Abacus Bank, New York and the US Government

The past few years have been lucrative for any regulator in the United States looking to enrich the public coffer in return to A. Impress voters or B. Spend proceeds on... say a new bridge over the Hudson River instead of returning fines to consumers who may have been hurt by unscrupulous mortgage lenders.

Putting the editorializing aside, it is good to realize that the average American in the judicial system is able to see the difference between actual mortgage abuse and a lender doing business.  Today, the United States was set back by a jury when it tried to claim that Abacus Bank in New York City was found not guilty of grand larceny and conspiracy

Two executives at the bank were acquitted on all charges. Yiu Wah Wong, the bank's chief credit officer, and Wai Hung "Raymond" Tam, the loan origination supervisor, were found not guilty of 80 counts each

Prosecutors claimed the defective loans falsely represented applicants' credit worthiness, employment, income and source of downpayments. They claimed the bank and its managers trained and directed the routine falsification of documents.

However, the bank's lawyer, Kevin Puvalowski, called the state's case "a bizarro prosecution," .   He stated that Abacus's loans went to borrowers capable of paying them, as shown by the fact that the borrowers who received loans from Abacus bank are.... paying those loans.   And, that the government is prosecuting a case by saying that Fannie and Freddie, who did not lose money, were harmed or would be harmed, in the future, by the loans - that are being paid, on time, every month.  

Which is why the jurors threw out the charges.  All 80 of them

Mortgage Brokers versus Mortgage Bankers - Function and Purpose

The Funding Source opened in Syracuse, New York, in 1996 as a state-approved mortgage broker. Five years later, The Funding Source of Syracuse received its approval from the New York State Department of Banking to become a mortgage banker.

Both a mortgage broker and a mortgage banker help borrowers to secure the funds that they need to purchase property. The difference between the two lies in the way that each sources a loan and arranges for its dispersal to the customer.

Rather than providing financing directly, a mortgage broker serves as an intermediary between a borrower and a lender or a bank. The broker is able to shop for different rates and packages in order to provide choice to the customer.

A mortgage banker, by contrast, provides financing on a retail basis directly to the customer. The banker gathers all appropriate information about the property and the customer, then uses that information to select loans for which that customer would qualify. The banker can only offer in-house products but does not charge a commission or broker fee. As a result, a banker can often provide the borrower with a comparatively lower rate.

Are lenders afraid to lend? (Great article, re post from MPA. A must read with a link)

http://www.mpamag.com/mortgage-originator/defensive-lending-how-overregulation-is-hurting-our-industry-22533.aspx

By David Lykken
Special to MPA

On the May 11th episode of the Lykken on Lending Internet radio broadcast I host, I got the opportunity to discuss regulatory issues with David Stevens of the MBA. During our discussion, David brought up an interesting term to describe how the industry has become post-regulation. Rather than proactively pursuing home owners, many organizations have shrunken back in fear. Many in the industry have become "defensive lenders."

Rather than helping people get mortgages, the industry has become more about keeping people from getting mortgages. Due to the amount of regulation that has been placed on the industry, most organizations are more worried about compliance than anything. While I believe that much of the focus on compliance is a good thing and that the industry certainly needed a wake-up call, I've begun to wonder if the pendulum has swung too far in the other direction.

Making lenders afraid to lend isn't going to help the industry – and it isn't going to help the economy. You can't really go anywhere when you're backed into a corner. And that's how many organizations in the industry feel right now – that they’re backed into a corner fighting for survival. There's no time for thinking about progress when you're fighting for what little you have left.

Much of the regulation that has occurred recently was necessary. But if regulators don't find a way to work with organizations change this mentality in the industry, we aren't going to get anywhere. The economy needs the mortgage industry to succeed. And we need to feel like we have the freedom to do so. We need to feel like we can gain new ground again – rather than simply defending the ground we have left.

Mortgage Fraud advise from Fannie Mae

In January of 2015, Fannie Mae came out with some advise on how to avoid mortgage fraud as you prepare to process, underwrite and close your borrower's mortgage application.

