ALERT: Mortgage Fraud on a Rise!

The CNN show Open House hosted by Gerri Willis reported about the increasing amount of mortgage fraud that has been on the rise on the hot Real Estate market. The Mercury News wrote an article about the same topic. They both explained the following:

On a recent judgment Shalonda M. received a 30yr sentence for a mortgage fraud scheme; which came to a cost many consumers almost 12 million and affected 100 plus properties. An Atlanta Attorney was also charged with identity theft, inflating appraisals and fraud; which cheated many homeowners and companies.

Last week the FBI arrested Martha R. and Edward S. who operated real estate and escrow agencies in Downey and Seal Beach and were charged with 10 counts of mail fraud in an alleged scheme that preyed on 70 homeowners facing foreclosure. These people would promise to “clean up” the homeowner’s credit by having a third party co-sign the refinancing papers, but the homeowners ended up losing title to their houses while these two people netted $8 million dollars.

Homeowners are in on it as well. Broker would put clients on a higher-than-normal interest rate. In return the broker would receive a high finder’s fee from the lender because these types of loans generate so much money for the lenders. To keep the homeowners quiet, the broker split the cost of the finder’s fee, which in turn they would use to make their monthly payments for a month or two. Many of the participating homeowners liked the idea that they allowed the broker to keep refinancing their loans every few months.

California regulators say they never heard of this case. The broker’s first lender victim was National City Mortgage, one of the country’s biggest lenders. Despite getting burned in the millions, neither National City nor Freddie Mac complained about the broker to California regulators.

The FBI officials reported that in the past 4 months (this was back in August 2005) there had been an estimated 600 million dollars in costs for the alleged cases prosecuted.

The sates more common in mortgage fraud are: California, Nevada, Utah, Arizona, Colorado, Missouri, Illinois, Maryland, Georgia and Florida.

The FBI, IRS, HUD and other agencies have a joint program operation called “Quick Flip” in an effort to prevent and prosecute mortgage fraud.

Kurt Pfotenhauer, senior vice president of Government Affairs for the Mortgage Bankers Association (MBA), is working with law enforcement to train them therefore learn how mortgage frauds are being done. They are also attempting to educate lenders and their members to be on the lookout of different types of fraud. Much of the industry is not required to report fraud to regulators, so it doesn’t. Bill Denny, a deputy district attorney in Alameda County who prosecutes criminal real estate fraud, said, “Lenders never write to us and say ‘please pursue this case’”

Criminals see mortgage fraud as easy money!! Kenneth Donohue, inspector general of the department of HUD, warns about identity theft, foreclosure fraud, misrepresentation, flipping schemes, bogus appraisals, etc. Fraudulent people obtain inflated appraisal values, go back to the lender qualify a buyer and get them to buy with NO MONEY DOWN.

The market is cooling but fraud is increasing because there is high competition between lenders, brokers in small and big companies. In California, the agencies that monitor mortgage brokers don’t know the most basic facts about them, including how many brokers are operating in the state or how often there are complaints. FBI Assistant Director, Chris Swecker, said the regulation of brokers “has sort of fallen through the cracks.” This opens up the door wide open to trouble.

Mortgage fraud’s value was in the billions in the past year and so far 600 million in the past 4 months (this was back in August 2005).

It is advised to consumers to be alert of high pressure sales tactics, question appraisals with comparable sales around the same area of the sale/purchase, question people telling them something similar to “I can get you out of foreclosure problems, I got a great deal for you.” If it is too good to be true, it probably is.

If you happen to encounter something similar contact authorities right away and read everything you sign!

Experts say there is so much misrepresentation and outright fraud at this end of the mortgage market that lenders build the cost of fraud into the loan rates, much the way retailers raise the price of items that frequently are shoplifted.

December 29th, 2005 · Filed Under Mortgage - Loan Information, Real Estate & Mortgage FRAUD

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Credit Clinics? Can they really help?

The FTC (Federal Trade Commission), which protects consumers throughout the nation against deceptive and unfair practices in the marketplace, cautions consumers to be wary of companies commonly called “credit clinics”. These “credit clinics” entice many consumers to “repair their credit.” These companies make claims to repair credit for a fee, but in reality they do absolutely nothing for a consumers that a consumers cannot do for themselves for little or no cost with information on their side.

