Mortgage Fraud On The Rise

David McMaster

By David McMaster, Vice President of Bank Operations

There have been many recent reports on fraud rising in the mortgage industry. As mortgage professionals we need to do our homework on prospective borrowers. Use caution and don't blindly look at the money to be made. Assess the risks for every borrower and report the risks honestly. The article below documents the recent statistics and some of the recent scams involved in mortgage fraud. These fraud risks are of primary concern regarding AMS' implementation of our Post Closing QC and Compliance procedures at the time of accounting on all files. This is in our continuing effort to continue being an industry leader and protect AMS, our Branch Managers and Associates from any potential risks.

Fraud Reports Deluge FBI

BY PAUL MUOLO

WASHINGTON-Mortgage fraud resulted in losses of $546 million during the first half and is on track to outpace last year, according to newly released government figures.

Statistics compiled by the Federal Bureau of Investigation found that mortgage fraud losses totaled $1 billion in fiscal 2005, more than double the year before.

Meanwhile, financial institutions engaged in mortgage activity filed close to 17,000 "suspicious activity reports" with the FBI during the first half. In 2005, 21,994 SARs were filed.

One multi-state fraud case that is gaining national attention involves a combination home-flipping/Ponzi scheme where consumers were enticed into an investment "club" on close to 200 residential properties in Indiana.

According to court documents, word of the investment club was spread though "word of mouth" in churches and "personal contact" in Virginia and North Carolina.

Two national lenders - Countrywide Home Loans of Calabasas, Calif., and Argent Mortgage of Orange, Calif. - were burned in the scheme when they either bought the mortgages in the secondary market or table funded the notes.

Last week, Countrywide chairman and CEO Angelo Mozilo called his company a "victim," noting that "we were defrauded." This past summer, Countrywide filed a lawsuit against Indiana resident Robert Penn, his company Land Economics, and a host of others, accusing them of creating an enterprise "to defraud mortgage lenders for the financial enrichment of its members."

A spokesman for Argent would only say, "We're investigating a sophisticated scheme to defraud" the company.

According to the Countrywide lawsuit, Mr. Penn and other defendants enticed prospective investors in Virginia and North Carolina into his investment scheme, using their credit and turning them into "straw" borrowers on the Indiana properties. (Mr. Penn was originally from Martinsville, Va., where some of the real estate investors are from.)

"In some cases the straw borrowers did not even understand the paperwork they were signing obligated them in any way for a loan or debt," Countrywide charges.

The properties, which are described as "low income," were, on average, bought for $50,000 and resold for $120,000.

A Kentucky lender called People's Trust Mortgage LLC funded the loans and then resold them to Countrywide through the latter's correspondent division.

People's and a loan officer there, Robert Pollard, and Mr. Pollard's wife (a loan processor), also are defendants in the case. They could not be reached for comment as National Mortgage News went to press.

Some of the borrowers never made any payments on the loans that Countrywide bought. The lender, potentially, is facing millions in losses. Countrywide accuses Mr. Penn, Mr. Pollard and others of engaging in credit and appraisal fraud, and a host of other financial misdeeds.

The lawsuit was filed in Marion County Circuit Court in Indiana. Argent has yet to sue, but is still investigating the matter. A source said federal criminal investigators are now looking into the allegations made by Countrywide. The FBI in Washington declined to comment.

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A New McCabe!

A big CONGRATULATIONS to Matt McCabe on the birth of his first baby!

Avery Myla McCabe was born Sept. 26th. @ 11:57a.m. She came a month and half premature and weighed in at 3lbs. 12oz 18.5 inches long.

Both Mother & Baby are doing very well and they hope to take Avery home very soon. Congratulations to Matt & Jennifer McCabe.

