Ben Niles, Master CMBmbba-nh.org › wp-content › uploads › 2016 › 10 › Module-8...Ben...

1

Presented by

Post Closing and Fraud

Ben Niles, Master CMB

Director/Compliance TrainingLenders Compliance Group

866-602-6660603-305-0590 (C)

[email protected]

Proprietary information, do not distribute or use without permission of MBBA-NH.

2

Agenda1. Post Closing QC

• Why?

2. FRAUD

• What, Who, Why?

• Fraud Detection

• Fraud Prevention


Principles of Mortgage Banking – Post Closing & Fraud

Why Post Closing QC is Necessary

• Identify & fix errors

• Feedback to Operations & Closing Agents

• Reduces funding delays

• Warehouse Banks sample audit loan files

• Investors review loans for credit, collateral, &

compliance

• FHFA’s OIG re o e ds that the GSE’s QC for o plia e ith all Federal & State Regs

3



Why Post Closing QC

4

• Identify Training Needs

• Sample Size: Minimum 100%

• Increase Sample Size if Defect Trend is Adverse

• Checklists tailored to Product &/or Investor

• Periodic Reports to Risk Committee & Management



Post Closing QC Trifecta

• LE, CD, & APR

• Within TRID Tolerances? Fee Increases- LE to CD?

• Changed Circumstances?

• Fees within State & Product Limits?

• CD executed as approved by Lender?

• Are all closing documents properly executed?

• Watch for last minute Seller Concessions!

5



FNMA Beyond the Guide- 2016 Focus

• A Culture of Quality- Senior Management

• Processing- Fraud Tools

• Underwriting- E po er U/W’s to sa NO!• Pre-Funding QC- Credit, Collateral & Compliance

• Pre-closing Document Review

• Post-Closing Document Review-

6



FNMA Beyond the Guide- 2016 Focus

• Post-Closing QC- 3-C’s as a o e• QC Reports- Goal is Zero Defects

• Max 10% Minor/3% Major Defect Rates

• Self-Report- Not Eligible, Not Investment Quality

• Action Plan to Meet Defect Rates

• Annual Training- U/W, QC, & Fraud Prevention

7



FNMA: 4 Most Common Defects As of August 2016

• Liabilities = 60%

• Occupancy = 24%

• Income = 6%

• Assets = 7%

• Credit, Value, & Property = 1% each


8


Fraud by Region: 2015+ FNMA Data• CA: 24%

• Northeast: 23%

• Southeast: 15%

• North Central: 10%

• Southwest: 9%

• Western Region: 8%

• Capitol Region: 7%

• Northwest: 4%9


Principles of Mortgage Banking – Fraud

Top 10 Fraud States- 2015-2016

Fannie Mae Data

1. CA 6. NJ

2. NY 7. GA

3. TX 8. MI

4. FL 9. IL

5. VA 10. AZ

10



What is Mortgage Fraud?

• The intent to materially misrepresent or omit information on a mortgage loan application to obtain a loan that would have been denied had the lender known the truth.

• A federal crime, a felony

• No statute of limitations (wire fraud, bank fraud, mail fraud, & money laundering)

• Penalties of up to 30 years in prison, plus fines, plus restitution.

11



Four Classes of Fraud

• Fraud for House: Borrower Misrep• Usually 1 loan

• Predatory Borrowers or Predatory Lending?

• Fraud for Profit: Schemes & Conspiracy• Usually multiple loans

• Usually multiple players

• Institutional Fraud: Enterprise Level for Profit

• So ereig Citize ’s Fraud: fastest gro i g12



Loan Level Fraud

13

• Appraisals: • Comp Shopping

• Bogus Appraisal Data & Phony Rehabs

• Assets: Source of Funds & Recent Deposits

• Debt: Undisclosed

• Employment/Income: Salaried or Self Employed• Fraudulent Paystubs, W- ’s, & ’s

• Occupancy: Investment Property or Owner Occupied


FRAUD Schemes

14

• Appraisal Identity Theft

• Builder Bailouts (Hidden Seconds)

• Investment Clubs

• Misrepresentation of Current Owner

• Rental of Vacant Property

• Sale of Vacant Property- (rentals & 2nd homes)

• Arts & Crafts Docs

• Cyber Security Breaches- Identity Fraud

• Ransomware now targeting businesses



FRAUD SCHEMES – o ’t

15

• Phantom Renovations

• Property Flipping & Flopping

• Rapid Refi’s (Hides details of purchase)