Some of those pointers include

** Liabilities. The applicant may have a second, undisclosed mortgage or may have inaccurately reported debt. The most obvious detective step is to compare the application to the credit report; however, all documents in the loan file should be considered. A description for a payroll deduction noted on a paystub could signal a loan from the applicant’s employer, or a dependent on tax returns could be a clue that the applicant has a child support obligation. The lender should get clarification on any discrepancies, and should require evidence of explanations that claim that obligations have been paid in full or are not the responsibility of the applicant.

Clearly, undisclosed debts is a concern.  However, in most cases consumers who are looking to rip off a mortgage bank, banker or broker are not going to have undisclosed debts.  They want to have the least amount of scrutiny and questions and are savvy enough regarding the process to insure they disclose debts that seem accurate.

In most cases, you'll find borrowers with say a co-signed student loan that they did not list.  Or, maybe they co-own a family cottage that they did not list because it's just a cottage.  

Be careful and don't come down too hard unless it is blatant and clear that the non-disclosure was egregious and calculated

 Credit. Beware of “credit cleaning.” An applicant could receive his credit report before the loan process begins and falsify credit history by frivolously disputing derogatory credit. Disputed items can be temporarily removed from the credit report during that process, and could leave the mortgage company unaware of derogatory credit. In another scenario, a disreputable player could falsify the credit report. If the underwriter has any concerns, he or she should consider requesting another report and comparing the two reports. Watch for red flags such as an accurate accounting for debts and balances on the initial application, which might signal that the applicant studied the credit report prior to completing the application. In addition, review the entire loan file for other signs that the borrower has had credit trouble – for instance, are there delinquent taxes reported on title, yet the borrower appears to have made timely revolving debt payments?

Most borrowers are told to pull their credit and review it for inaccurate information.   However, make it a practice that if a borrower has disputed a credit item it remains counted against them until the creditor responds.  That was our policy and is prudent.  It may seem unfair to the consumer, but the official record is the official record until amended.   If the borrower can provide you proof, for example, that they paid off say a collection account - by all means provide that information to the credit reporting agency and wait for them to research it and update the credit.  Till then, don't close that loan until all credit stands or is removed with validity.

Credit agencies will set up alerts for a borrower in process - and those alerts include application for new credit during the process or other alerts to let you know something has changed.  Make sure your lender is using this service and you're monitoring the credit as it progresses.

Always pull a refresh 48 hours before closing.  And, always, get an update on mortgage payments for existing mortgage before closing.

 Assets. Unethical parties could be motivated to cause the loan file to reflect that the applicant has more money than he actually has – especially if the applicant has insufficient assets to cover the minimum required investment.
Do the bank statements (if applicable) look real? Even if they appear to be real, they could be doctored. Scanning and photo shop technologies have greatly assisted would-be fraud perpetrators; however, many fail to ensure the mathematical accuracy of falsified statements’ debits and credits, or fail to match aspects of the bank’s statement formatting.
The savvy lender should review the complete bank statement and not just the ending balance. The bank statements frequently reflect much information about the applicant.
If something doesn’t “add up," the lender can check the bank’s website to see what its statements look like; validate the balance with the depository; and/or ask for an additional statement. Just because the minimum documentation requirements have been met, there is nothing preventing prudent lenders from gathering additional documentation if deemed necessary to eliminate concerns.

You can not argue here with this.  While it is not required for Underwriters or processors to pull out a calculator and balance a borrowers' submitted bank statement - typically two or three months worth of consecutive bank statements per account - and this is time consuming when you have so  much to do on so many files....  

.....it can not be stressed enough that mortgage fraudster use fake bank statements that are life like and real.   And, they are human and make mathematical mistakes.  

So do yourself a favor.   Add and subtract all deposits and withdrawals.   Seriously!


Employment and income. Employment and income are sometimes misrepresented to obtain a higher mortgage than an applicant is qualified to receive; or, in the case of a straw buyer, employment and income could be completely manufactured. When reviewing paystubs, W-2s or tax returns, the professional should look beyond the bottom-line income number. Conduct a more thorough review to ensure that the documentation makes sense and doesn’t contain unanswered questions: payroll deductions are accurate, calculations net, and the picture painted by these documents aligns with the application and other documents in the file. For instance, does an application dated April 2 claim $100,000 in savings and salaried employment; yet the tax return has no interest or dividend income, and includes Schedule C income?

