Reaction was swift to the HUD ruling yesterday to bar nonprofit’s from helping homeowners with down payment assistance on the FHA program. AmeriDream and Nehemiah Corp. of America have filed a suit.  Below is a section about Nehemiah’s complaint reported at the Sacramento Bee:

Nehemiah, which says its down-payment program has helped some 230,000 low-income and minority homebuyers, sued the U.S. Department of Housing and Urban Development on Sunday in U.S. District Court in Sacramento, seeking a court order overturning the ban. A Maryland nonprofit that offers a similar program announced its own suit against HUD.

Below is a section of the press release from AmeriDream:

Gaithersburg, MD — AmeriDream, Inc., a 501(c)(3) charitable entity dedicated to helping low and moderate income families purchase their own homes, announced today that it has filed suit to block a regulation issued by the Department of Housing and Urban Development (HUD) which seeks to terminate successful down payment assistance (DPA) programs sponsored by AmeriDream and other charities.

We’ll see how this develops.

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Tags: AmeriDream, Down Payment Assistance, FHA, Nehemiah
Categories: Fraud, Mortgages, Real Estate
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For a few years now the IRS has had issue with down payment assistance programs which borrowers use to meet the 3% required down payment on a FHA loan. Basically, the IRS doesn’t think these assistance programs are non-profits. Since FHA only allows non-profits to contribute towards this 3% the whole thing falls apart if the IRS strips them of their non-profit status.

Today the FHA announced that it will prohibit borrowers from using seller-financed down payment assistance programs.

WASHINGTON — The Federal Housing Administration will prohibit borrowers from using seller-financed down payment assistance programs that have helped hundreds of thousands of people buy homes but have come under the scrutiny of federal authorities.

Such programs allow home sellers to give money to charities, which then give down payment assistance to buyers. The sellers pay the charities a service fee, then often recoup the money by charging a higher price for the homes, usually 2 or 3 percent more, or an amount equal to the down payment, according to a study by the Government Accountability Office.

Inflating the price is bad, however, this isn’t easily done in todays market and appropriate safeguards are already in place. Furthermore, the seller (if accepting an offer from a FHA borrower) needs to understand that they will need to give 3% from their proceeds towards down payment assistance. If they choose to do so then the loan should move forward.

Talk about bad timing. Since the collapse of the subprime market FHA has seen a resurgence in the past few months. This new ruling will essentially kill the FHA program for now and will make the housing market worse. I can understand greater scrutiny, but to freeze out all these assistance programs in one big swoop doesn’t sound right. Isn’t there a better way?

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Tags: Down Payment Assistance, FHA Loan Program, IRS
Categories: Fraud, Mortgages, Real Estate
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They may be listening to your phone calls, reading your e-mails and peeking into your shoes at the airport, but the Feds apparently never listened to the radio. Well, they just tuned in and heard something they didn’t like. Yesterday the FTC issued a warning to lenders claiming those ridiculously low interest rate programs.  You know the one where the guy says stuff like: “Rates just fell to 1.25%, you could save thousands” and the like.

I wonder when the Fed’s will get on the Internet and see the low mortgage rate ads, which shows a $400 payment for a $500,000 mortgage with no corresponding APR disclosure? Or, something like that.

Here is an excerpt from the FTC statement issued yesterday:

The Federal Trade Commission is warning mortgage brokers and lenders, and media outlets that carry their advertisements for home mortgages, that some of the advertising claims currently appearing in Web sites, newspapers, magazines, direct mail, and unsolicited e-mail and faxes may violate federal law.

“Many mortgage advertisers are making potentially deceptive claims about incredibly low rates and payments, without telling consumers the whole story – for example, that these low rates and payments apply for a short period only and can go up substantially after the loan’s introductory period,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. “Home ownership is the American dream, but it can become a nightmare for consumers who don’t have the information they need to understand the terms of their mortgage.”

Read the full statement here.

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Tags: deceptive advertising, FTC, mortgage industry
Categories: Congress and Government, Fraud
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That is exactly what it was like at the height of the frenzy a few years back. What was meant for good was turned into a system advancing fraud. The fall out is all around us. Many of the foreclosures happening today can be traced back to the pizza delivery guy making $8,000 a month. Brian Brady, America’s Most Opinionated Mortgage Broker, wrote about the young investor who bought multiple homes on stated income loans. Industry publications and the main stream media frequently have reports of loan originators going to jail for inflating income.

So, what’s the deal with stated income loans? The stated income loan was meant to make things easier for a particular type of borrower. In a stated loan the borrower simply states the income on the loan application and the lender accepts it at face value. It sounds scary doesn’t it? Well, it is. However, for self employed individuals with many business expenses, business owners with multiple P/L’s in their tax returns a stated income loan can be a very useful tool towards obtaining a mortgage. Good solid credit and third party verification of business operation is then the only other requirement. Where things became risky is when the credit standards were lowered and wage earners were brought into the mix. The stated income loan was never meant for wage earners.