• Straw Buyers

• Foreclosure Rescues

• Cash-out Purchases

• Deed Fraud

• Reverse Occupancy



FRAUD SCHEMES – o ’t

16

• Short Sale/Payoff Fraud

• Wire Transfer (new wire instructions re-directs funds)

• So ereig Citize ’s Mo e e t • Reverse Rental (occupying a rental property)

• SSN- Identity Theft (used in fraud for profit schemes)

• Shot-gunning (multiple simultaneous loans, same house)

• Air Loans (straw or non-existent buyer or non-existent

property

• Wire Transfer Fraud



So ereig Citize ’s Mo e e t

17

• Domestic Terrorism- decentralized via the Internet

• , a ti-go er e t e ers & gro i g.• Members believe they are sovereigns, not subject to:

• IRS taxes

• Local Laws

• State Laws

• Federal Laws



So ereig Citize ’s Mo e e t

18

• Financial Fraud for Profit- Typical Fraud Schemes, or

• Retaliate against Gov’t employees- create & record

fraudulent financial instruments & records

• Judgements

• Liens

• False claims

• False IRS refund filing

• See FNMA tutorial at fa ie ae. o u der A ti-Fraud

Part ership Trai i g Series Ta .Proprietary information, do not distribute or use without permission of MBBA-NH.


Local Fraud Cases

19

• Confed Mortgage Co Institutional Fraud

• Countrywide Financial Corp Institutional Fraud

• Dime Mortgage Co Builder Bailouts

• Bankeast Mortgage Corp Victim of Flips in MA

• a a k i Mai e I sider Co spira• Mortgage Broker in Pittsburgh, PA defrauds a ME Wholesaler*

• Closing agent in PA defrauds a ME Wholesaler*

• * Fu di g ires se t to Broker’s or Closi g Age t’s a ou t & diverted- existing mortgage was not paid off.



Recent Fraud Headlines• 9 in NJ Charged in $10M Fraud

• 4 in PA Charged in Multi-Faceted Conspiracy

• NY Man Arrested by FBI for Ponzi Scheme

• Businessman & Attorney Guilty of Loan Fraud in MI

• Former CA LO Arrested- Straw Buyer Scheme

• Former Nashua Man- Equity Stripping Scheme

• Thieves Steal Whole House- deed fraud at epidemic levels in Manhattan; European & Asian investors are easy targets in Detroit.

20



Recent Fraud Headlines

• NH Mortgage Consultant- Loan Mod Fraud

• NH Lawyer Sold Home He Did Not Own

• MA Woman Sentenced for Appraisal Fraud

• Hopkinton Brothers Indicted- Straw Buyers

• MA Fraudster Gets 6+ Years- Mortgage Scam

• Boston Man Convicted- Straw Buyers

• MA Attorney Jailed for Stealing Closing Funds

21



•

Straw Buyers: Former Realtor & Real Estate Developer

Sentenced to Prison for Massive Mortgage Fraud

In June 2015 Michael David Scott, 51, of Mansfield, pleaded guilty to

counts of 32 counts of wire fraud, 14 counts of bank fraud, and 22 counts of

money laundering. developer sentenced to 135 months in prison and

ordered to pay restitution of over $11,374,201 and to forfeit $7,413,712.

From September 2006 to April 2008, Scott purchased 3-4 unit ulti’s in

Roxbury and Dorchester, converted ulti’s to o do’s, & sold u its to stra buyers.

Scott submitted mortgage loan applications that falsely represented key

i for atio , su h as the u ers’ i o e, perso al assets, do pa e t, and intention to reside in the condominiums to 9 national mortgage

companies and one local bank. Proprietary information, do not distribute or use without permission of MBBA-NH.


Fraud & Misrep Docs• Applications (1003)

• Appraisals

• VOD’s- Source of Funds

• VOE’s, Pa stu s, W- ’s• ’s• Closing Docs

• Credit Docs

• Remember: Liabilities = 60% & Occupancy = 24%

23



Return of the Three Dumb Monkeys

• See No Evil: SIVA Loans

• Speak No Evil: SISA Loans

• Hear No Evil: NINA Loans

• The Golden Rule: Trust But Verify!

• The 3rd Time is Not a Charm.

• Why do some players not learn from history?

