industry this decade without being state-licensed.
But even mortgage brokers managed to find work in the industry as loan originators after having their licenses stripped or denied, with some knowingly circumventing the law.
One former broker who had previously committed $4 million in mortgage fraud in the state of Maryland wittingly applied as a loan originator, knowing this would be his only way back in.
Interestingly, that broker is now in charge of compliance at the firm he works for, though he rationalizes that he’s the best man for the job because of his checkered past.
The investigation, which utilized court documents, state industry reports, police reports, and internal e-mails, found that one in five loan originators at 30 mortgage lenders that employed 50 or more workers had a criminal background.
Residential Funding Co., a unit of GMAC’s real estate unit ResCap, is reportedly suing a number of mortgage brokers it worked with who originated so-called bad loans.
According to a report from the Minneapolis Star Tribune, the mortgage lender has already filed more than a dozen federal lawsuits against companies nationwide that allegedly misrepresented borrower information on now non-performing loans.
Additionally, the suits claim that the defendants failed to do their due diligence on borrowers they represented, seemingly allowing their customers to acquire loans that were more likely to fail than their credit risk implied.
The Bloomington-based company is calling on the alleged fraudsters nationwide to buy back the soured loans, which range in size from $21,000 to more than $1 million.
While this article may make it appear as if mortgage lenders are the unknowing victims of “mortgage fraud”, it should be noted that many of the loan officers and underwriters at these large companies often facilitate and perpetuate the problem.
In fact, driven under immense pressure to perform and hit monthly sales figures, many sales associates and accompanying sales managers at these nationwide lenders are often encouraged to “make the loan work,” despite any warning signs that may appear along the way.
It’ll be interesting to see if the lawsuits are successful, given the fact that borrower misrepresentation seemed rampant at nearly every step of the loan process, even on Wall Street.
Homebuilders are to blame for the current housing and mortgage crisis, according to a report released by the Laborers’ International Union of North America (LIUNA).
The group’s report focuses on mortgages originated between 2005 and 2006 in Maricopa County, Arizona by the lending units of three of the nation’s largest homebuilders, including Richmond American, Lennar, and KB Home.
More than one-third of the mortgages originated by these homebuilders in the county are five-year adjustable-rate mortgages expected to reset between 2010 and 2011, and with many of these homeowners now underwater, they could face serious payment shock.
Per the report, in just the last year the value of Lennar homes has declined $61,600, KB Home values have sunk $55,600, and Richmond American Homes are worth $49,500 less.
In the KB Home Santarra Development in Buckeye, Arizona, home values have dropped a staggering $78,800 in the last year, troubling because 55 percent of mortgages held are five-year ARMs, and 63 percent of purchase loans have a second mortgage.
“Former Countrywide-KB Home Loans Regional Vice President Mark Zachary has said in court that KB Home pressured its lending joint venture to engage in systematic mortgage fraud to drive sales, including encouraging inflated appraisals, assisting buyers in supplying false income information, and approving loans without review or documentation,” the release said.
LIUNA, which earlier this year exposed the homebuilder tax break in the Foreclosure Prevention Act, is calling on agencies such as Fannie Mae and Freddie Mac to place greater scrutiny on the mortgages originated by homebuilders and their mortgage lender partners.
As the early November trial date approaches, US District Court Judge Lydia Kay Griggsby approved a request from Mosby’s defense to relocate the trial from Baltimore to Greenbelt, a suburb of Washington, DC. This decision stands out, given that even in high-profile cases, defense teams often struggle to obtain such changes in venue. Prosecutors noted … [Read more…]
Digital closings could be coming to California, the country’s largest real estate market, within the decade.
Gov. Gavin Newsom of California on Tuesday received a senate bill legalizing remote online notarizations (RON). He has until Oct. 14 to act on it. The senate bill, introduced by State Senator Anthony Portantino, would allow homebuyers, sellers and borrowers to close their home purchase or refinance transactions remotely.
“This is a huge deal,” Pat Kinsel, founder and CEO of Notarize, told HousingWire. “We’ve been working towards this goal for eight years. We’ve been really successful passing legislation out in 45 states, but we’ve been very focused on California for a long time.”
California is a massive real estate market, the largest in the country, but Kinsel said there’s more to it than just deal volume.
“It’s not just that it’s a big state. It’s really a center of innovation, including for real estate technology. It’s also a population center that’s really tech savvy.”
As amended, the bill provides that California notaries could begin to offer online notarization services beginning January 1, 2030 though stakeholders like Notarize hope it will be years earlier. The California secretary of state must complete a technology project needed to support RON before digital closings can be rolled out.
Notarize worked closely with both the Attorney General’s Office and the Secretary of State’s office to advance legislation in California. Notarize already operates in all 50 states but not for real estate matters.