Hotter Than Hades Steak and Salsa Bites

Ingredients:
• 2 cups red and/or yellow grape tomatoes, quartered

• 1 mango, peeled, pit removed, cut into 1/2-inch pieces

• 1 avocado, peeled, pit removed, cut into 1/2-inch pieces

• 6 green onions, white and green parts, chopped (about 1 cup)

• 1 habanero pepper, seeded and finely chopped

• 1/2 cup chopped fresh cilantro

• 2 tablespoons olive oil

• Zest and juice from 1 lime

• 1-1/2 tablespoons whole cumin seeds

• 1 -1/2 tablespoons whole coriander seeds

• 1 tablespoon packed light brown sugar

• 1 teaspoon garlic salt

• 1/2 teaspoon red pepper flakes

• 1 pound boneless sirloin steak, cut 1-inch thick

• 1 tablespoon olive oil

• Scoop-shaped tortilla chips

Directions:
1. For salsa, combine tomatoes, mango, avocado, green onions, habanero pepper, fresh cilantro, olive oil, and juice and grated zest of lime in non-reactive bowl. Let stand 15 minutes at room temperature before serving.

2. For steak, in small skillet combine cumin and coriander seeds; toast over high heat for 1 to 2 minutes or until fragrant, stirring occasionally. Transfer spices to a spice grinder or mortar (with pestle). Process until finely ground. In a small bowl combine ground spices, sugar, garlic salt, and red pepper flakes. Rub both sides of steak with oil. Pat 1/2 of spice mixture on each side of steak. Preheat broiler. Place steak on the unheated rack of a broiler pan. Broil 4 to 5 inches from the heat for 8 to 9 minutes (for medium-rare doneness), turning once. (For a charcoal grill, grill steak on the rack of an uncovered grill directly over medium coals for 11 to 15 minutes for medium rare doneness, turning once. For a gas grill, preheat grill. Reduce heat to medium. Place steak on rack over heat and grill as directed above.) Remove meat from broiler or grill. Wrap in foil and let stand 10 minutes. Slice across the grain into very thin slices; cut slices into 2-inch pieces.

3. To serve, place 1 to 2 steak slices in bottom of tortilla cups; top with heaping tablespoon of salsa. (Note;) If there are vegetarians at the party, skip the steak and just fill the corn cups with 2 tablespoons of the salsa. Makes 16 servings (4 pieces per serving).

Tip: Check the ethnic foods aisle at your local supermarket or the bulk spice section at a natural foods store for whole cumin and coriander seeds -- if you can't find substitute 1 tablespoon each ground cumin and coriander in the rub and skip the toasting step.

Steve's Beverage Recommendation

With this meal Steve recommends:

Chardonnay

I tried the B.R. Cohn 2005 Carneros Chardonnay at a wine pairing dinner last week and it was fabulous. Unlike most California Chardonnays that tend to lose the soul of the grape by being aged too long in the French Oak barrels and then undergoing the secondary malolactic fermentation, Bruce divides the harvest and ferments half the grapes in steel containers that preserve the crispness and integrity of the grape, and ferments the other half in the French Oak barrels and allows it to go through the secondary fermentation process. The result is a very drinkable blend that will compliment the savory fruit salsa and steak to perfection.

Joke Of The Month

Pecans In The Cemetery

On the outskirts of a small town, there was a big, old pecan tree just inside the cemetery fence. One day, two boys filled up a bucketful of nuts and sat down by the tree, out of sight, and began dividing the nuts.

"One for you, one for me. One for you, one for me," said one boy.

Several dropped and rolled down toward the fence.

Another boy came riding along the road on his bicycle. As he passed, he thought he heard voices from inside the cemetery.

He slowed down to investigate. Sure enough, he heard, "One for you, one for me. One for you, one for me."

He just knew what it was. He jumped back on his bike and rode off. Just around the bend he met an old man with a cane,hobbling along.

"Come here quick," said the boy, "you won't believe what I heard! Satan and the Lord are down at the cemetery dividing up the souls."

The man said, "Beat it kid, can't you see it's hard for me to walk." When the boy insisted though, the man hobbled to the cemetery. Standing by the fence they heard, "One for you, one for me. One for you, one for me..."

The old man whispered, "Boy, you've been tellin' the truth.

Let's see if we can see the Lord." Shaking with fear, they peered through the fence, yet were still unable to see anything.

The old man and the boy gripped the wrought iron bars of the fence tighter and tighter as they tried to get a glimpse of the Lord.

At last they heard, "One for you, one for me. That's all.

Now let's go get those nuts by the fence and we'll be done."

They say the old man made it back to town a full 5 minutes ahead of the boy on the bike.

