The Mortgage Witch Hunt October 31, 2007
Just in time for Halloween, officials from various levels of government are gathering together over the 
frightful happenings going on in the mortgage industry. Home values were going down, mortgage payments were on the rise and consumers did not contact their mortgage professional for advice. Some were provided opportunities to own homes by using “non-traditional” mortgages or even the scary subprime loan. The painful moans from the victims of bad (or lack of) mortgage planning far outweighed the success stories of home owners who improved their credit or situation that caused them to have the non-prime mortgage. This story is not to belittle what is and will happen to American families who are caught up in the “mortgage meltdown”: this is to tell you of the Mortgage Broker Witch Hunt.
This tale begins several years ago where many of the big banks (such as Wachovia/World Savings, Countrywide and Washington Mutual) began brewing up “non-traditional mortgages”, such as mysterious negative amortization (some prefer to call it deferred interest) mortgages. The banks offered these products in their retail divisions (aka branches or mortgage centers) and also by their Wholesale Reps to Mortgage Brokers. Keep in mind, mortgage brokers did not create these programs; they are simply the dispenser of mortgages accompanied with a mortgage plan (assuming the borrower did their home work in selecting a lender). Spellbound by the rates, consumers gobbled up these mortgages wanting the low payments not fully understanding the mechanics of the beast. Banks happily continued to promote them to the masses on their own. Check out Wachovia’s commercials currently running on CNBC where a lady is thrilled to have an option ARM so she can make a minimum (negative amortized) payment because her dog just had puppies. From the LA Times:
David Pope, chief operating officer of Wachovia’s mortgage subsidiary, said making the lowest payment could be a good deal for borrowers if they used the money to achieve a financial goal, such as making a retirement contribution that an employer would match. When Wachovia markets option ARMs by direct mail, he said, “we work to be responsible in terms of what we’re sending out.”
But, Pope added, “we can’t monitor everything sent out by every mortgage broker” selling Wachovia loans to potential borrowers.
Banks are stirring the pot to point a knarly finger at mortgage brokers. It’s not just the option ARM, banks provide many subprime products too.
Alas, it is the Mortgage Brokers who are being singled out over and over again in the media (wrongly stating mortgage “broker” instead of “originator”) and by the government on national and local levels. I cringe every time I hear the word broker instead of originator.
In our current mortgage landscape, officials are in a crazed hunt for who caused the mortgage meltdown. The proposed legislation, “Mortgage Reform and Anti-Preditory Act” is going after the broker by trying to eliminate the misunderstood Yield Spread Premium. Folks, who do you think created and pays YSP to the mortgage brokers? Banks. They are the ones who are trying to entice the mortgage broker to promote their products. (When I receive YSP or SRP on a mortgage, I add it to the base price of the rate and it is passed onto the consumer). Brian Brady covered some of the highlights at Bloodhound Blog. You can also download and read the entire 66 pages of the bill on his post.
On a state level, Christine Gregoire is starting the Mortgage Task Force and is preparing a bill to legislate “non traditional” mortgages, such as interest only products and mortgages structured with a piggyback second. This Task Force seems to include a couple of banks and just one mortgage broker. Even Seattle’s City Council met recently to jump on the mortgage broker witch hunt bandwagon.
My point is that the witch hunt is going after the wrong group in a fever pitch to please the townsfolk. Mortgage banks should be held to the same licensing requirements and legislation that may be enforced upon mortgage brokers. Some banks are either terminating their wholesale business or are making it more difficult for mortgage brokers to do business with them. Mortgage brokers may become, as Morgan Brown covered at Blown Mortgage in Dead Man Walking.
What’s really scary? If mortgage brokers shrivel up and blow away, then all the consumer will be left with is a few big banks to get their mortgage. Fewer options and less competition will not promote what’s best for the consumer such as lower rates, fees and superior service. Mortgage Brokers, Real Estate Agents and Consumers: if you don’t want mortgage brokers to vanish from the industry, please voice your opinions to your elected officials at the national, state and local levels.
Update on Sixty-01 Seattle Area Appreciation October 30, 2007
Earlier today, John D asked me to update the Seattle Area Appreciation post I wrote back in February. You’ll have to click the link to get the history. I’ll start from early 2006 with a cut and paste of that portion and take it from there. These are 2 bedroom 1/ 1/2 bath townhomes.