California in particular takes consumer protection very seriously, setting a higher bar for identify verification and record retention. On that note, Notarize recently launched a product called Proof, a platform offering the “highest level of identity assurance in the industry,” according to the release.
Last May, the Urban Institute held a panel discussion among experts including Kinsel, examining the geography of notaries. It found that California was one of the least equitable states in the country when it came to access to financial and government services.
Hence, the bill isn’t only about advancing digital transformation in the real estate industry but is also a way to improve access to all types of government financial services for Californians, said Kinsel.
Virginia was the first state to approve RON legislature, roughly a decade ago, but it took several years for other states to begin following suit. With the pandemic and changes in consumer preference, more states have begun passing RON legislation. Massachusetts’s Gov. Maura Healey signed legislation legalizing remote online notarizations (RON) last March. It takes effect on Jan. 1, 2023.
Aside from California, only five states have yet to pass legislation fully authorizing remote online notarizations: Connecticut, Georgia, Mississippi, South Carolina and South Dakota.
Due to the rise in demand for RON services, the Mortgage Industry Standard Maintenance Organization (MISMO) launched its RON compliance certification program in April 2020. Notarize is currently among the few companies that has received RON compliance certification, including eNotaryLog, Black Knight, Snapdocs, Nexys, DocuTech, Pro Notary and Pavaso.
Federal agencies urged mortgage companies and banks to be more vigilant in reporting compromised real estate transactions to their local financial crime units and to do so in specific ways that would increase the likelihood of an investigation.
According to representatives from both the Federal Bureau of Investigation and the Secret Service during a panel discussion Monday, instances of wire fraud, home equity theft, investment scams and elderly-related fraud have ticked up, while the methods used by bad actors have become more nuanced.
“[The mortgage industry is a target-rich audience for fraudsters] and they are targeting title companies and real estate brokers by compromising business email accounts. We see a lot of that,” said Stavros Nikolakakos, supervisory special agent at the Secret Service at the Compliance and Risk Management conference hosted by the Mortgage Bankers Association in Washington D.C. Monday. “If you don’t have direct contact information of your local law enforcement, [you should definitely establish that relationship].”
A way for mortgage companies to help government agencies, such as the FBI and Secret Service, catch bad actors is by being mindful in how they fill out consumer complaints including the Internet Crime Complaint Center (IC3) form, which the bureau monitors and the Suspicious Activity Report (SAR) form.
“For those of you that enter SARS, I would strongly encourage you to not hold back in filling out this information, put your conclusion and the amount stolen at the very top,” Nikolakakos said. “When you have agents reviewing these SARS they only skim them. They cherry-pick because agents are looking for easy arrests and they’re trying to find the very best cases. “
Timothy Wu, Supervisory Special Agent, Financial Crimes Section, Money Laundering, Forfeiture, Bank Fraud Unit at the FBI, added that the volume of fraud complaints received can make someone’s “eyes start to glaze over.”
“Fraud in the mortgage space is not the same as in 2008 and our fraud portfolio is much smaller,” he added. “We are seeing HELOC fraud and application fraud — nothing new or ground breaking — but these practices have accelerated and gotten better.”
Cash attained by these criminal acts are usually transferred to Eastern Europe, West Africa or China by money mules, Nikolakakos added.
Statistics published by the FBI show that business email compromise scams related to real estate set a record for dollar losses in 2022. The 2,284 complaints received last year amounted to losses totaling $446.1 million, compared with $430.5 million in 2021.
Those targeted by fraudsters have about 72 hours to report the event to the government before it becomes harder to investigate.
In a separate panel addressing fraud mitigation, Steve Safavi, vice president of mortgage fraud at Mr. Cooper noted that one of the best ways to prevent wire fraud is to be mindful of emails received prior to closing and the domain that is being used.
“As busy as you are at the end of the month, trying to get something funded it can get by,” he said. “Best thing to do is for title companies to call the lender and verify the wiring instructions. Have them repeat the payoff statement to you instead of vice versa.”
As fraud risk has increased, companies in the financial services sector have turned to vendors to protect their transactions and infrastructure. For example, recently Tata Consultancy Services announced a partnership with FundingShield to the fintech’s wire fraud prevention solutions available to the IT consulting company’s clients.
A 30-member task force has begun to probe as many as 11,000 Bay Area, California cases for potential mortgage fraud, according to a report from The Mercury News.
The probe is being headed by Assistant U.S. Attorney Susan Badger and a slew of federal, state, and local investigators targeting homeowners, mortgage agents, and investors.
Badger told the paper the investigation is looking into crimes committed at all levels, including everyday borrowers who lied on their loan applications to qualify for mortgages they couldn’t truly afford.