This is a big one guys.  Do NOT use the supporting docs submitted by the borrower on face value.  Run a Lexus-Nexus report on the borrower, his or her employer.  Do a written VOE and a verbal VOE.   Pull your 4506 Transcripts.  If they did NOT file, get a letter from the tax preparer. 

And be aware.  Even with those steps, they can still commit fraud.


 

Countrywide, Bank of America, Met Life Bank and a One Hundred and Twenty-three million dollar fine over mortgages

Countrywide, Bank of America, Met Life Bank and a One Hundred and Twenty-three million dollar fine over mortgages

From Denver, news has been announced that Met Life has entered into an agreement to pay 123 million dollar penalty in response to allegations from the government that MetLife Bank approved loans that did not comply with federal underwriting standards and therefore the borrowers did not qualify for the loans approved by MetLife Bank.

The US Attorney in Colorado announced the agreement recently stating that MetLife Bank approved loans for borrowers who did not comply nor qualify under government rules and regs for federally backed mortgages.

Basically, the allegation is that Met LifeBank approved borrowers who did not qualify for FHA loans and put those loans into the FHA insurance program expecting HUD to pay the banks should those loans go into default. If a loan certified for FHA insurance defaults, the holder of the loan may submit an insurance claim to the FHA for the losses resulting from the defaulted loan.

The US Attorney stated “MetLife Bank took advantage of the (Federal Housing Administration) insurance program by knowingly turning a blind eye to mortgage loans that did not meet basic underwriting requirements, and stuck the FHA and taxpayers with the bill when those mortgages defaulted,”

“MetLife Bank took advantage of the (Federal Housing Administration) insurance program by knowingly turning a blind eye to mortgage loans that did not meet basic underwriting requirements, and stuck the FHA and taxpayers with the bill when those mortgages defaulted,” the US Attorney stated.

MetLife Bank, Walsh said, was among many banksc ountry whose irresponsible lending practices contributed to a “catastrophic wave of home foreclosures across the country.”
MetLife Bank, which was headquartered in Bridgewater, N.J., merged in June 2013 into MetLife Home Loans, an Irving, Texas, mortgage finance company. It had been a “Direct Endorsement Lender” in the FHA’s insurance program.

“MetLife Bank’s improper FHA lending practices not only wasted taxpayer funds but also inflicted harm on homeowners and the housing market that lasts to this day,” said acting assistant attorney general Joyce R. Branda of the Justice Department’s civil division.

From September 2008 through March 2012, MetLife Bank repeatedly certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements.

Between 2009 and August 2010, up to 60 percent of the loans administered by MetLife Bank had “the most serious deficiencies,” the news release says. MetLife Bank’s senior managers, including the CEO and board of directors, were aware of the troubling statistics, according to the release.

EDITORIAL: 

(Opinions expressed herein are editorial in nature and based on opinion summarized from factual events and in no way is based on the case and facts cited above)

It is important to remember history is the indicator here. There once was a giant banker in California called “Countrywide” that was feared by its’ competitors because they set up branches everywhere, gave their employees the ability to approve mortgages and were a monster origination firm.

Met Life, an insurance company, decided to get into the mortgage business. That makes sense because insurance companies buy mortgages as an investment to get interest payments to pay out on life insurance premiums, using the proceeds of life insurance payments from the insured.
This was done  before in the late 80’s and early 90’s when various well known insurance companies opened up mortgage bankers. 

It was viewed as a way to get mortgage backed loans by insurance companies, as investments at a lower price point, than buying them through retail channels after those loans are funded, sold, bundled and ready to go.

When Countrywide stumbled, Bank of America (BOA) took them over. BOA did so at the behest of the US Government in its’ attempt to stop the financial meltdown.

BOA has a strong interest in Countrywide at that time.  BOA was very interested in using the Countrywide origination software platform and integrating that into the BOA platform. The Countrywide software was called “CLUES” and it was powerful in it’s day. It was a front end and back end IT magical system that integrated so many moving parts of the mortgage process that it made originating and closing a loan almost seamless. BOA saw value in that.  It was the backbone that made Countrywide a powerhouse mortgage company.