24



Return of the Three Dumb Monkeys• Non-QM does not exempt Lenders from:

• Fraud Statutes: Federal & State

• Repur hase R&W’s: for life of loa• Investor Litigation: loss recovery

• Regulatory Enforcement: Odds favor the Regulators

• UDAAP- deceptive practices

• Fair Lending- discrimination, protected classes

• Predatory Lending- pricing & programs

• ATR- credit, collateral (equity), & capacity

• SARs- mortgage fraud is reportable

25



The Bottom Line• 90% of Stated Income is Misrepresentation.

• Self-E plo ed Borro er’s ’s are the real issue.• If the a ot erif i o e ith their ’s, either

• Application income fraud- true income is too low to qualify,

or

• Income tax fraud- not paying full taxes on true income.

• Solutio is to U/W usi g ’s. If DTI > %, use Residual Income U/W.

26



Major Ba ks Fi ed $ B as of -30-

• WSJ reported on 3/3/16 $110B in bank fines for toxic loans leading up to the financial crisis.

• $110B in fines were paid to Treasury, SEC, DOJ, FHA, Fannie Mae, Freddie Mac, & State Attorney Generals.

• Pension Funds, Life Insurance Cos., Private Equity Firms, & Hedge Funds will add $Billions more.

• A e tit that ought the To i PMBS’s is fili g suits.• Litigation will run at least another 5 years.

• Blowback to Originators: Wall Street is suing to claw back losses.

• Call this the sins of the past!

27



Current Fraud Trends• Highly organized schemes

• Collusion between property seller, broker, appraiser

and title closer

• Collusion is the new norm

• O e Stop Shoppi g• One person controls the entire transaction from sell of

property, origination, appraisal through closing

• All have value issues / losses

• Loans are kept current for period of time28



Borro ers’ Role i Fraud S he es• Borrower is not aware of scheme

• Naïve

• Good FICO score

• Trustworthy

• Borrower not aware of:

• Loan level misreps

• Inflated value

• Quit claim deed

29



Red Flags: Flips & Rapid Refi

• Refinancing borrower not title holder- As seen on preliminary title & at top of appraisal

• Be are of LLC’s- hides true owners

• HUD-1 payoff of private financing (usually property seller)

• Appraiser may leave date property originally acquired field blank or enter a fictitious date

• Double escrows

30



Appraiser Identity Theft:

License &/or Signature

• Approved appraiser signs name for colleague who

is not an approved appraiser

• Name / signature used by associate in office

• Final appraisal report altered prior to

origination/closing

31



Appraisal Red Flags

• On purchase, appraisal pre-dates purchase agreement

• Borrower name is missing or wrong

• Va a t i stead of o upied o refi a e• Te a t i stead of o er for o er o upied • Borrower and owner different and there is a prior sale

for substantially less on a refinance

• Appraisal ordered / provided by interested party

• Appraisal Independence Regs should prevent this.32



All Have Value Issues!!!

• Phantom renovations

• Inappropriate, unreliable, unverifiable data

sources

• Material misrepresentations and omissions

• Ide tit theft of appraiser’s li e se / sig ature

33



Misrep of Subject Data & Value (

14412 Memory Lane

• Original appraisal $128,000

• 1.5 stories

• Brick

• 4 bedrooms/2 baths

• Finished basement

• 2 car garage

• 1,254 square feet34

Appraisal Fraud - Detroit, MI



You cannot have appraisal fraud

without conspiracy & usually

lender complicity.

35



Appraisal Fraud Prevention

• Do ’t put a target or esti ated alue o the appraisal order

• Never provide comps to an appraiser

• Have a single individual (outside of sales) order all appraisals on a rotating basis

• Report appraisal fraud / questionable practice to law enforcement / licensing boards

36


Principles of Mortgage Banking – Fraud Prevention


• Document prior sales

• Document length of time for renovations

• Get interior photos – do drive bys

• Verif that Seller a d / or O er is i title; resolve discrepancies

• Verify the comps & data source

37




• Is appraisal dated prior to the purchase

agreement?