Cyber Chat By Steve Bradshaw Hello AMS!! As I am sure you all have noticed, you have not received an issue of AMS Insider in a few weeks. For those of you that eagerly anticipate it every week, I apologize. Unfortunately, we just don’t have the staff to come up with informative content and up to date company news on a weekly basis. For the time being, we will be switching to a monthly format so we can insure that we maintain the highest quality newsletter possible. AMS Insider will be delivered during the first week of every month. It has been a busy month here at your I.T. Dept. During the next few weeks look for the launch of the new and improved AMSXpress and the rollout of the new website, just for you, AMSMLD.com. Have a cooler and productive October, talk to you next month! Steve Bradshaw Vice President Information Technology

Housing Bubble Watch: Home Prices Decline For First Time In 11 Years

Buyers have been hoping for it and sellers have been dreading it but home prices have apparently started a long-expected decline while existing home sales continued their five month slide.

On the price front the change is not dramatic, at least not yet. The monthly survey conducted by the National Association of Realtors reported that existing homes sold nationwide during the month of August had a median price of $225,000. The revised median price for July was $230,000. In August 2005 the median price was $229,000 thus the year-over-year price changed -1.7 percent. According to The New York Times, this was the first time since April, 1995 that house prices were lower than reported the same month one year earlier. (A median price is one at which half of the houses in the study sold for less and one half for more.)

Sales of existing homes, a category which covers single-family, condos, co-ops, and townhouses were down 0.5 percent to a seasonally adjusted annual rate of 6.30 million units in August from the annual rate of 6.33 million the previous month. Sales were off of the August 2005 level of 7.21 million units by 12.6 percent but that month was the second highest since NAR has been keeping records, a hard pace to maintain.

Inventories of unsold houses have climbed appreciably in the last year. At present there are 3,918,000 unsold homes on the market. This does not include new construction. At the present absorption rate this is a 7.5 months supply. In July there was a 7.3 months supply and one year ago 2,841,000 homes were available - a 4.7 month backlog. The inventory has increased 1.5 percent in sheer numbers since last month but as sales have slowed the attrition rate has increased 2.7 percent. When compared to August of 2005 the inventory is 37.9 percent higher and will take nearly 60 percent longer to sell.

A bit of good news in home sales; single family homes sold at a seasonally adjusted rate of 5.51 million in August which was unchanged from the July figure and down only 1.7 percent from August 2005. Condo and co-op sales, however, fell 3.5 percent to a seasonally adjusted rate of 793,000 units and were 14.5 percent lower than one year ago.

The West suffered the biggest setback in sales; down 2.3 percent (seasonally adjusted) from July and 22.8 percent compared to last August. However, the median sale price of $345,000 was actually up a fractional 0.3 percent over last year. This appears to be a situation where sellers are refusing to reduce their prices even if it means a prolonged selling period. Other media reports indicate that California is driving figures for the West. For example, DataQuick, a firm that monitors real estate activity nationwide, reported that sales in California were up 12.5 percent in August over July but were down 25.1 percent from August 2005 figures. The median price for a home in California in August 2006 was $472,000, down 0.6 percent from July but up 3.5 percent from $456,000 in August 2005.

Sales in the Northeast and the Midwest were actually up from July; 1.9 percent and 0.7 percent respectively although both regions were off of the August 2005 pace by a little over 11 percent. The Northeast region was most affected price wise with median sales prices off 3.9 percent from last year. The Midwest was down 1.1 percent and the South 2.6 percent.

NAR, of course, put its best spin on the August report referring to the numbers as an indication that existing home sales were stabilizing "at a sustainable pace."

David Lereah, NAR's chief economist said home sales appear to be leveling out. "After a stronger than expected drop in July." (Preliminary figures that month reported that existing house sales had dropped 4.1 percent to an annual rate of 6.33 million units.) "The fairly even sales numbers in August tell us the market is at a more sustainable pace. It keeps us on track to see the third highest sales year on record, but we do expect an adjustment in home prices to last several months as we work through a build up in the inventory of homes on the market."

The Commerce Department in conjunction with the Department of Housing and Urban Development usually issues their joint new home sales report the day before or the day after the existing home report but so far it has not materialized. We will do a short review when it does.