These are some things to be on the look out:

Companies that guarantee to remove bankruptcies, late payments or similar derogatory information from credit reports
Companies that ask consumers to write to the credit reporting company and repeatedly seek verification month after month, even though the information has already been determined to be correct.
Companies that charge high fees for services to repair credit
Companies reluctant to give out their address
Companies that pressure you to make a decision immediately

If you would like a brochure about credit clinics contact the FTC and request a brochure titled “Credit Repair: Self Help May Be Best”

Federal Trade Commission
Consumer Response Center
Room 130
600 Pennsylvania Ave, N.W.
Washington, DC 20580

www.ftc.gov/credit

December 22nd, 2005 · Filed Under Credit Repair scams

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Here You Have The Top Ten Questions About Credit Reports

Most lenders take a lot into consideration in evaluating whether to grant credit and also in pricing their loans. Credit scores are one of their major considerations to offer a higher or lower interest rate for the consumer. A one-point difference on a credit score can easily make a 0.25% difference in interest rates. On a $750,000 loan the difference would be $121.25 more per month.

Here are the top ten questions many consumers have about credit reports and the top ten answers to them:

Q10: What is the highest score I could possibly get? The three credit bureaus (Experian, Equifax & TransUnion) have different ranges but on average, it’s between 300 and 850

Q9: Can anyone really give me the exact amount my score is affected for certain things such as 30 day late payments, opening new account, closing an account, collection filed? The answer here is “no”. But the information given by MyFico (a division of Fair Isaac Corp) says, 35% is based on payment history, 30% balance owed on accounts, 15% length of credit history, 10% new credit (how many new vs total accounts), 10% types of credit used (mortgage, credit cards, car loans, etc)

Q8: Can I increase my score if I close my paid off account? On the contrary, it will reduce it. It’s better to pay off the account and maintain them open. Keep in mind that accounts are usually closed automatically by the credit grantor if not used in over 3 years. My suggestion it to used it once a year for a small purchase and pay it off. The longer you have open accounts the better.

Q7: I’ve heard about hard inquiry and a soft inquiry, what are they? Which one will affect my credit? Only hard inquiries affect your credit. Hard inquiries are posted and are visible to potential creditors. If there are many inquiries, it may look as if you are constantly applying for credit and now you might have a high debt. Creditors checking your credit worthiness make soft inquiries. If you meet their criteria they will send you applications for credit.

Q6: Where can I order my credit report? You can visit TransUnion, Experian and Equifax’s websites pay and order all three or one from each one. If you order your own credit report, this wont affect your score, but if you do it through a mortgage company, this action could bring your score a couple of points down. This is not to be alarmed, as I explained it before it is simply a hard inquiry. If you decide to obtain simply the credit history with no score you could use the ONLY website www.annualcreditreport.com allowed to provide it for FREE.

Q5: Should I use those credit consolidation companies? Well…, I don’t approve of them. There are some good and some bad companies. This is my opinion. I don’t think you should pay for something simple that you can do on your own with a little of information on your side and discipline to make the payments. If you consolidate all debts from your accounts into only one account for ease of payment, it will affect your credit negatively. One or many maxed out accounts affect your score negatively. Part of your credit score is weighted on how much debt and how much credit available you have. If you have one credit card maxed out and 3 others with no balance on them, transfer some of the balance to the other credit cards (only if it is financially beneficial). By maintaining your balance on each account below 30% of the total credit limit, you are helping your score go up.

Q4: How long do derogatory items stay on my report? Read my previous article; which gives you information about this. Normally positive and negative items stay on your credit report for “seven years”

Q3: I have my credit report and I have three different scores. Which score will the lender use? For a single applicant it will normally be the middle score. For a couple applicants it will normally be the lowest middle score between both borrowers.

Q2: Can I have my questions answered by the credit bureaus? Yes, but you will need to have handy your credit report and you will need time, lots of time. You will be on the line for a long time, just think how many people in the US are calling to ask questions.

Q1: How much is my credit score affected by a 30-day late mortgage payment? This is the most important question and the one that will impact your score the most. Your score will take a hit somewhere in the 100 point range. A drop from 700 to 600 could disqualify you for a loan program you might need. Many lenders are very reluctant to loan at all to borrowers with recent late mortgage payments. The lenders that do make the loan charge a high interest rate.

So, if you want to take one thing our of this hole thing is NEVER be late on your mortgage payments

December 22nd, 2005 · Filed Under Credit Information

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Mortgage watch 12/21/2005


Provided by Mortgage Trak
Mercury News: The newspaper of the Silicon Valley
Average Rates

December 21st, 2005 · Filed Under Keeping an Eye on the Market

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How Long Will Collection or Negative Derogatory Information Stay on Your Credit Report?