After acquisition, BOA found out what everyone in the mortgage business who did not work at Countrywide knew:   Countrywide valued quantity and profit to such a degree that the used car salespeople of the mortgage world went to Countrywide to get bigger commission and in turn brought more business because they cut corners (broke the law in many cases) and their Realtors (r) did not care “so long as the deal closed” - cutting out the reputable professional loan officers who made sure that their loans complied with the credit policies of the product their borrower was applying.  As a result, the professional loan officers lost business, were shut out and moved to other industries because the wild west Countrywide loan officers were eating their dinner, desert and leaving no crumbs behind

BOA knew they had quite a few bad apple loan originators when they took over Countrywide. To their credit they quickly made adjustments in pay, systems, and other areas to stop the wild cowboy atmosphere at Countrywide. To BOA’s shame, the countrywide CLUES system was good they proceeded anyway, which in the end caused BOA to pay out on legacy Countrywide loans that soured. 

The Countrywide loan officers were known as used car salespeople by their competitors at Banks, Bankers and Brokers who were true professionals.  BOA should have looked at that as a very strong indicator of what they were purchasing in Countrywide, instead of thinking that they could become the new Countrywide in the new mortgage world order

As a result of the changes by BOA, the former Countrywide loan officers became unhappy with the “constraints” that BOA placed on them following their freedom at Countrywide.  Many made upwards and over $200,000.00 dollars a year in commissions simply for taking a mortgage application and had in-house staff that approved those loans (no "Chinese wall" to stop influencing of processors with credit approvals and in some cases, those who approved the loans reported to the sales manager and not an Operations Manager -a case ripe for abuse).

So the ex-Countrywide loan officers left.

Where did they all go?

The vast majority went to…………MetLife. 

And MetLife kept them on until regulatory changes came along and Met Life had to transition to a Bank in order to keep some of the loan officers who could not be licensed. 

Why? Because Sen Warren, in one of the only good things that she did, established the National Mortgage Licensing System (NMLS) - under the Consumer Financial Protection Bureau (CFPB) that set standards and required that people who originated loans be licensed. 

To get licensed to originate mortgage loans a person must go through a strenuous background check, a credit check and take courses and then pass various tests. 

Unfortunately, many of the former Countrywide,officers could not pass the background test, let alone pass the tests. 

Sen Warren, who is anti banking as they come, is not as bright as her liberal mob pit fans think. The reason is she left a huge loophole in the licensing of loan officers that consumers do not know about and she has left consumers exposed and at danger.

The CFPB and the NMLS system forced individuals who worked for Mortgage Brokers and Mortgage Bankers to pass the background tests to become licensed.

Those mortgage loan officers who worked at a bank were exempt from taking the tests and the courses.

That is right, they said that if you worked for a Mortgage Broker or a Mortgage Banker you had to be licensed through the NMLS, have a background, take the courses and pass the tests

But…..yes….it is true as ridiculous as it sounds —— Sen Warren's CFPB exempted banks from this requirement. 

Banks simply had to sponsor their mortgage loan officers in the NMLS system and give them an NMLS number. 

To the consumer, a bank loan officer had an NMLS number. A Mortgage Banker Loan Officer had an NMLS number. So, there was no difference to the consumer.

In reality, the bank loan officer had no professional requirement to get that NMLS number. It was as simple as entering their name and clicking a button for the bank loan officers.

Met Life for many reasons, but also because they did not want to lose the  high producing loan officers who were unable to pass the background tests or unable to pass the courses mandated by the licensing of a non-bank simply applied and became a Bank. 

As a result, Met Life Bank no longer required the cowboy high commission loan officers who brought in a lot of business to be go through a rigorous licensing process.

They could get their NMLS numbers at Met Life Bank and continue to be sloppy loan officers driven by commissions with little moral and ethics driving their production. 

All they needed was  the desire to earn six figures a year. And, this was just fine with everyone. 



Not all Metlife loan officers fit this description by a long shot.  However, it is a known fact that MetLife Bank had the vast majority of Countrywide loan officers.  And, the many of the Countrywide loan officers were high producing loan officers who came from a culture of no restraint, cutting corners and breaking rules in order to sustain the high volume that they produced.

No bank, banker or broker who followed the rules and underwrote loans in compliance with government requirements had a shot at recruiting these loan officers from Met Life.







