UTAH LOAN FRAUD - Part 1

This is Part 1 of a 4 part series I recently wrote for an article concerning mortgage fraud in the Utah.

A lot has been written lately about the high levels of Loan Fraud in Utah and how this has impacted the current cooling of the housing market. Perhaps the most commonly asserted point regarding Mortgage Fraud has been the role of the Loan Officer. Now, I am not going to give a pass to my colleagues who have participated in fraud over the years. Their actions have helped create an economic environment with inflated home values increased foreclosure rates. But the blame cannot, and should not stop at the Loan Officer; blame needs to be placed upon all participants who promulgate such improper behavior.

In an effort to provide education concerning Loan Fraud, and in hopes of curtailing fraudulent behavior, I will first discuss some common aspects of and strategies for loan fraud, then I will discuss the factors leading to loan fraud, and finally I will highlight some steps that can be followed to limit and ultimately eliminate Mortgage Loan Fraud in Utah.

WHAT IS LOAN FRAUD?

Mortgage Fraud is refers to any efforts or actions whereby the intent is to misrepresent information on a mortgage loan application, in order to obtain the loan. While most would agree that Identity Theft is fraudulent, there are more common and more subtle actions that also constitute fraud.

• Occupancy Fraud: Most common in times of housing growth, this fraud occurs when a potential borrower claims the intent of occupying a home as a primary residence in order to secure more favorable loan terms.
• Income Fraud: This fraud occurs when a borrower artificially inflates his or her income to increase his or her ability to qualify for financing. This is occasionally done through altered W-2 forms, but is most common on “stated income” loans where no income verification is required.
• Appraisal Fraud: Common in new home constructions, an appraiser may be asked to unnecessarily inflate a homes value so that a homeowner is able to receive additional funds or sell the home at an increased amount.
• Double Contract/Cash Back Schemes: Typical among the various “real estate guru” courses, this practice involved a buyer and a seller essentially using two separate purchase contracts, one at a high level which is used provided to the lender, and another at a lower amount that is kept between the buyer and seller. When financing is received at the increased amount, cash is then distributed.

SELLING A HOME IN UTAH

I am frequently asked about the benefits of using a Realtor vs. the benefits of trying a For Sale By Owner. To be honest, I have done both, and had mixed reviews with both. I am not a Real Estate Agent. The first home I sold was about the easiest thing I have ever done. I put the ad in the paper, a sign up front, and had an open house. Within 2 weeks it was sold—above my asking price. Then again, I tried to sell a home on my own, and after 5 months finally asked for the help from an agent.

I am convinced that the easiest way to get your home in front of potential buyers is through a listing on the Multiple Listing Service, or MLS. That, of course, means that you need an agent. If, however, you are not in a terrible rush, or you have some extra cash for some aggressive marketing strategies, then you can save significant money by selling on your own.

LET ME MAKE THIS CLEAR: I don’t have a preference one way or another.

If you do use a realtor, here are some things to consider:

• Standard sales commissions are 6% of the sales price, but only 3% goes to your agent, the other 3% goes to the buyers agent
• Realtors are not “greasy sales people.” I mean, sure you may find the occasional scum bag, but no more than any other industry.
• It is still your home for sale. That means that you should work with your realtor. Stay involved in the process, follow up with marketing efforts and ask questions.
• Consider interviewing multiple agents before listing your home. They stand to make a significant amount of money, you deserve to make sure you are comfortable with their approach.

If you try on your own, consider these:

• More frequently people are turning to the internet rather than the newspaper.
• Without an agent you may be able to decrease your price to better position yourself.
• Make sure you use an official Real Estate Purchase Contract (available on the state department of real estate webpage).
• Consider one of the various For Sale By Owner websites. I have a property listed at www.isoldmyhouse.com and have been pleased with the attention it has received thus far.

This much I can tell you: The market is slowing, but it isn’t dropping. I have no reason to think we are going to have 15-30% drops in value as so many states are experiencing. That being said, don’t expect people to get in a bidding war over your home.

MORTGAGE BROKER?

Well, I am back. I am trying my best to get some work done, but it is tough, I am having Cruise Withdrawals. For one, I feel like the room keeps swaying back and forth. Also, it has been 3 hours since I ate any food—anyone who has taken a cruise will tell you that 3 hours is much too long to wait in between meals. So, I got a bit of a tan, I gained some weight, and I saw some parts of the world that I had not yet visited. All in all it was well worth the time away.

I met some great people on the ship, several of whom asked me about my career. Upon hearing the term “mortgages” I noticed that people both got a look of fear and tried to excuse themselves immediately, or they asked how I was dealing with the turmoil in the industry. Suddenly it hit me: People have no idea what a mortgage broker does.

It’s actually pretty basic: I get people money for their homes. That’s it. I am not some scary con-man out to take away your precious gems or steal your retirement. You don’t need someone like me. If you have a few hundred thousand dollars extra then pay cash for your home. That’s fine by me.

For the other 99.9% of the nation, a mortgage broker may not be such a bad idea. I have access to hundreds of banks and lending institutions. I have processors that specialize in knowing what you need to get a loan with the least amount of hassle and headache. I have experience negotiating with underwriters to get you the quickest turn times possible. And, as a broker, I have the flexibility to get you loan programs and rates that are more aggressive, or better suited for your needs than the guy at the bank.

I am no different than any other Mortgage Broker (well, I actually think I am quite a bit different—I think I care more, work harder, know more, and save you more, but you get the point). So, why the concern? The average home owner will refinance every 4 years. The average home owner will buy a new home every 10 years. Until incomes jump off the charts, people will need a loan.

As for the current industry, well there isn’t much I can do about it. As I have said previously, things will improve. Rates are still low, and fees are competitive. Lender guidelines are already starting to become more liberal, and more money is slowly becoming available. It is not time to panic. Instead, it is time to carefully re-evaluate your financial objectives and make sure you are utilizing your assets wisely.

Anyway, I am glad to be home, but I have so much to do both at the office and in my yard to make up for a week away.

Have a good day—catch you tomorrow.