03/07/07 - $230,000 (not on lake)
03/09/07 - $269,000
03/23/07 - $243,500
03/30/07 - $227,000
04/09/07 - $251,000
04/03/07 - $258,000
04/23/07 - $244,000
04/25/07 - $223,000 (not on lake, no photos)
05/02/07 - $266,000
05/09/07 - $276,000
05/14/07 - $275,000
05/22/07 - $282,000
06/04/07 - $262,500
06/18/07 - $286,000
06/18/07 - $300,000 (purchased for $94,000 in 97 and remodeled)
07/30/07 - $269,950 (no inside photos)
07/30/07 - $229,950 (not on lake) wow
08/31/07 - $268,950 (not on lake)
09/27/07 - $249,000 (not on lake)
10/06/07 - $308,000 (purchased for $130,000 in 09/02 and remodeled)
Sphere: Related ContentDoing the JavaJitter
What does it take to get banned from starbucks?
Inman is Lead Investor in Curbed…
Congrats to Lockhart Steele for getting an infusion of cash ($1.5M to be exact) to expand Curbed to new cities.
In reading the NYT’s coverage, nothing really surprised me much until the last two paragraphs where Brad explains why he is one of the investors:
If the downturn lasts long enough, “everyone suffers,” said Brad Inman, founder and publisher of the real estate news service Inman News. During bad times, “there’s always an uptick first” in real estate advertising, he said. “Nobody’s free of the dark shadow of a down market.”
Still, Mr. Inman was one of the lead investors of Curbed.com, in part because Curbed “is not a direct real estate play,” he said. “I didn’t even think of it in context of the market.”
I can’t figure out if I should be more surprised that Brad invested in Curbed (I’m not) or that he doesn’t see it as a real estate play… Either way, online real estate can be a small world, so it is especially nice to see Lockhart do so well.
By the way, last week word got around to me (and not from Brad) that a “real estate blog platform” was going to announce a large investment very soon. Needless to say, Curbed was not the blog platform that came to mind. 
Rantings on volunteering, wigs parties, de-icing October 28, 2007
Although I’ve just recently become accustomed to Seattle and its nuances, and my schedule has fallen into a rhythm of some sort, I’m looking to somewhat overhaul my routine. I enjoy being busy to a large degree and too much free time definitely breeds indolence. Therefore, outside of work, one class and freelancing I’m beginning to familiarize myself with some of the local food banks by performing service work for a few through Seattle University and my church.
There was a time when, after volunteering during several college spring breaks at a Franciscan soup kitchen in the heart of Philadelphia’s most destitute neighborhood, that I was going to be a live-in volunteer there for one or two years after college before starting my career. But as perhaps anyone would, I had grave concerns regarding how I would jump into my career after a two-year hiatus and little professional experience under my belt. Luckily, the bevy of opportunities to help the less fortunate in Seattle have stymied any regrets I may have had in not welcoming the amazing opportunity that the friars in Philadelphia offered me. Within a year, I do hope to voyage back to my volunteer roots for several days and assist the needy there once again.
Wigs n’ Wine
On a lighter note, last weekend my roommate along with friends and myself donned wigs and slurped libations for a Wigs n’ Wine Party commemorating my upcoming birthday. We kicked off the notable occasion with dinner at Peso’s Kitchen & Lounge in Queen Anne. Having resided in Seattle now nearly five months, it was neat to get out and poke around the nuts and bolts of Queen Anne a bit. It’s probably by far the Seattle neighborhood I have frequented the least. Our evening out was a far cry from my birthday outing last year, which took place at a sleepy pizza parlor nestled in a leafy Illinois suburb. Despite the mundanity of last year’s evening, it was a pleaseant time nonetheless; this year was just understandably extremely new and different.
Am I back in Chicago?
Sure, it rains here plenty, and, of course, no shock there, but I am a bit perplexed at how much the sun has poked it’s head out from the clouds the past couple weeks. On the other hand, must say I was surprised at how much the temperatures have fluctuated lately; the thin coat of frost that blanketed my car windows the other day reminded me of my numerous years in Chicagoland and the frequency in which I had to de-ice my windshield. Oh well, I’m not complaining, guess it’s just an unseasonable cold October for Seattle standards.
Sphere: Related ContentMortgage Fraud October 26, 2007
Fraud is generally defined as the “intentional misrepresentation of the truth in order to deceive another.” Chris Swecker, Assistant Director of the FBI’s Criminal Investigative Division, defines mortgage fraud as any form of material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.
Before 9/11, mortgage fraud was considered to be the fastest growing white collar crime. After 9/11, money earmarked to investigate mortgage fraud nationwide was reallocated to Homeland Security.
Reports of mortgage fraud in 2000 were 3,515. By the year 2006 mortgage fraud-related suspicious activity reports rose to 28,372 or an average of 78 separate acts of mortgage fraud per day. (Source: Mortgage Asset Research Institute MARI April, 2007. Link opens PDF.)