Mortgage agents, such as loan officers and mortgage brokers, are also under scrutiny for potential fraud for their part in helping borrowers determine what income and asset figures were necessary to qualify for a given loan.
But public advocacy group The Greenlining Institute has criticized the targeting of individual borrowers, claiming only professionals who plugged in the numbers could accurately calculate which figures were necessary to get a loan approved.
Instead, the group has suggested targeting the firms that pushed the loan programs to begin with, such as the top executives at mortgage lenders Countrywide, World Savings, and Golden West.
More serious fraud, such as the practice of using “straw borrowers” with good credit to help investors with poor credit qualify for mortgages, is being targeted as well.
It’s unclear what type of penalty would be assessed to homeowners found guilty of overstating income and assets, though Badger told the paper “Charges are imminent.”
Local mortgage agents say at least one-third to as much as one-half of all home loans written in the East Bay during the housing boom involved fraudulent income and debt figures (debt-to-income ratio).
But proving who is at fault seems to be the biggest question mark.
Ozment as well as other former employees — loan officer Ron Hankins, underwriter Natalie Boyd and loan processor Kristin Mastrorilli — followed improper mortgage lending practices and lied to Lower about doing so in order to further line their pockets, according to the suit.
The former employees agreed to fraudulently cause Lower to issue high risk loans while knowingly disregarding that at least 13 of the customers receiving these loans did not meet Lower’s loan eligibility criteria, Lower alleged.
The suit said the former employees engaged in “the gross misconduct” to earn more money from Lower than they would have otherwise been owed had they not caused Lower to issue the high-risk loans.
“As a direct and proximate result of Mr. Ozment’s, Mr. Hankins’, Ms. Boyd’s, and/or Ms. Mastrorilli’s fraud and conspiracy to commit fraud, Lower has suffered financial loss and other damages that exceed $4,000,000.00,” the suit said.
Ozment operates Oz Lending as a DBA of AmCap and the suit alleges that he has posted selected portions of customer reviews to misleadingly portray prior customer successes as a result of Ozment’s relationship with AmCap, “when in reality, those successes were a result of Mr. Ozment and Oz Lending were associated with Lower.”
To date, Ozment and AmCap have not returned Lower’s confidential information and trade secrets, Lower alleged.
“Rather, Mr. Ozment has improperly retained and used Lower’s confidential information and trade secrets to solicit Lower’s customers for his, and AmCap’s, benefit thereby breaching the agreement.”
Ozment’s employment agreement — which contained non-solicit provisions — would require Ozment not to compete with Lower and to refrain from soliciting any employees or business from any of Lower’s customers for 16 months after his termination.
Lower claimed that AmCap knew of Ozment’s employment agreement.
The suit claimed that by mid-to-late 2022, Ozment secretly entered into agreements with AmCap to leave Lower and to take Lower’s information, customers and the Plano office employees with him to AmCap.
According to the suit, AmCap and Ozment agreed that AmCap would offer jobs to Lower’s Plano office employees working with Ozment if they agreed to terminate their employment with Lower.
Lower’s employment-related claims will be resolved through arbitration while the lender will ask a court order for permanent injunctive relief from Oz Lending using Lower’s customer information, property and client testimonials, according to the suit.
Summons were issued to AmCap Mortgage and its former employees earlier this month.
Lower, attorneys for the lender, Ozment, Hankin and Mastrorilli didn’t respond to requests for comment.
AmCap declined to comment on active litigation.
Lower originated a total of $4.24 billion in production volume across 14,563 loans in 2022, according to mortgage data platform Modex. A total of 433 sponsored loan originators work in 77 active branches across the country, according to the Nationwide Multistate Licensing System (NMLS).
AmCap Mortgage posted a production volume of $3.35 billion across 11,289 last year, according to Modex. AmCap has 540 sponsored MLOs across 128 active branch locations, NMLS showed.
Swiss bank UBS AG announced Monday it has agreed to pay $1.43 billion in penalties to settle a civil action alleging misconduct related to the underwriting, issuance and sale of residential mortgage-backed securities (RMBS) before the 2008 financial crisis.
The settlement with the U.S. Department of Justice (DOJ), which refers to a civil action filed in November 2018, does not bring the determination of liabilities, the DOJ said.
“The settlement has been fully provisioned in prior periods,” UBS said in a statement.
According to the DOJ, the United States filed a complaint alleging that UBS “defrauded investors” by making false and misleading statements to buyers of 40 RMBS issued in 2006 and 2007 relating to the characteristics of the loans.
Per the civil action, UBS knew that a significant number of the mortgages did not comply with underwriting guidelines designed to assess borrowers’ ability to repay and with consumer protection laws. In addition, UBS knew that property values associated with the loans were unsupported, the DOJ claimed.
