The Effects of Vacant and Abandoned Property Part...
Transcript of The Effects of Vacant and Abandoned Property Part...
The Effects of Vacant and Abandoned
Property – Part I, The History
THE HISTORY
Vacant and Abandoned Properties
Print date: February 19, 2013
Target Audience
This course is intended for Law Enforcement
officers who..
• Occupy the front lines
- on streets
- in neighborhoods
• Deal with citizen / stakeholders
-who directly and daily deal with the
negative aspects of abandoned
properties and neighborhood decline
Learning Objectives
At end of training participant will be able to
• Define mortgage fraud
• Distinguish between mortgage and predatory
lending
• Assess the current “state of affairs”
Fraud
• Definition: A false representation of a
matter of fact—whether by words or by
conduct, by false or misleading
allegations, or by concealment of what
should have been disclosed—that
deceives and is intended to deceive
another so that the individual will act upon
it to her or his legal injury.
Fraud
Commonly understood as dishonestly
calculated for advantage
Scope of the Problem
• Mortgage lenders have lost billions as a result of fraud
schemes in recent years.
• Lenders are the direct victims of fraud.
• Yet the harm is much farther reaching
– Honest homeowners, homebuyers,
law enforcement, and communities at large
• The epidemic proportions of this problem has garnered
much attention from local, state and federal governments
prompting needed action.
Mortgage Fraud vs.
Predatory Lending
Mortgage Fraud Predatory Lending
• …“a material misstatement, misrepresentation, or
omission relating to the property or potential mortgage
relied on by an underwriter or lender to fund, purchase or
insure a loan.” FBI 2010 Mortgage Fraud Repot (2011)
• In Laymen’s terms: The intentional enticement of a
financial entity to make, buy or insure a mortgage loan
when it would not otherwise have done so, had it
possessed correct information
Mortgage Fraud
Primary Motivators
• There are many motivating factors that influence
lenders, borrowers, and other professionals to
commit Mortgage Fraud.
• Fraud for Housing
• Fraud for Profit
Typical Mortgage Fraud Schemes
• (Illegal) Property Flipping
• Occupancy Fraud
• Straw Buyer Schemes
• Identity Theft and Income/Asset Falsification
Mortgage Fraud Schemes Can be Committed by BOTH lenders and applicants
• Inflating an appraisal in order to obtain a
mortgage for more than a property is worth
• Claiming income or assets the borrower
does not have
• Posing as a borrower on behalf of another
who's actually making the purchase
• Pretending to provide financial help to an
economically stressed homeowner in
order to skim off equity from the home
Predatory Lending
• Revolves around who the beneficiary is
from the mortgage transaction
– the fact that a homeowner does NOT benefit
is what turns a legal mortgage into a
predatory lending practice.
• Corporate actions may not always be
illegal.
• Targets the financially vulnerable and can
leave victims homeless, their credit ruined
Predatory Lending
• A term used to describe a wide range of
unfair financial practices that are likely to
harm borrowers, for example:
– entice, induce, or assist a borrower in taking a
mortgage that carries high fees, a high
interest rate, strips the borrower of equity, or
places the borrower in a lower credit rated
loan to the benefit of the lender.
Signs of Predatory Lending
• Big Fees (points or discount points)
• Pre-payment Penalties
• Steering and Targeting
• Adjustable Rates that Soar
• Promises to Fix Problems w/ Future Re-Finances
• Repeated Refinances that Drain You
• Not Counting Taxes/Insurance w/Payment
• Loan Flipping
• Mandatory Arbitration
TRACING THE MORTGAGE FRAUD
PROBLEM
Vacant and Abandoned Properties
Loan Products the way we were
Full Documentation Loans
• Advantage to borrowers
- Helps acquire most competitive rates
- Highest loan amounts
- Widest band of lenders available
- Wider variety of loan products available
Loan Products the way we were
Full Documentation Loan Requires
• Detailed documentation supporting income
and assets
-2 or 3 months of asset statements
-Paystubs
-W-2’s
Loan Products the way we were
• Limited Documentation Loan Products
- Borrowers able to state a limited amount
of information on their mortgage application
- Typically have higher interest rates
- Dependent on credit score
Loan Products the way we were
Non–Traditional loan products
- Allow borrowers to defer payment of principal
and sometimes interest
“Interest Only” mortgages
“Payment Option” adjustable rates
Non-Traditional Loan Products
• Credit standards loosened
• Less reliance on creditworthiness,
more on collateral
• Defer principal and interest
- Interest only loans
- Payment option ARMs
• Higher risk due to risk of payment shock
-negative amortization a problem
• Such risk layering exposed providers to increased risk
levels.
Standards
1970 - 1990
• Conventional loans funded by institutions
• Hard Money Lenders – Equity loans
• 45% of Americans owned homes
• Investor market did not exist – Freddie
Mac and Fannie Mae
Standards
1991 - 2001
– Mortgage brokers began originating loans for banks
– Investor market began buying securitized mortgages
– Secondary market came into being
– Wholesale lending market picked up the pace
– Equity lending virtually disappeared
– Clinton Administration pushed the “American Dream”
Standards 2002 - 2007
• Post 9/11 USA in recession
• Real Estate market was the only thing keeping the USA going
• Regulators backed off institutions
• Market got greedy and exploded
Results 2002 - 2007
Loan Products
…the effects
Competition in a bull market for loans
caused investors, lenders, and brokers to
generate more attractive products to wide
spectrum of borrowers in competitive frenzy
to make money and capture market share.
