a contributing factor to discrepancies detected in a file. Maintaining a zero fraud tolerance, both internally and externally, ensures that the company can continue to focus resources and fight fraud as an external foe. Any violation, no matter how insignificant, must be excised like a cancer. The origination company graveyard is filled with those who thought that doing business meant turning a blind eye at times. All too infrequently, requests are received to review tax returns where the borrower has not disclosed certain incomes, but requests that the loan officer include the figures when calculating the debt ratio. There are no grey areas! There are no allowances for either the customer with this mindset, or a loan officer that would even consider allowing this manipulation. These scenarios should be avoided as the ticking time bombs in your loan portfolio which they truly represent. No matter how large the borrower’s income, no matter how high their FICO score, if they receive the IRS audit phone call, its game over. Finally, I am frequently asked, “What is the reimbursement recovery potential for
money lost due to fraud?” Although each situation is unique in some way, with fraud schemes the money disappears quickly and most often is not recoverable. In a USFN article in 2007 by Bruce Bergman, he concludes that suing for fraud is a less profitable route than merely foreclosing on the property. Although it may not offer the satisfaction of seeing punishment enforced, it does have the benefit of returning funds to the company coffers. This is, after all, the primary goal when a fraud investigation turns into a loss mitigation scenario. A successful fraud prevention policy will ensure that the company dollars never fall into the category of potential recovery. John Frank is the vice president of quality control for Primary Residential Mortgage Inc. He graduated from the University of Utah in 1988, and has been in the banking industry for almost 25 years. His background includes management positions with Norwest Bank, The Associates and Citi Group. He may be reached by phone at (800) 255-2792, ext.1017 or e-mail jfrank@primeres.com.
FHA Insider: Fraudulent Home Loans Available Abuse of the FHA program
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MICHIGAN MORTGAGE PROFESSIONAL MAGAZINE
These were the words of Attorney General Eric Holder, quoted in a Nov. 17 press release announcing that President Barack Obama has established, by Executive Order, an interagency Financial Fraud Enforcement Task Force whose job is to combat financial crime. “FHA [Federal Housing Administration] will not tolerate lenders who violate our rules and prey on those who depend on a reverse mortgage to continue to live independently,” said FHA Commissioner David Stevens in a press release on Oct. 30 when HUD announced taking action against a reverse mortgage lender in Hawaii. Commissioner Stevens continued, “FHAapproved lenders must understand that we mean business when it comes to protecting the FHA insurance fund from those who cut corners and take advantage of unsuspecting senior citizens.” In another press release, announcing action taken against a large national FHA
lender on Oct. 20, Commissioner Stevens stated, “If we determine that our partners are not playing by the rules, they’ll cease being our partners. It’s not just about protecting the financial health of the FHA insurance fund—this is about protecting each and every family that looks to the FHA for safe and secure mortgage financing.” In this same press release, HUD announced the proposed sanctions and penalties against individual underwriters and alleged that “these underwriters falsely certified to the Department that the loans were originated in compliance with FHA requirements and were eligible for FHA mortgage insurance.” I think the above material pretty well speaks for itself … FHA is serious about ridding our industry of the crooks who take advantage of their clients, their employees and the agencies and companies they do business with. Over the course of my career spanning the past 15 years, I have witnessed firsthand how FHA lenders come and go in the marketplace. I have lost several referral sources because of the thieves who walk among us. Here’s one example: Several years ago, I worked very hard to get into a particular real estate office. I finally got in for a presenta-
www.NationalMortgageProfessional.com O
By Jeff Mifsud
tion, impressed them with my knowledge of I think we need to really study what FHA and my ability to package the tougher works to keep default levels down, and deals. I soon became their main loan origi- strive to implement a plan that achieves nator and was doing a great job for them, this. In my opinion, a good place to start is but the fact is there remained many deals I to study a company in middle-America could not do because they simply didn’t called Farm Credit Services of Midmeet FHA criteria. Before long, the referrals America (FCS), one of the country’s largest from this office ground to a halt and I want- farm lending institutions based out of ed to find out why. I spoke to one of the Louisville, Ky. When Greg Frost was unable agents who said that they to speak at their annual had switched to another LO convention because of who “could get more deals scheduling conflicts, he done.” Something smelled suggested that FCS contact fishy, and I researched a bit me. My first thought after further, only to find that receiving their invitation they were falsifying docuto speak was, “What in the ments in order to get the world am I going to say to loans insured. To assure the a farm lending organizaborrowers didn’t go into first tion?” This was in April of payment default they would 2008 at the height of the make the payments for the mortgage industry crash borrowers. Not able to comand they wanted somepete with thieves, I stopped one who would explain “FHA is about giving marketing to that office. The what had happened in creditworthy good—or bad news, the non-farm mortgage Americans a chance depending on how you look industry, and how it hapat homeownership, at it—is that this lender’s pened, because while the default ratio grew so much and it’s FHA’s respon- mortgage industry atthat FHA started auditing sibility to put the sys- large may have been their loans and eventually tems in place to make crashing, their business put them out of business. was booming! that happen.” Another company I I’d like to share with couldn’t compete with you the qualities I found would sell the loans to the aggregate in FCS that shielded them from the crash lenders, but would hold the servicing and continues to keep their default rates rights to their loans. They would do FHA low. In 2008, their default rate was only loans that didn’t meet FHA guides and, 1.2 percent, but there was concern that on numerous occasions, when a loan the price of corn would have a negative payoff came in, they would keep the impact on their default rates. Sure money themselves and invest it for their enough, the price of corn went down this own benefit, but keep making the pay- year by about 30 percent, and their ments to the investor with the interest default rate did increase … to 1.9 percent they would earn from their profits. As (yes, you read right)! When grain goes long as the loan payments were made, down, this equals a potentially significant the investors never knew the loan had drop in income for the farmers. When the been paid off. Pretty clever … so clever, result is a mere 0.7 percent increase in in fact, that the owner of this company, default rate, this can only reflect stellar along with the employee who collaborat- lending practices. And despite the current ed with him in this scheme, are now in continued on page 34 jail for the next six years.
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