“UBS was allegedly aware of these significant problems because it had conducted extensive due diligence on the underlying loans prior to the RMBS being issued to determine whether the loans were consistent with representations that would be made to investors. Ultimately, the 40 RMBS sustained substantial losses,” the DOJ said in a statement.
“The substantial civil penalty in this case serves as a warning to other players in the financial markets who seek to unlawfully profit through fraud that we will hold them accountable no matter how long it takes,” U.S. Attorney Breon Peace for the Eastern District of New York said in a statement.
The UBS settlement is the last case brought by the DOJ working group dedicated to investigating the banks’ conduct during the financial crisis, which resulted in $36 billion in penalties to banks, originations and rating agencies. It includes Ally Financial; Aurora Loan Services; Bank of America; Barclays; Citigroup; Credit Suisse; Deutsche Bank; General Electric; Goldman Sachs; HSBC; JPMorgan; Moody’s; Morgan Stanley; Nomura; Royal Bank of Scotland; S&P; Société Générale; and Wells Fargo.
The agreement comes as UBS is working to integrate the operations of Credit Suisse Group AG. It acquired the rival this year for $3.4 billion in stock after Credit Suisse faced a deposit run in March. A recent filing from UBS showed the Swiss bank took a hit of about $17 billion due to the takeover.
In the mortgage space, UBS has plans to wind down a business in its U.S. mortgage unit that focuses on “to-be-announced” (TBA) trading. The decision is part of UBS’s strategy to focus more on financing mortgage originators, per a Bloomberg report from May.
Fraud attempts on mortgage payoffs increased by five times in the second quarter versus the prior three months, and based on July’s data, that elevated pace is still ongoing, CertifID found.
Among the causes is the disruption in the banking industry caused by three high profile failures earlier this year, which resulted in shifts in deposit relationships.
The change opened the door for the fraudsters, explained Thomas Cronkright, the co-founder and executive chairman at CertifID.
The fraud prevention company unveiled its PayoffProtect verification product last September. In the second quarter, PayoffProtect caught $12 million of fraudulent payoffs, up from just $1.9 million in the first quarter.
The crisis at Silicon Valley Bank, the first high profile failure, happened on March 10. That started a chain of events where depositors pulled money from similarly situated depositories, which later also resulted in the closures of Signature Bank and First Republic Bank.
And within that transfer of liquid assets is where the fraudsters are able to find an opening. They pretend to be the entity receiving the payoff and contact the party responsible for moving the funds, saying they had previously been using a community bank.
Thomas Cronkright is the co-founder and executive chairman of CertifID
The perpetrators claimed that they instead had established a new relationship with another bank and the funds needed to be sent to accounts there that they controlled. “There was a ton of that going on during this period that we reported against,” Cronkright said.
And because this was tied to an ongoing news story, victims had their guard down.
Higher home values are playing into the opportunity. “The title settlement industry handles a lot of payments where the buyer is receiving a substantial net proceeds amount, but it pales in comparison to the mortgage obligations that are satisfied at closing,” Cronkright said. And at the end of the first quarter, total mortgage debt outstanding was over $12 trillion.
It is not just the old line attributed to Willie Sutton about robbing banks because it’s where the money is, but another adage as well, which is that these fraudsters never retire a successful scam, Cronkright said.
It’s easy for the criminal to impersonate the borrower and obtain loan payoff information. And on the other end, institutions need to be more diligent in verifying where the funds are being transferred to. In one case, CertifID had the fraudulent information and used it to test a financial institution and four times a bank employee said the data was correct, Cronkright said.
Once they find success, the crooks are able to “layer in” and set up multiple transactions where they attempt to divert funds, he continued.
And this is just another flavor of the same business email compromise scams, which have plagued all sorts of commerce in recent years. Later, when they have indications that the transaction is progressing, a fraudster is able to imitate the borrower or another legitimate party.
Real estate related complaints reported to the Federal Bureau of Investigation about business email compromise schemes resulted in a record amount of dollar losses, $446.1 million, and the second-most ever number of incidents, 2,284, during 2022. And mortgage fraud experts agree that those totals are likely understatements of the size of the problem.
Mortgage payoffs represented 24% of cases and 47% of losses reported to CertifID’s fraud recovery services last year. Its State of Wire Fraud report found $1.4 billion or over 340,000 suspect wire transactions during 2022.
Another reason for the uptick is that fraud prevention firms have developed better detection tools, so more incidents are being reported, Cronkright said.
He has a second point of view on this, as Cronkright is also an owner of Sun Title Agency, where he has to manage against this very risk.
“You’re managing it on a transaction-by-transaction basis, and we have seen the movement across the financial markets and deposit accounts,” Cronkright said.
The upheaval in banking has people in that business asking, “Are we done yet? And we’re good for now or are we going to continue to see a lot of that depository movement?” he asked rhetorically.