Fraudulent mortgage activities result in artificially inflated property values, increased foreclosure rates, significant institutional financial losses, and increased costs which are passed on to consumers. This blog series on mortgage fraud will be divided up into 3 parts:
Part 1 Mortgage Fraud Basics 
Part 2 Case Studies
Part 3 Recent Mortgage Fraud Developments and Future Outlook
There are three basic types of fraud in the residential mortgage industry:
1) Consumer fraud, or fraud for property, is perpetrated by borrowers when they misrepresent information on the loan application in order to purchase a more expensive home than one for which they would normally qualify. Consumer fraud is relatively minor and does not usually result in significant losses to a financial institution. However, recent statistics are alarming: Ninety percent of stated incomes were inflated by 5 percent or more, and in about 60 percent of cases, incomes were exaggerated by 50 percent or more.
2) Commission fraud is defined by one or more industry professionals misrepresenting information in a loan transaction in order to receive a commission on a loan that would not normally be acceptable to a lender. Commission fraud is a more common practice in the industry and is a concern to financial institutions. It can result in harm to the consumer and losses to lenders and insurers. Some researchers combine numbers 1 and 2.
3) Fraud for profit consists of systematic transactions by industry professionals who are attempting to steal a significant amount of the funds associated with one or more mortgage transactions. This type of fraud usually involves multiple parties in various disciplines within the mortgage industry, such as mortgage originators, appraisers, real estate agents, closing agents, builders and title companies. Fraud for profit usually results in significant—if not catastrophic—losses to financial entities involved in mortgage loan transactions and is of major concern to the mortgage industry. A few examples of this type of fraud include HUD I Settlement Statement fraud, land flips, fictitious lien releases and diversion of funds at closing.
Common Mortgage Fraud Schemes
Illegal Property Flipping
Property is purchased, falsely appraised at a higher value, and then quickly sold. The schemes typically involve one or more of the following: fraudulent appraisals, doctored loan documentation, inflating buyer income, and so forth. Kickbacks to buyers, investors, property/loan brokers, appraisers, and title company employees are common in this scheme. A home worth $300,000 may be appraised for $400,000 or higher in this type of scheme. In part 2, I’ll tell you about an illegal property flipping scheme busted in Bellevue.
Silent Second
The buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage. The primary lender believes the borrower has invested his own money in the down payment, when in fact, it is borrowed. The second mortgage may not be recorded to further conceal its status from the primary lender. In part 2, I’ll lay out the now textbook case that happened over in Spokane.
Nominee Loans/Straw Buyers
The identity of the borrower is concealed through the use of a nominee who allows the borrower to use the nominee’s name and credit history to apply for a loan. There’s a set of cases like this here in Seattle.
Fictitious/Stolen Identity
A fictitious/stolen identity may be used on the loan application. The applicant may be involved in an identity theft scheme: the applicant’s name, personal identifying information and credit history are used without the true person’s knowledge. Washington State is on the top 10 list of states with identity theft problems.
Inflated Appraisals
An appraiser acts in collusion with a borrower and provides a misleading appraisal report to the lender. The report inaccurately states an inflated property value.
Foreclosure Schemes
The perpetrator identifies homeowners who are at risk of defaulting on loans or whose houses are already in foreclosure. Perpetrators mislead the homeowners into believing that they can save their homes in exchange for a transfer of the deed and up-front fees. The perpetrator profits from these schemes by re-mortgaging the property or pocketing fees paid by the homeowner. Watch for a recent Bellingham case in part 2.
Equity Skimming
An investor may use a straw buyer, false income documents, and false credit reports, to obtain a mortgage loan in the straw buyer’s name. Subsequent to closing, the straw buyer signs the property over to the investor in a quit claim deed which relinquishes all rights to the property and provides no guaranty to title. The investor does not make any mortgage payments and rents the property until foreclosure takes place several months later.
Undisclosed Seller Concessions
A home buyer and home seller strike up a side arrangement in which money from the seller is transferred to the buyer after the close of escrow. For example, a sales price could be increased to “cover” this arrangement, yet the appraiser and lender are not informed. Sometimes escrow or the real estate agents know about this; sometimes not.
Last month, in a keynote address (link opens PDF) to the Washington Association of Mortgage Brokers, Scott Jarvis, Director of the Department of Financial Institutions (DFI), concluded that “Washington State cannot afford to ingore this national trend.
sniglet and RCC over at seattlebubble explained that bubble markets can hide mortgage fraud and that we won’t see an increase in mortgage fraud but instead, as markets cool, past mortgage fraud will be exposed. It may also be true that in a cooling market, desperate sellers and commission-based sales people are more willing to do desperate things. Also, the fraudsters switch gears and hit homeowners in foreclosure. Local case studies will be presented in part 2.