Points
• Competition motivated lenders, investors
began offering more limited documentation
loans.
• The “Big Players” in Sub-Prime lending
popped up
– Guaranteed their broker’s an approval in 24
hours; closing within 10 days.
Tipping Points …toward change
• Streamlined amount of time to qualify a person
to “state” their income and assets
(or not use them in qualifying)
• Industry reports estimate over 60% of all stated
loans had income exaggerated over 50%!!!!
Tipping Points ….toward change
• “Liar” Loans – low/no documentation loans; targets for
unethical behavior by unscrupulous borrowers and
lenders
• “NINA” Loans – (No income no asset) Situations where
aggressive mortgage lenders and brokers do not want
any trouble qualifying otherwise non-qualifying loans,
thus becoming a significant factor in the subprime
lending crisis.
• Negative Amortization Loans – Never get out of debt.
Volume
• High volumes strained lender’s ability to
conduct thorough review of documentation
prior to funding.
• Quality control efforts took a back seat to
production efforts to get the business.
• Perpetrators were able to push fraudulent
transactions through lenders that were lax
in their review procedures.
Florida Consistently Ranked #1
Suspicious Activity Report (SAR’s) Filing April 1, 1996-December 31, 2008
4,7326,560 6,988 7,913
9,918
12,434
17,38915,650
17,319
25,135
33,067
36,923
49,868
0
10,000
20,000
30,000
40,000
50,000
60,000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Florida Mortgage Loan Fraud SAR Filing Trend April 1,1966-December 31,2008
54 78 207368 473
656 7301,073
1,662
2,321
3,560
6,670
10,047
0
2,000
4,000
6,000
8,000
10,000
12,000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Total SARs: 27,899
Characterizations of SAR in Florida April 1, 1966 -December 31,2008
BSA/Structuring/Money Laundering
137,062
51%
Check Fraud33,38512%
Other23,515
9%
Additional Characterizations21,480
8%
Mortgage Loan Fraud
17,7027%
Counterfeit Check13,839
5%
Check Kiting6,906
2%False Statement
5,726
2%
Consumer Loan Fraud
5,339
2%
Identity Theft4,414
2%
3,494
3,450
3,112
2,357
2,028
1,881
1,708
1,061
954
505
450
268
212
0 1,000 2,000 3,000 4,000
Blank/Unknown
Defalcation/Embezzlement
Credit Card Fraud
Wire Transfer Fraud
Misuse Of Position Or Self -Dealing
Debit Card Fraud
Mysterious Disappearance
Counterfeit Instrument (Other)
Commercial Loan Fraud
Counterfeit Credit/Debit Card
Computer Intrusion
Terrorist Financing
Bribery/Gratuity
How Did We Get Here?
Mortgage Fraud, a Thriving
Empire? YES
Today’s Standards
• Mortgage Brokers and Loan Originators now handling loans;
more restricted.
• SAFE Act Prompts Federal Registry
• Requires registration “licensing” of mortgage processors
-Previously only Brokers, Title Agents, or Realtors had to be
“licensed” but virtually anyone in a “financial institution” could
process your loan.
Today’s Standards
• Loans are approved by Automated Underwriting
System (AUS)
– retrieves relevant data, such as a borrower’s
credit history, and arrives at a logic-based
loan decision
– Based on algorithms, eliminating human bias
• Desk Top Underwriting (DU)
• Desk Top Originator (DO)
Consumer Financial Protection Bureau
• Central mission of Consumer Financial
Protection Bureau (CFPB) is to make
markets for consumer financial products
and services work for Americans.
• Three tenets (principles)
– Educate, Enforce, Study
Consumer Financial Protection Bureau
• Know Before You Owe Mortgage Project
– Combine the two forms consumers get before
finalizing a home loan into a single, easy-to-
understand mortgage closing document.
Back to the Future
• Credit crunch
-No appetite for sub-prime or exotic products -Secondary market of private investors is shrinking. -Government and private mortgage insurers have tightened underwriting requirements.
• Loan volume is down
-“Back to the Future” with full documentation loans
Regulation
• Mortgage broker regulation
– No national standards for regulation of mortgage
brokers
– Licensed at the state level
– Vary from state to state
– Florida regulates about 9,100 mortgage broker
firms and about 302,000 loan officers that work for
a mortgage broker firm
• Appraisers are also regulated by state agencies
Today’s Direction
Problem is Huge
• Based on Suspicious
Activity Reports (SARs)
filings through March 07
(46,717 filed in 2007)
• Increase 684.5%
from 2001-2006
• Increased 44%
since 2005
The rise in foreclosures and mortgage payment defaults
has exposed lenders to industry insiders who know how to
manipulate illegal flipping in a depreciating housing market.
Agencies “Turn up Heat” on Mortgage
Fraud Actions
Today’s Direction
Prosecution
Currently, there is no federal
criminal statute to prosecute
mortgage fraud.
For additional information contact
Florida Regional Community Policing Institute
RCPI
3200 34th Street South
St. Petersburg, Florida 33711
727-341-4581
E-mail: [email protected]
This project was supported by Grant No. 2009-D1-BX-K030 awarded by the Bureau of Justice Assistance to St. Petersburg College. The Bureau of Justice Assistance is a
component of the Office of Justice Programs, which also includes the Bureau of Justice Statistics, the National Institute of Justice, the Office of Juvenile Justice and Delinquency
Prevention, the SMART Office, and the Office for Victims of Crime. Points of view or opinions in this document are those of the author and do not represent the official position or
policies of the United States Department of Justice.