• Do ’t a ept i o plete appraisal reports!• Call the borrower

• Use AVM’s, Collateral Tools, & Desktop Re ie s

38



Appraiser Identity Theft Prevention

• Conduct audits of approved appraisers

• Have signatures on file

• Establish direct communications with appraisers; call them to verify authenticity of reports and signatures

• Spot checks – review appraisals at time of origination

• Get to know your appraisers

39



40

Basics of Fraud Prevention


• Sr. Management Support (culture)

• Annual Fraud Training

• E po er U/W’s to Sa NO!• Notify Investors & Authorities

• Hire Honest Staff

• Practice Integrity & Ethics

• Avoid Conflicts of Interest in Hiring

• Increase Pre-Funding QC (targeted)


Efforts to Prevent/Detect Fraud

• Obtaining information independently- Credit- Employment

• Re-verify by phone, using your phone number, not theirs. Get number from Company Website or Internet Directory.

• Detail Instructions to Closing Agents: Verify revised wire instructions directly with your contact by phone & email.

• Freddie Mac Exclusionary List• 1-800-4FRAUD Hotline• Publications: Go to Fannie Mae & Freddie Mac Websites. • Attend FNMA QC & U/W Boot Camp

41



Internet Resources

• Ways to verify sales history and ownership of

subject and comps

• Title commitment

• Tax records www.searchsystems.net

• www.SearchTheNationalMLS.com

• Map distance www.mapquest.com

42



http://www.searchsystems.net/

http://www.searchthenationalmls.com/

http://www.mapquest.com/

Fannie Mae Resources• Common Red Flags

• Fraud Schemes & Their Characteristics

• Misrepresentation Data

• Loan Defect Categories

• DU Potential Red Flag Messages

• www.fanniemae.com/singlefamily/mortgage-fraud-prevention

Anti-Fraud Partnership Training Series : 13 Tutorials43



http://www.fanniemae.com/singlefamily/mortgage-fraud-prevention

Additional Fannie Mae Resources

• QC Self-Assessment, 10-2014

• Appraiser Quality Monitoring FAQS, 06-2014

• Selli g R&W’s- Origination Defects &

Remedies, 10-2015

• Tools & Processes to Increase Certainty &

Reduce Repurchase Risk,

• Post-Purchase Review & Reports Lender Job

Aid, 201544

Principles of Mortgage Banking – QC


Freddie Mac Resources

• www.FreddieMac.com/singlefamily/preventfraud/

• Fraud Hotline: 1-800 4 FRAUD 8

• Freddie Mac Exclusionary List

• Dis o er Gold Thru Qualit • Fraud Mitigatio Pra ti es• Mortgage S ree i g Pro ess: Red Flags• www.FreddieMac.com/learn/pdfs/uw/ex_lst_lp.pdf

45



http://www.freddiemac.com/singlefamily/preventfraud/

Additional Fraud Prevention Resources • AVM’s (automated valuation models

• MLS (Multiple Listings Services)

• MARI (Mortgage Asset Research Institute)

• Lexis Nexis

• DataVerif ’s Drive Report

• Core Logi ’s LoanSafe Collateral & Fraud Manager

• Rapid Reporting Verifications

• Undisclosed Debt Monitoring (Experian, CBC)

• Reverse Directories, White Pages, Yellow Pages

• Linked-In

• Google as a last resort for information46



AML/SARS Case Study

• Application #1 submitted for SI Program, $5,000 GMI

as self-employed: Declined

• Application #2 re-submitted for Fannie Mae

Program, $12,500 GMI as salaried; paystubs show

$14,000 GMI & are numbered consecutively.

• Bank statements show no payments to Paychex, the

payroll company on the paystubs

• SSN used by multiple individuals (Lexis Nexis)

47



AML/SARS Case Study, Cont.

• Wife convicted of theft & fraud (not on loan)

• Business bank statements show massive transfers to

& from Pakistan, UAE, China, Hong Kong, Singapore,

India, France, Canada, & within USA.

• $2M+ Large Deposits

• $1M+ wired to businesses that are either

unverifiable or shell companies

• Would you deny the loan? File a SARS?48



49Post Closing QC & Fraud

Ben Niles, Master CMB

Director/Compliance TrainingLenders Compliance Group

[email protected]

866-602-6660603-305-0590 (C)

Please complete module evaluation

QUESTIONS

http://www.lenderscompliancegroup.com/

mailto:[email protected]

Ben Niles, Master CMBmbba-nh.org › wp-content › uploads › 2016 › 10 › Module-8...Ben...

Documents

Transcript of Ben Niles, Master CMBmbba-nh.org › wp-content › uploads › 2016 › 10 › Module-8...Ben...