Report mortgage fraud tips to the FBI by following this link.
Part 2 Case Studies
Part 3 Recent Mortgage Fraud Developments and Future Outlook
Emergency Short-Term Housing In Southern California
The interactive marketing team over at Move working pretty hard over the last few days putting together a list of available short-term housing options for people who were displaced by the Southern California fires. Our hope is that we can help people who are returning to find that their homes were either destroyed or partially burned find a temporary place to live while they get back on their feet.
With tremendous support for the Move Rentals team, we were able to reach out to local apartment associations and thousands of Southern California property managers, many of whom have been more than willing to forgo their traditional lease process and open up their vacancies to people on a short-term basis. Also, through the REALTOR.com team, we’ve been able to reach out to local and statewide REALTOR associations who have also provided lots of help in identifying homes and apartments that available for short-term leases.
Normally I don’t talk much about the work that I do at Move, but in this case, I’m going to make an exception because I feel pretty confident we’ve been able to aggregate the largest selection of temporary housing options for the fire victims and I want to get the word out to the RE.net community. Any help you can provide in spreading the word about the list of temporary homes for people displaced by the fire would be most appreciated.
Finally, one of the guys that works with me has done a tremendous job taking adding all the temporary listings we can find onto a Google Map. This has made it extremely easy for just about anyone with a website or blog to spread the word.
Sphere: Related ContentFriday’s Mortgage Rates
Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties). Conforming rate quote below based on owner occupied, “full doc” with minimum credit scores of 680 with an 80% loan to value or lower and a loan amount of $400,000. Rates quoted are priced based on a 45 day lock with 1 point and there are no prepayment penalties on any of the rates quoted below.
30 Year Fixed: 5.875% (APR 6.011%). Payment per $1000 = $5.92.
30 Year Fixed with 10 Year Interest Only: 6.250% (APR 6.263%). Payment per $1000 = $5.10.
40 Year Fixed: 6.375% (APR 6.517%). Payment per $1000 = $5.77.
5/1 ARM (2/2/6 caps): 5.500% (APR 5.633%). Payment per $1000 = $5.68.
5/1 ARM 10 Year Interest Only Payments: 5.500% (APR 5.633%). Payment per $1000 = $4.58.
FHA/VA 30 Year Fixed: 6.375% (APR 7.020%). Payment per $1000 = $6.24. (not including MI for FHA).
JUMBO (Non-Conforming) Rates. Pricing is based on the same criteria above, with the exception that the loan amount is $417,001-$650,000 (20% down).
30 Year Fixed: 6.500% (APR 6.669%). Payment per $1000 = $6.32.
30 Year Fixed with 10 Year Interest Only Payments: 6.625% (APR 6.769%). Payment per $1000 = $5.52.
5/1 ARM: 6.125% (APR 6.260%). Payment per $1000 = $6.08.
5/1 ARM Interest Only: 6.125% (APR 6.260%). Payment per $1000 = $5.10.
This is just a small sample available of rates and products. Rates are as of Friday, October 26, 2007 at 11:30 a.m. and may change at any time. Available programs may change at anytime as well. This is not a guarantee nor is it a commitment of interest rate. For your personal rate quote or for loan amounts over $650,000, please contact me.
Sphere: Related ContentNeighborhood Round-up: Halloween is just a week away…. October 24, 2007
Tis the season of the pumpkin and on Alki it’s transforming…. Blood and Gargoyles: an exchange in At Large in Ballard
Eerie Capitol Hill Seattle photos. Haunted Brew House Tour info at Georgetown’s The Paper Noose
Issaquah Undressed and the “Coat of Many Colors“. It’s a Stellar Pizza night in Georgetown on Mid Beacon Hill and Tippi Hedren is for the Birds!
Miller Park Neighborhood Association : Volunteers needed for the Community Center’s Creepy Carnival. Halloween Happenings in West Seattle Blog
Sphere: Related ContentMicrosoft Theater Troupe
A good friend of mine is involved with The Microsoft Theater Troupe and their Fall Production of “Schoolhouse Rock”. Minimum donation is $15 and all proceeds go to charity as part of Microsoft’s Giving Campaign.
The show starts this Friday and there are performances Friday and Saturday October 26th and 27th and Thursday, Friday and Saturday November 1,2,3,8,9 and 10.
Microsoft employees reserve seating through their internal system and non-microsoft employees reserve their seating by sending an email to tickets@microsoft.com
The show is at 8 p.m. each night shown above, in the Microsoft Building 31 Cafe.
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