UTAH LOAN FRAUD - Part 4

This is Part 4 of a 4 Part article I recently wrote concerning Mortgage Fraud in Utah.

If you would like an emailed copy of the entire article, contact me by email at jayhart@cottonwoodmtg.com or comment on this post.

The unfortunate reality is that while most loan officers and borrowers have good intentions, the financial benefits associated with fraudulent loans continue to encourage illegal and unethical behavior. Mortgage Fraud leads to artificially inflated home values and unnecessarily high rates of default. Such factors then lead to a slowing of the economy and ultimately and increase in interest rates, thus perpetuating the apparent “need” to falsify loan documents.

However, while there is a great deal remaining to be accomplished in efforts towards the eradication of Mortgage Fraud in Utah, it is important to note the progress that has been made. The Utah Association of Mortgage Brokers, in conjunction with the Division of Real Estate should be recognized for the efforts of recent years; The countless loan officers who have been willing to sacrifice potential income in efforts to maintain personal and professional integrity; the many home owners and buyers who have recognized mistaken and misrepresented information and refused to continue a transaction. These individuals and organizations should be commended, but such recognition should not be viewed as acceptance of current trends and practices that lead to illegal behavior.

Mortgage Fraud in Utah is a major problem, as it is throughout the nation. This problem is seen through multiple practices and is having a negative impact on our economy, particularly the housing industry. As Fraud persists, it is important to recognize the involvement of the various parties of a transaction, rather than identifying one group of persons as the scapegoat for a larger systemic problem. If our economy requires the elimination of Mortgage Fraud, then much effort needs to be increased. Only though proper education and understanding can we prevent Mortgage Fraud in Utah.

UTAH LOAN FRAUD - part 3

This is Part 3 of a 4 Part Article I recently wrote concerning Mortgage Fraud in Utah.

WHAT CAN WE DO TO STOP LOAN FRAUD?

Unfortunately, in spite of the negative consequences of Mortgage Fraud, there will continue to be those who feel that the only way to complete a transaction is through misrepresentations. In hopes of decreasing, and ultimately eliminating mortgage fraud, I will offer 4 possible actions to be followed.

1. Increase Education. Much has been done in recent years to increase awareness among loan officers. These efforts are commendable, and should be included. I would like to see additional requirements associated with a loan officer’s continuing education dealing with loan fraud. However, more pressing in my mind, is the need to provide education to consumers. I would like to see efforts made by the various organizations and associations representing the mortgage industry, including the Division of Real Estate, increase efforts to educate the public regarding the types of loan fraud and the accompanying consequences. In addition, loan officers should be more proactive in educating clients and prospective clients about the consequences of loan fraud.
2. Enhance regulations. While a great deal has been accomplished, the Division of Real Estate does not have the necessary funding to properly investigate and prosecute Mortgage Fraud. Lobbying efforts should be increased to secure adequate funding and additional investigators should be hired and trained. In addition, the already steep consequences should be enhanced, specifically for the seller and buyer/borrower involved in a transaction.
3. Loan Application Due Process: Loan Officers and borrowers alike should be more judicious in reviewing loan application materials. An applicant should not sign incorrect loan documents, and a loan officer should refuse to process a transaction. More care should be given to careful review of a file prior to closing.
4. Incentivize Proper Transactions: Lenders should award financial benefits to loan officers and underwriters who maintain clean loan histories, including reporting illegal behavior, hereby encouraging more efforts to avoid potentially fraudulent loans. In addition, lenders should make investment and non-owner occupied loans more satisfactory to borrowers. A buyer is less likely to encourage a fraudulent loan if he or she feels less vulnerable to increased interest rates and lending restrictions.

UTAH LOAN FRAUD - Part 2

This is Part 2 of a 4 Part Article I recently wrote concerning Mortgage Fraud in Utah.

WHAT LEADS TO LOAN FRAUD?

My experience is that most cases of loan fraud are initiated by any one or combination of 3 parties: Real Estate Seller/Builder, Borrower, and Loan Officer. It is unfair to place blame on any one party when it is most common for multiple parties to be at fault.

• Real Estate Seller/Builder: As a market softens, it is not uncommon for a seller or builder to use fraudulent practices to maintain profitability. Appraisal fraud and Double Contracts are probably the most common types of fraud utilized by this group. As a market becomes increasingly competitive, fraudulent practices may be seen as a way to maintain market share and generate revenue to the builder. In the case of a private seller, fraudulent practices may provide a way to sell a home is a slow market by offering additional incentives, such as cash back to remodel or finish a basement.
• Borrower: It is not uncommon for a borrower to request actions that are fraudulent. This is extremely common when a borrower is seeking a loan program that may have been available in the past but is no longer being offered by lenders—such as no money down purchases with poor credit. A borrower may have used such a loan in the past and is unwilling to accept that these types of loans are unavailable at this time. Probably most common is fraud initiated by Real Estate Investors and Speculators. With seemingly little to loose, these individuals will request fraudulent activities to bolster profits on a transactions.
• Loan Officer: In a competitive market place, many Loan Officers feel that every effort possible should be used to close a transaction, including if necessary, loan fraud. The mindset is “well, If I don’t get them this loan they will just go to someone else who will, so I might as well get the paycheck myself.” Increased restrictions by lenders to loan amounts, coupled with less leniency in terms of credit scores and credit history have made it more difficult for loan officers to remain competitive. For many Loan Officers, fraudulent activity is seen as a last resort to retain an income stream.