latest trends in mortgage fraud special agent eric mascari hud office of inspector general

Latest Trends in Mortgage Fraud

Special Agent Eric MascariHUD Office of Inspector General

(317) 226-6303 Ext. 7438

Indianapolis, IN | July 23, 2013

Introduction/Topics of Discussion


Changes in the Federal Housing Administration (FHA) FHA Fraud Trends and Schemes

- Reverse Mortgages (HECM)- Property Flipping- Short Sales- Deed Theft-Loan Modification

Statutes Case Examples Questions and Answer

Changes in the FHA


In the early 1990’s, FHA had about 15% of the home purchase market

By 2006, FHA’s market share had been reduced to 3% of all loans nationwide

Currently, FHA’s market share is in excess of 30% Current Single Family Loan Limit in Marion County is $271,050.00

FHA Changes


2007 – 580,813 FHA Loans2008 – 1,467,252 FHA Loans2009 – 2,022,250 FHA Loans2010 – 1,623,934 FHA Loans2011 – 1,150,724 FHA Loans2012 – 1,239,874 FHA Loans

FHA by the #’s


FHA Loan Volume 2006 -2012


FHA may need $943-million bailout (Chicago Tribune 4/10/13)

The Obama administration's proposed budget projects that the FHA would need a $943-million bailout this year to stabilize its shaky long-term finances.

As banks pulled back on lending during the recession, the Federal Housing Administration's role in the market expanded. Now its long-term finances are being dragged down by bad loans it backed from 2007 to 2009. Above, a foreclosure sign at a bank-owned home for sale in Las Vegas in 2010. (Robyn Beck, AFP/Getty Images / November 8, 2010)

Reverse Mortgage(HECM)


People over 62 convert portion of their equity into cash or line of credit. Credit & Employment are non-issues

No repayment until the borrower no longer uses the home as their principal residence

HECM can also be used to purchase primary residence Maximum Insurance amounts exceed $600,000

depending on locality HUD has insured over 395,000 HECM Loans since 2008

Reverse Mortgage


• Subject creates a fake mortgage company and “lends” funds to the borrower (No $ changes hands but the paper is filed with the County Recorder)

• The Subject refinances the borrower into a HECM. At closing the title company pays all debts up to and including the fake mortgage.

-Subject may file subordinate mortgages, Promissory Notes, and other paperwork to create the illusion that the borrower owes money

HECM Frauds - False Mortgage Payoff


• Financial Professionals fraudulently convince HECM borrowers to invest proceeds in a financial product, such as an annuity

• The financial professionals receive increased fees and divert mortgage pay outs from the HECM proceeds

HECM Fraud Annuity


Individual, often family members, may keep HECM payments after the authorized recipient dies or permanently leaves the residence, i.e. Nursing Home or Assisted Living

HECM Fraud – Unauthorized Recipient

Home Flipping Schemes


The policy change will permit buyers to use FHA-Insured financing to purchase HUD owned properties, bank owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

“FHA borrowers, because of the restrictions we are now lifting have been shut out from buying affordable properties” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time home buyers, to take advantage of this opportunity.”

Waiver was recently extended until 2014

Property Flipping, Continued


From HUD Secretary Shaun Donovan “this change in policy is temporary and will have strict conditions and guidelines to assure that predatory practices are not allowed”

In today’s market, FHA research finds that acquiring, rehabilitating and the reselling of these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA Mortgage Insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant for a 90-day period of time.

Property Flipping

Property Flipping, ContinuedLatest Trends in Mortgage Fraud

Investor buys & sells property on same day or shortly thereafter

Second sale had questionable appraisal/s Second buyer prepares false documents in order to

qualify for mortgage loan Second sale immediately goes into default Creates a artificial market/high property taxes/losses

to the Government and the lender

Appraisal Fraud

Appraisal FraudLatest Trends in Mortgage Fraud

Appraiser does not look at previous sales Comparables are used for multiple files Figures are backed into contract price Pictures vary widely from comparables House appraised “as is” when contingent upon stipulations Appraising house you own by hiding ownership interests Appraiser ID Theft

Short SaleFraud

Short Sale FraudLatest Trends in Mortgage Fraud

Investor Purchases property from bank at a lower price while new buyer is recruited

Many of the offers are “low balled” Seller/Buyer/All Parties to the transaction

fraudulently advise lender: Sale is “Arm’s Length”No Hidden Agreements InvolvedNo Party will received proceeds except as set forth on the

HUD-1

Short Sale FraudLatest Trends in Mortgage Fraud

Fraudster will find an end buyer Double closing is possible, i.e. (A to (B) to C) Broker Price Opinion (BPO) is influenced to yield a

lower value Lender is defrauded into accepting an artificially

“LOW” price on the property

Warranty Deed Theft

Warranty Deed TheftLatest Trends in Mortgage Fraud

Property researched to ensure vacancy In many cases, the property is in foreclosure or near

foreclosure Property has warranty deed recorded, which

indicates the property is in receivership Property transferred to an individual through a

second warranty deed

Warranty Deed Theft SchemesLatest Trends in Mortgage Fraud

Cash out refinance (HELOC) Subsequent sale to straw borrower Section 8 Rental Conventional/Market Rate Rental Security Deposit Collection Earnest Money Deposit Collection

Loan Modifications

Loan Modification Red FlagsLatest Trends in Mortgage Fraud

99% Success Rate

Charging fees up front

Money Back Guarantee

Attorney Based Legal Team

Federal and State Mortgage

Statutes

Federal StatutesLatest Trends in Mortgage Fraud

18 USC 1010, False Statements to HUD (Felony) 18 USC 1012, False Statements to HUD (Misdemeanor) 18 USC 1341, Mail Fraud 18 USC 1343, Wire Fraud 18 USC 1344, Bank Fraud 18 USC 1014, Loan Fraud (Statute is now 10 years)

Indiana State StatutesLatest Trends in Mortgage Fraud

IC 35-43-5-8, Fraud on a Financial InstitutionClass C Felony

IC 35-43-4, Theft Class C Felony

IC 35-43-5-2 Forgery Class C Felony

Questions??


HUD OIG WEBSITE

www.hudoig.gov

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