Mortgage Originators be Warned: Credit Repair Could End Your Mortgage Career! By Tommy A. Duncan, CMT
By Terry W. Clemans
First, I would like to say that the Mortgage Bankers Association (MBA) and its committees that did such a great job in hosting this conference. They featured a great number of panelists and speakers who are quite knowledgeable in the field of technology and fraud issues regarding the mortgage industry. One particular session that really grabbed my attention was a discussion regarding Home Affordable Modification Program (HAMP) loan modifications and short sales. I could not believe the number of problems that plague the federally-mandated HAMP. There are 300,000 loans currently in their trial period that are expected to go into default. The reasons appear to be income related. The borrower, when applying for the loan modification, is working with the loan specialist and when asked about income, the findings appear the income is temporary or part-time, the borrower has not started yet, immediate loss of income for reason beyond the borrower’s control, or the income just insufficient to make the payments even with a full-time or several part-time jobs. Also, there appears to be a question regarding getting the appropriate paperwork to complete the loan modification from the borrower. There are two ideas surrounding this dilemma: The borrower is not sophisticated enough to know what to do or understand what to do. The borrower is afraid they will get caught for misrepresentation/fraud once the first loan’s income is discovered to be incorrect so the completed paperwork is not sent in due to fear. When the audience was asked which option they felt was the probable reason, option two was recognized by a majority for the reason. Simply put, if the borrower is not sophisticated enough to send in the supporting documents, how did they receive the loan in the first place. Some enemies of brokers may say the loan officer broker did it or made them do it. We know that is not true. It does make sense that the borrower misstated or misrepresented their income on the first loan. We know that there are many honest borrowers who truly disclose their income and not every mortgage loan is fraudulent. We understand many borrowers and brokers made good loans out there and unfortunate things happened to many innocent borrowers. However, this was a fraud conference and the focus was on those loans containing fraud.
Tommy A. Duncan, CMT is executive vice president of Quality Mortgage Services LLC. For answers to your QC and FHA questions, please contact Tommy at (615) 591-2528 or e-mail taduncan@qcmortgage.com. You may also visit Quality Mortgage Services LLC on the Web at www.qualitymortgageservices.com.
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Lenders are faced with a moral dilemma … if the first loan had fraud for housing with overstated income, should the loan modification be made? The servicers are making them. However, what are the statutory limits for reporting a loan officer to authorities for allowing fraud for housing? There is not one yet. However, there are servicers mad as hornets with loan officers and they may unite and submit information to SAR and other organizations that are monitoring mortgage fraud. Servicers are finding the borrower overstated their income when they received their first loan and understating their income to receive the loan modification. This must be the few hundred thousand who actually received their loan modification. Effective in June, all loan modification will require full documentation and the borrower will be required to sign a general authorization for a vendor or third-party to verify income rather than sending documents to the servicer. Mortgage fraud is expanded in the servicer’s world and it has taken them by surprise. After all this time, they are just now learning how to deal with it. We hope the best for those who are stressed and being stretched, and hope to see America to get through these difficult days.
www.NationalMortgageProfessional.com O O MAY 2010
In early 2008, with the industry enter- unrecognized, is the Credit Repair ing a meltdown that made most night- Organizations Act (CROA). This is the mares serene, a troubling trend primary governing law for credit emerged. It was the feature of cover repair companies and it strictly prostory of the issue of Broker Magazine hibits many practices that are unfortuthat discussed various methods of cred- nately still in use by many credit it restoration and improvement. With repair companies today. For a credit the mortgage marketplace drastically repair company to be compliant with changing over the past year, it was easy the most basic of CROA regulations, to understand the increased awareness they must start with a clear contract in the maximization of a consumer’s spelling out exactly what they will do credit score in an attempt for the consumer, inform to salvage every loan, and them of their rights and make some extra income not charge the consumer to boot. Other articles any fees until all terms have since been written of the contract have in several mortgage pubbeen completed. lications featuring these Many of these compaprograms. With today’s nies have policies that increased underwriting barely meet the requirescrutiny, providing deciments of the law, and sions that hang on the would likely fail a CROA smallest of credit score legal challenge by a conmargins. The desire to be sumer or government involved in making credit enforcement agency. Even “The desire to be improvement happen is a couple of the national involved in making obvious, but at what cost? credit repositories and credit improvement There is no shortage Fair Isaac and Company happen is obvious, of firms looking to part(FICO) got surprised by but at what cost?” ner with mortgage origCROA litigation chalinators offering various lenges regarding the sale methods of correcting, improving or of their credit reports, scores and cred“repairing” credit, and profits from it correction/improvement programs the process there are two very on the Web for violating the pre-payimportant missing aspects of “credit ment portion of CROA. If you are interrepair”—aspects that mortgage orig- ested in further detail, log on to inators must carefully consider when http://www.ftc.gov/ro/chro/credit.shtm working with their clients and credit for a complete copy of the CROA. repair companies. While the firms promoting these programs will The sale of credit reports address one of the problems, they The second issue, and the issue with miss one very important one … the greatest potential impact on your mortgage originators must be ability to continue your mortgage warned: Being involved with credit origination business, is related to the “repair” may bring major conse- three national credit repositories and quences, including the loss of your their policies prohibiting the sale of ability to originate loans! credit reports to companies in the business of credit repair. Any accurate In terms of legality derogatory data on a consumer’s The first issue with credit repair credit report cannot be removed involves its legality. Does the program through legal methods until the specifically comply with federal law? statute of limitations expires (seven In addition to the Fair Credit years for everything other than bankReporting Act (FCRA), there are very ruptcy, which is 10 years). Companies specific and strict laws about credit that make claims other than that repair. One of the most important continued on page 28 laws, and one of the most frequently
What were the hot topics at the Mortgage Bankers Association’s recent Fraud Issues Conference?
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