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IMPORTANT DATES: OCTOBER 16 HBA Installation Banquet HBA office - 6 p.m.
OCTOBER 17 NAHREP Luncheon Town Lake Holiday Inn - 11:30 a.m.
OCTOBER 23 Annual Strike Against Hunger Bowling Tournament 300Austin Bowling Lanes - 1 p.m.
NOVEMBER 8 CTCAR Property Exchange Casa Chapala on Anderson Ln. - 7:30 a.m. NOVEMBER 8 WCR Breakfast Meeting NXNW - 8:30 a.m.
OCTOBER 2007 • VOL. 12 • ISSUE 6
Enjoyable. Entertaining. It’s all About You.
Mortgage fraud — what it is — and what it isn’t By Melinda Seifert
CONTRIBUTING WRITER
What it is—a very hot topic. What it is not—a new trend. According to Juliana Brock, corporate trainer and CEO of Power Training, mortgage fraud is broken into two recognized categories: Fraud for Housing and Fraud for Profit. “Fraud for Housing is where a borrower provides false information to the loan officer to qualify for a loan, typically using the stated income/stated asset or similar program to perpetuate the fraud,” says Brock. “On the other hand, Fraud for Profit basically means to illegally flip the property through the means of false sales comparable information which creates a false market and value.” In many cases however, the blame comes down to discipline and regulation in loan decisions of all parties involved—personal, professional and financial. “It is unfortunate that the dream of home ownership is so strong that borrowers are willing to take a program they know they cannot afford because someone will let them,” says Brock. “Borrowers have to take responsibility for the programs they choose, without overstating their income.” And while she acknowledges that there will always be lenders willing to take a high risk loan, doing whatever the borrower agrees to in most cases the borrower will be the one held accountable. Most Americans, if they actually have any net worth, hold most of it in their greatest (and sometimes only) investment—their home. Unless you’re in the top 10 percent of all households, it’s all about home equity. And this means the buyer/homeowner needs to be aware. Experts agree—don’t borrow money just because a lender makes it available. Ask yourself whether you’ll realistically be able to pay it back. And don’t plan on being able to sell quickly to get out of a mortgage loan just because you have to.
“All industries have bad players and in the mortgage says that they should check their markets daily, drive industry, careless lending is often the result of manipulat- their neighborhoods and watch for homes that appear to ing the underwriting software to gain approval. The be sold and re-sold several times. Watch for the use of introduction of credit scores to the underwriting process comparables that are not listed in MLS or appear to have and the use of automation took away the human factor, only interested parties as data sources. These properties which resulted in debt ratios no typical borrower can could be part of illegal flipping schemes, which are falsecarry.” Brock goes further to point out that it’s important ly inflating the neighborhood and therefore the borrower’s property value, says Brock. In addition, she strongly to actually define the term bad mortgage. “No one thinks it’s a bad mortgage when they close, suggests REALTORS should educate themselves in the or they wouldn’t close,” she says. In the Fraud for types of fraud being perpetrated and the current schemes Housing scheme, Brock says the borrower generally in order to keep themselves safe. “It’s not what you know, agrees to a loan term they know is beyond their means— it’s what you don’t know that can hurt you.” To this end, truly believing that in two years, when the rate resets, Brock encourages all readers to review House Bill 716 they will have improved their financial situation—and be which is the recently passed Fraud Legislation. Brock should know. She began her mortgage career in able to refinance.” And herein, lies much of today’s prob1982 as a loan processor in Houston. Her company now lem. To combat the trends, Brock says, “Slow down.” offers 22 courses to improve skills and qualify for licensTrying to turn loans too fast lets fraud become part of the ing. “It’s important to recognize what mortgage fraud equation when no one has time to check or double check really is, because ignorance won’t keep you out of information. To this end, REALTORS need to allow more prison,” says Brock. “Greed and speed work together to time for added scrutiny in the appraising and underwrit- create the illusion that you will get ahead. Lessons ing process, pushing the time frame for closing loans learned are easier when you learn from others’ miscloser to 21-days rather than a 13-day time frame. And takes—not your own.” she says, REALTORS should be aware that they, the sellPresorted Standard U.S. Postage ers as well as the buyers are PAID probably being checked for Austin, Texas Paid Permit #715 past fraud and any other issues that could hinder the P.O. Box 81366 closing. Borrowers are being Austin, Texas 78708-1366 run through many fraud engines to determine if they have ownership ties to other properties or debt they may not have disclosed on initial application. For REALTORS, Brock