The result was, literally, Met life Bank had a lot of Countrywide sales managers  opening Met Life Bank branches in every town in the United States. In some cases, there were two or three Sales Managers who disliked one another.  Met Life simply opened up separate offices in the next town over to assuage the egos of the Managers so they would feel self-important and self-directed, bring their loyal high producing loan officers with them and operate as stand alone branches with autonomy. 

This brought in loans to Met Life and this was what Countrywide did.

It also brought in poorly originated, poorly underwritten and most likely non-compliant loans into Met life.

At some point Met Life either realized the risk and exposure or had other regulatory concerns.  Regardless, Met Life quickly and abruptly exited and closed their mortgage business. 

The Met Life loan officers then moved onward and split up in different directions because there was no large mortgage company (like a Metlife or a Countrywide) that would take them all.  This is because the mortgage regulatory environment had changed to such a degree that this business model was viewed as too risky for lenders.

As a result, some loan officers left the business because it was clear to them that there was no safe harbor anymore to do business they way they were used to doing it. 

Others, found lenders licensed as banks where they could continue onward.  This may have been a risk that some of these banks felt they could sustain as they were not taking hundreds or thousands of Countrywide loan officers - just a few high producers who they could monitor from a distance to mitigate risk.

However, there were others who were able to pass the NMLS licensing requirements.  That group of ex-Countrywide/MetLife loan officers quickly found small and mid-sized Mortgage Bankers and cut deals.  Some cut large commission deals for themselves.  Others went to mortgage bankers and brought with them a lot of business with a caveat.  They took over the control of the mortgage banker.  There is one in that literally changed their name and handed complete control to a Sales Manager to run the entire operation, unknown to Federal and State regulators.  

As a result, there are many mid sized mortgage bankers that today are making a lot of money from the ex Countrywide, BOA, Met Life loan officers.

The owners of these Mortgage Bankers are doing exactly what Met Life and Countrywide managers  did - -sit back and let those loan officers take control of their operations and systems in return for the commissions and volume.  Which is fine, provided they are compliant.  However, the ex Met Life Sales Managers no little to nothing about compliance and Operations nor risk management and underwriting.

In time, that will lead those mortgage bankers to the same fate as Countrywide, the same fate as Met life. They will implode and the owner will be left holding the back.

Only BOA was smart enough to say “good bye, it’s our way or the highway” to this group of originators.

And Sen. Warren was stupid enough to allow banks to get away with not properly licensing loan officers - leaving consumers victims to prey by individuals unable to pass basic licensing requirements of the NMLS system.

So you're buying a home?

So you’re buying a home?

Rates are low, prices are holding steady on homes and you’re hearing that it really is a good time to buy.  

You’ve read all about the banks and the fines.  You think that perhaps the real estate bust is in the rear view mirror.  So, you’re out looking.

You’ve also heard that lenders have made getting a mortgage harder than pulling your molar out of your mouth with a toothpick and much more painful.  And, that is true.  There were (and are) many average people who just don’t get that lying on a mortgage application can (and should) land them in prison.  Even though the application says so in fine print (see Housewives of New Jersey – one count against Theresa was mortgage fraud).

In a nutshell, this concerned the government because it really is important to have people buy homes.  It’s important that we as a nation have a system to allow people who are starting out to get into their first home.  And, that is why the FHA loan system was set up in the 1930’s.  To allow for loans that should be easier to get than the average loan at the average bank.  And, many lenders offer FHA loans for this very purpose.

But, HUD, who handles FHA loans, made it tough.   They tightened credit, increased the down payment, introduced and increased the minimum credit score and came out with the maximum amount a lender can lend to a borrower.  If these rules were broken HUD would, and they did, slap lenders with serious fines.   And, HUD raised what is called the mortgage insurance premium.  This is an insurance premium that you pay once at the time of your closing and every month as part of your mortgage payment.  The insurance is an insurance policy that pays the bank back if you don’t pay your mortgage and the bank forecloses on your house. 

Lenders became skittish and backed away from doing FHA loans because HUD did not want to pay out the insurance policies to lenders.  The reason was that HUD was getting hit with so many foreclosures in the height of  the meltdown that their insurance fund was depleted and they had to borrow money from the US Congress to replenish it.   Not only that, HUD is required to keep a minimum of 2% cash buffer in their fund and they have not been able to get there since the melt down.  This is a violation of the rules.  Rules that if lenders violated, HUD would fine, cite and close them down.