Credit information can and usually stays on a person’s credit report for 7 years. You can use the information below as a reference to guide yourself and figure out how long derogatory information stays on your credit report

General credit information: 7yrs
Collections: 7yrs from date of last activity
Bankruptcy: 10 yrs
Foreclosure: 10-12 yrs from the date filed
Garnishment: 12 yrs from the date or entry or 7 yrs from the date satisfied
Judgment: 12 yrs from the date or entry or 7 yrs from the date satisfied
Tax lien: 12 yrs from the date or entry or 7 yrs from the date satisfied
Dismissed garnishments, judgments, and tax liens: not reportable

Now that you have this information I’ll give you an example similar to a client. The agent he had worked with before gave him the wrong advice.

Lets assume that you had a collection for $1,000 filed against you in December 1998 and you haven’t paid it. It’s now November 2005, so in a few weeks that collection can come off your credit report. (You will probably have to request all three credit bureaus to take it off your credit report). However, you just applied for a loan today and the loan officer tells you that you need to payoff that debt in order to be approved. Since you have the money to pay it off, you do so. Because the date of last activity is now November 2005, the collection will show on your report until November 2012 – another additional 7 years.

Now let assume that this collection was in June 2005 and you pay it off in November 2005 to obtain the loan, this will reduce your credit score. On the other hand if this collection was in September 2005 and you pay it off in November 2005 to obtain the loan, this will actually increase your score. My point is that a collection account that is less than 6 months old and is paid off will be beneficial but if your collection account is more than 6 months old and is paid off this will be detrimental to your credit score.

You as a consumer can request copies of your credit report from the 3 credit bureaus (although it’s better to get a collective report from all three in one which I can help you with) and dispute information that is incorrect. Incorrect information can be corrected or removed but correct information (good or bad) usually stays on the report for the period allowed. Only the credit grantor (lender/bank) or credit bureau can remove correct information.

If you find incorrect information on your report, contact the credit grantor obtain an explanation, have them corrected and ask them to contact all three credit bureaus and correct that information on your report as well. After this you should also contact all three credit bureaus with another letter including documented proof of the error on your report and ask them to remove this information. The credit bureaus by law have to respond to your letter and request. Depending on your case they might approve or deny your request but they have to respond to your letter. Following are the addresses for all three credit bureaus.

Trans Union
PO Box 4000
Chester, PA 19022
866-887-2673
http://www.transunion.com/

Experian
PO Box 2002
Allen, TX 75013
888-397-3742
http://www.experian.com/

Equifax Credit
PO Box 740241
Atlanta, GA 30374
800-685-1111
http://www.equifax.com/

December 15th, 2005 · Filed Under Credit Information

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Do You Know What To Do When Closing a Deal For Your New Home!

I’ll give you a little quiz and see if you can answer this question correctly because it could happen to you.

Lets assume that you are a pre-approved buyer and you and your realtor have made an offer on a property for $700,000.00 with $70,000 (10%) down payment, a first trust deed of $560,000.00 (80%) and a second trust deed for the remaining $70,000.00 (10%) Your non-recurring closing cost (costs directly attributed to the transaction) are $14,000. After you’ve made the inspection of the home with a professional, the property inspection shows some needed repairs amounting to $17,000 worth of work. Lets assume that the seller agrees with this figure and offers to give you a $17,000.00 credit for the repairs.

You are not an experienced home buyer so you are not sure how a thing like this is handled so what do you think is the best way to handle it:

A. Your Realtor prepares an addendum stating that the seller will give you $17,000 credit. The seller and you sign this addendum and a copy is given to the lender.
B. The seller gives you a check for $17,000 after the close of escrow and this is not disclosed to the lender.
C. The purchase price ($700,000.00) is reduced by $17,000 and your down payment and loan amount are adjusted accordingly
D. Your Realtor prepares an addendum stating that the seller will give you $14,000 credit for non-recurring closing cost and the purchase price ($700,000) is reduced by $3,000 and your down payment and loan amount are adjusted accordingly

Do you know which way to handle this situation? What is the worst way to handle this situation and why?

Most lenders allow credits from sellers to buyers up to a certain percentage of the sales price, typically no more than 3% and only for non-recurring closing costs. Although lenders rarely accept recurring closing costs credit, these costs could be one year’s insurance premium, prepaid interest, and tax proration. The rule of thumb is sellers can credit buyers for an amount not to exceed non-recurring closing cost.

Inexperienced Realtors often choose option A; the problem is that in this example the cost for non-recurring closing cost is $14,000 and is much less than $17,000.

Option B would be the worst way to handle it because you, your Realtor and anyone else associated with the transaction and with knowledge that this is being done are committing fraud.

The correct way to handle it could be either C or D. Another way could be to buy the interest rate down. Points are non-recurring closing costs, and $17,000 is 2.4 points in this example, and could probably buy a fixed rate down significantly saving you money on your monthly mortgage payments. Always make sure to involve the lender immediately to prevent any problems and/or delays.

December 8th, 2005 · Filed Under Real Estate Information

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