Real Estate Industry Problem Mortgage Fraud

Real Estate Industry Problem Mortgage Fraud



Mortgage fraud may continue to​ plague the​ real estate industry. Maybe,​ I am seeing only the​ 20% Fraud for Property/Housing,​ as​ defined by the​ Federal Bureau of​ Investigations.

Reasons why mortgage fraud may continue:
1) the​ escalating cost of​ housing and the​ "American Dream" of​ owning your own home.
2) Licensing for real estate agents and mortgage brokers is​ much too easy. the​ requirements for licensing need to​ require a​ greater level of​ education,​ more than a​ high school degree as​ a​ prerequisite for licensing and harder licensing requirements,​ such as​ more pre-licensing education and harder tests. This will result in​ better people and less people entering the​ real estate profession.
3) Lenders need to​ offer less loan programs,​ for example,​ stated income loans (some refer to​ this as​ inflated income loans) and no doc (no documentation loans).
4) Most lenders require an​ IRS (Internal Revenue Service) Form 4506 at​ time of​ closing. Now,​ there is​ something that an​ underwriter or​ lender can request information and stop an​ inflated (a.k.a. stated) income mortgage application dead in​ its tracks. if​ they lie on​ their income tax return,​ is​ it​ possible that they would lie on​ their mortgage application?
5) Lack of​ educational programs in​ the​ real estate profession to​ identify mortgage fraud - could be wishful thinking,​ due to​ the​ Privacy Act - but at​ least a​ start. Where individuals and professional can report suspected mortgage fraud situations to​ the​ appropriate law enforcement authorities.
6) the​ credit reporting and scoring system needs an​ overhaul. Too often,​ I find errors on​ credit reports,​ where the​ creditor is​ not reporting timely or​ accurately information. For example,​ a​ customer settled in​ full his collection action in​ the​ later part of​ February '06. the​ collection agency in​ the​ later part of​ April is​ still showing a​ portion of​ the​ account as​ outstanding with a​ current date. Yes,​ they reported the​ payment,​ but did not remove the​ negotiated portion of​ the​ balance.
7) Lack of​ control points within the​ existing system.

What could possibly be done to​ reduce the​ mortgage fraud:
1) More checks and balances within the​ system to​ identify potential mortgage fraud situations.
2) More education for all real estate professionals - real estate agents,​ REALTORS,​ underwriters,​ lenders,​ etc.
3) Greater licensing requirements for all. And licensing requirements where no licensing is​ required at​ this time.
4) Implementation of​ a​ "whistle blower" protection system and telephone hotline.
5) Proactive preventative action on​ the​ part of​ lenders.
6) Enforcement of​ Section IX - "ACKNOWLEDGEMENT AND AGREEMENT" located on​ page 3 of​ the​ Uniform Residential Loan Application (FNMA 1003):
"Each of​ the​ undersigned specifically represents to​ Lender and to​ Lender's actual or​ potential agents,​ brokers,​ processors,​ attorneys,​ insurers,​ servicers,​ successors and assigns and agrees and acknowledges that: (1) the​ information provided in​ this application is​ true and correct as​ of​ the​ date set forth opposite my signature and that any intentional or​ negligent misrepresentation of​ this information contained in​ this application may result in​ civil liability,​ including monetary damages,​ to​ any person who may suffer any loss due to​ reliance upon any misrepresentation that I have made on​ this application,​ and/or in​ criminal penalties including,​ but not limited to,​ fine or​ imprisonment or​ both under the​ provisions of​ Title 18,​ United States Code,​ Sec. 1001,​ et seq.;...7) the​ Lender and its agents,​ brokers,​ insurers,​ servicers,​ successors and assigns may continuously rely on​ the​ information contained in​ the​ application,​ and I am obligated to​ amend and/or supplement the​ information provided in​ this application if​ any of​ the​ material facts that I have represented herein should change prior to​ closing of​ the​ Loan;..."
7) Enforcement of​ the​ paragraphs from the​ typical mortgage,​ which reference the​ borrower's loan application and acceleration clauses: Borrower's Loan Application. Borrower shall be in​ default if,​ during the​ Loan application process,​ Borrower or​ any persons or​ entities acting at​ the​ direction of​ the​ Borrower or​ with Borrower's knowledge or​ consent gave materially false,​ misleading,​ or​ inaccurate information or​ statements to​ the​ Lender (or failed to​ provide Lender with material information) in​ connection with the​ Loan. Material representations include,​ but are not limited to,​ representations concerning Borrower's occupancy of​ the​ Property as​ Borrower's principal residence.
Acceleration; Remedies. Lender shall give notice to​ Borrower prior to​ acceleration following Borrower's breach of​ any covenant or​ agreement in​ this Security Instrument...(d) that failure to​ cure the​ default on​ or​ before the​ date specified in​ the​ notice may result in​ acceleration of​ the​ sums secured by this Security Instrument,​ foreclosure by judicial proceeding and sale of​ the​ Property.
8) Better and possibly required education of​ prospective borrowers,​ so they can recognize the​ impact and identify situations.

Implementation of​ number 6 above will send shock waves into the​ communities and cause the​ less desirable professionals out of​ business and awareness to​ borrowers. Many may argue that this will be costly to​ the​ overall economy or​ lenders if​ foreclosure proceedings are needed,​ but in​ the​ long run there could considerable savings for all.

In summary,​ mortgage fraud may continue,​ until such time that the​ losses reach greater levels unless there is​ a​ proactive preventative overall program to​ curb it. Old country saying "you don't close the​ gate after the​ horse leaves the​ corral."




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