None of this fell on deaf ears in Congress.  HUD Secretary Castro wants to lower the mortgage insurance to make it so that borrowers pay less in their mortgage payment when getting a mortgage.   This is great news for borrowers, as it will open the doors to individuals to buy homes.  It is questionable for HUD because by lowering the insurance they are reducing the amount of money that they need to collect to get to that magic 2% number.

Castro met with the House financial Services Committee to discuss lowering the Mortgage Insurance Premium (MIP) by 50 basis points.  He was met with some serious backlash from Congresspersons who are concerned about the financial well being of HUD.

FHA is not a mortgage.  FHA is an insurance program that insures bank that underwrites loans to FHA underwriting standards against future defaults by the borrowers.  Provided that the lender properly underwrote the loan, HUD should pay the premium.  The problem from the perspective of the banks is that when HUD saw their pool of money reducing they backed away from their mandate to back loans – and looked for anything that could get them off the hook from paying the bank on the loan.   This was so concerning that JP Morgan Chase openly stated they were backing away from FHA loans and Wells Fargo did the same.  Some cite a 70% reduction of FHA loans in volume on the books of those two lenders from previous years.   This is concerning to HUD because it reduces the premiums. Yet, lenders say this should be no surprise since HUD regulators were aggressive in their stance toward lenders during the worst of times.  Why would anyone believe HUD would stand by them in future times of crisis?

So, lenders in an effort to protect them put “overlays” on FHA loans That means that, for example, if FHA said the minimum credit score is 580 lenders would reject anyone with a score under 640 period.   And, if the score say was between 640 and 720 lenders were charging points or requiring more assets be proven – in an attempt to build their own reserve fund against buy backs that HUD themselves may attempt to back off from, as they had in the past.

This policy has reduced the number of FHA early payment defaults in and of itself. .

So the debate rages on.  We shall see what happens.   Does HUD reduce the mortgage premium?  Do they limit the program to only first time borrowers?   What’s the right balance to take from the heady days of 2007 to the constricted days of 2012 and 2013?  Time will tell.

Get an FHA loan for less?

Julian Castro, the current Sec for the US Dept of HUD, testified before the Committee on Financial Services on Wednesday, February 11, 2015 regarding the reduction of the Mortgage Insurance Premium

Before your eyes glaze -this is important.  A reduction in the premium has huge benefit to everyday people buying a home and financing it with an FHA loan.  About 5-years ago, HUD raised that premium and that cost borrowers a significantly higher amount to close their loans - money out of their pocket to HUD.  And, each month, their monthly payment included hefty monthly premiums that went to HUD.

Castro is seeking to reduce this amount for two reason.  1. The high premium is forcing borrowers to look at big banks offering 3% down payment mortgages with lower insurance.  2.  By reducing the premium and by offering a truce with banks who refuse to do FHA loans (by not forcing them to buy back FHA loans for immaterial defects), Castro is hoping that more people will apply for and get an FHA loan. 

This is important to HUD and frankly to the US.  First, HUD has seen a large drop in FHA loans for the reasons cited above.  Consumers don't want to pay and banks don't trust FHA to punt loans back to them for small defects that don't affect the material soundness and quality of underwriting a borrower.

But, FHA loans provide borrowers who can't get a 3% down loan at a bank with the ability to get a mortgage.  Those much talked about low down payment loans at major banks and bankers come with tougher credit, employment and asset requirements than an FHA loan

Since the 1930's FHA has played an important role in housing - providing loans to people who otherwise would not get one.   So, HUD is an important player in the US economy.

The US Congress cares about this reduction because not so long ago FHA and HUD ran out of money as the foreclosures went through the roof.   Castro stated that in response to this HUD increased the insurance amount from borrowers and toughened underwriting which brought in a 21 billion improvement to the insurance fund.

HUD remains under the limit required to have in reserve - a violation that a regulatory like HUD would not tolerate in a lender.  Congresspersons grilled HUD about this very fact in light of the reduction of the insurance premium, which goes to increase their reserves.