A feeding frenzy also developed once the availability of stated income loans reached the consumer. These days it’s not unusual to receive calls from a potential borrower requesting to be placed on a stated income loan. Now come again! I thought the lender determined the documentation level based on your overall picture. Since when did the consumer get to decide this on behalf of the lender? I guess ever since money got so cheap. That’s a story for a different time…

In early 2006 CTX Mortgage, the company I work for, slammed their brakes on stated income loans. They told us underwriters would be using salary.com to substantiate incomes stated on loan applications. We were reminded of the reasons for using stated income, and of course the dangers and pitfalls of misusing it.  CTX made us watch a video of a loan officer who ended up in jail because one of her clients went into foreclosure. The lawyers for the client ended up suing the loan officer on the grounds that loan officer manipulated the borrower’s income to arrange a loan they never could have afforded. Charges of mortgage fraud, wire fraud stuck and now she’s behind bars. The message was delivered in no uncertain terms that CTX would not tolerate a stated income feeding frenzy! In retrospect I respect this foresight.

Remember a stated income loan is really intended for a self employed borrower whose income stream is difficult to substantiate. It will still require good credit of the borrower and third party verification of business operation. What this documentation type is not for is a young college graduate on a steady job wanting a 4,000 square feet home with a built in PlayStation3 theater. It’s also not for wanna be investors with no business experience whose only talent is failure.

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Categories: Fraud, Mortgages
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House Bill 2040 is headed to the Governers desk. This bill makes mortgage fraud a felony. According to Inman News:

House Bill 2040 would make deliberate misrepresentations to lenders — such as inflated appraisals or falsified borrower incomes used to obtain loans that exceed a home’s true worth — class four felonies, punishable by up to three years in prison.

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Categories: Arizona, Banker, Broker, Fraud, Mortgages
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Well, maybe the headline is a bit too harsh. However, the debate is real. There has been some lively discussion over at The Phoenix Real Estate Guy blog post titled “Buying a Higher FICO Score?!?“. This is the post with the thread.  I suggest reading through, there are some really insightful comments.

I commented on this as well, but in my own posting yesterday I didn’t make much of Fair Isaac changing their rules for authorized users. When I first discovered how people could become authorized users on a good credit account to increase their scores I likened it to all the different tax breaks and deductions the IRS offers and how some companies re-locate to offshore destinations to avoid paying taxes. Is this fraud? It’s a loophole. I put the onus on the rule maker to change the loophole. 

However, many disagree. Butterworth has some thing to say, and so does Blown Mortgage.

Our own local paper has as story on this from the AP.

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Categories: Credit Bureaus, Credit Scores, FICO, Fraud, Mortgages
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There has been some debate in the past about the use of authorized credit lines to boost credit scores. Some argue that this is fraud and others have said that as long as everybody is aware then it shouldn’t be a problem. Today Fair Isaac announced that they will ignore authorized-user credit card accounts when calculating credit scores.

To combat fraudulent manipulation of credit-risk scores, Fair Isaac Corp. plans to end the practice of giving borrowers additional points for being an authorized user on another person’s credit card account.

You can read the full news story here.

Under the old rules if you had poor credit you could sign up to be an authorized user to a credit card in good standing. This could be your parents account, your siblings or any other person willing to take the risk with you. The verbal agreement is of course that you will not have access to the credit card, only that your name will be on the account for a period of time. By signing up, your credit score will immediately begin improving. I’ve seen peoples’ scores jump hundreds of points in just a few months.

Of course, all of this comes to an end today. From reading this news article it appears the process has been abused by companies promising to quickly boost people’s credit scores.

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Categories: Credit Bureaus, Credit Scores, Fraud, Mortgages
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I admit I am tooting my own horn!

The local media did a story on mortgage fraud here in the Phoenix valley and I was interviewed for much of the material. Here is the link. Sad to say but Arizona was ranked 11th in fraud for 2006 by the Mortgage Asset Research Institute.

The industry has some work to do.

Here is a section of the local story:

Now his business is feeling the pinch of tightening lending guidelines resulting from the subprime market crisis. Last year, it would have been possible to qualify someone with a 580 credit score, but now we need a 620 score, he said.

“The last two months, I’ve seen guidelines change completely,” Ghimire said.

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Categories: Arizona, Banker, Broker, Fraud, Mortgages, Phoenix
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I just saw this article on MSN Real Estate about lenders pushing value on appraisers. This is serious and a major problem in the Valley.  The whole cash back fraud transactions which the Arizona Republic wrote about earlier this year was based on lenders and appraisers pushing the value.  Here is my post on this topic from earlier this year.

Just a reminder!

By the way MSN Real Estate also has a pretty good article on how to select a good Realtor.

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Categories: Arizona, Broker, Fraud, Gilbert
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