By David Streitfeld, LA Times

Mortgage fraud continues to escalate in Southern California, FBI figures show, raising concerns of increased defaults and foreclosures as the housing market cools down.

Lenders filed 4,228 reports of suspicious activity in the region during the first 11 months of the government’s fiscal year, which ends Saturday, the FBI said. That puts 2006 on track to nearly double last year’s total.

The jump in reports of suspicious activity even as home sales have declined may stem in part from a lag in reporting. But the FBI and industry experts say the trend also reflects growing deceit by average borrowers who overstated their income, exaggerated their assets or hid their debts simply to qualify for a mortgage in the region’s sky-high housing market.

"There’s more of the little guy running around — people committing fraud for housing," said Ronda Heilig, the bureau’s mortgage fraud program manager.

A seven-county region from Orange County to San Luis Obispo County has seen a fourfold increase in suspicious loan activity since 2003, largely coinciding with sharp run-ups in housing prices and lending activity. But with home sales slowing and prices leveling off, the explosion in small-scale duplicity could have serious consequences, industry experts believe.

During the boom, people who lied about their income to get a loan — and then struggled to make the payments — had the option of making ends meet by tapping their newfound equity through refinancing or by selling the property for a profit.

But now, with prices flattening out or declining, those without sufficient equity could be forced to sell for a loss or even default on payments. That could accelerate any downturn in the market by swamping it with foreclosed and bargain-priced properties.

"This is the calm before the storm," said Steve Smith, a Redlands appraiser who lectures frequently about real estate fraud to industry groups.

When home prices in California began to throttle up in the early years of the decade, people needed bigger loans but sometimes couldn’t prove they could handle the debt. To accommodate them, lenders started to offer loans that required little or no documentation.

For example, in a so-called low-doc loan, also known as a stated-income loan, the lender doesn’t verify the borrower’s income. With a "no-doc" mortgage, the lender doesn’t check income, assets or employment.

Such loans, which carry higher interest rates than traditional loans do, were originally designed for people whose income swung widely, like the self-employed, or high-wage earners in unusual circumstances — a doctor who had just moved to a new community and hadn’t set up a practice yet, for instance.

As the state’s boom went on, the mortgages became so popular that they now account for a third of new loans, according to data tracking firm First American LoanPerformance.

Industry insiders have a nickname for low-doc and no-doc mortgages: liar’s loans. The phrase reflects the suspicion that many of the borrowers who get such loans don’t have the income or assets to qualify the old-fashioned way.

One lender recently compared 100 stated-income loans with the borrowers’ tax returns and found that only 10 of the borrowers were telling the truth about their wages, according to Mortgage Asset Research Institute, a division of data firm ChoicePoint Inc.

Sixty of the borrowers had exaggerated their incomes by more than 50%, according to the institute, which didn’t identify the lender.

Read more…..

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The big boys are at it again, trying to beat the system out of pure greed for making even more money:

The Department of Housing and Urban Development on July 18 announced $1.6 million in settlements under The Real Estate Settlement Procedures Act (RESPA) with a national mortgage lender and two major homebuilders who engaged in a business practice involving captive title reinsurance. 

The agreements included a $650,000 settlement with CitiMortgage, Inc., and its captive title reinsurance company Chesapeake Reinsurance; a $675,000 settlement with M.D.C. Holdings, Inc., certain of its Richmond American Homes homebuilding subsidiaries and AHT Reinsurance; and a $305,000 settlement with WL Homes, which does business as John Laing Homes, a California and Colorado builder. 

Captive title reinsurance is a practice whereby a title insurance company transfers a portion of the risk and title premium to a company owned by the builder, lender or real estate broker referring the title business. 

In HUD’s view, any captive title reinsurance arrangements in which payments are not bona fide and exceed the value of the reinsurance are a violation of RESPA. HUD also has a particular concern when these arrangements involve an entity that is in a position to refer business to the primary title insurer. There is also strong evidence these arrangements are designed to generate referral fees when there is a history of few or no claims paid, HUD said. 

"There is almost never any legitimate need or business purpose for title reinsurance on a single-family residence," said HUD Assistant Secretary for Housing Brian D. Montgomery. "HUD will continue to work with the states to investigate captive arrangements to make certain that they aren’t created for the purpose of obscuring referral fees." 

The companies came forward and cooperated with HUD in reaching these settlements. In addition to the settlement payments, the companies agreed not to enter into any new captive title arrangements and to cease writing new captive title reinsurance business.

These are HUD’s first settlements in the nation involving the recipients of payments made by title companies to captive companies for reinsurance. The settlements come in the wake of recent settlements states have obtained from title insurance companies who paid significant portions of the premiums they received to such captive companies.

Broker Newswire

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Linda R. Sweeney brought suit against Savings First Mortgage, L.L.C. (Savings First) in the Circuit Court for Frederick County, alleging a violation of the Maryland Finder’s Fee Law. Md. Code (1975, 2000 Repl. Vol.), §§ 12-801 - 12-809 of the Commercial Law Article.1 Savings First acted as a mortgage broker for Ms. Sweeney in the procurement of two mortgage refinance loans within a one-year period. Ms. Sweeney alleged that the mortgage broker fee charged by Savings First in connection with the second loan was in violation of the Maryland statute, specifically § 12-804(c).2

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1   
All citations in this opinion to the Maryland Code will be to this version of the Commercial Law Article in effect at the time of the operative facts of this case, unless otherwise specified.

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2   
Section 12-804(c) states:
   

Mortgage loan obtained more than once on same property. - A mortgage broker obtaining a mortgage loan with respect to the same property more than once within a 24-month period may charge a finder’s fee only on so much of the loan as is in excess of the initial loan.

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Savings First responded to Ms. Sweeney’s suit by filing a motion to dismiss, or, in the alternative, for summary judgment. In support of its motion, Savings First argued that the Finder’s Fee Law was preempted by § 501(a)(1) of the Federal Depository Institutions Deregulation and Monetary Control Act,3 and, in the alternative, was barred by the applicable Maryland one-year statute of limitations.4 The Circuit Court granted the motion, dismissing Ms. Sweeney’s complaint with prejudice based on its conclusion that § 1735f-7a of Title 12 of the United States Code preempted the Maryland statute. Ms. Sweeney noted an appeal to the Court of Special Appeals. We granted certiorari, Sweeney v. Savings First Mortgage, L.L.C., 385 Md. 511, 869 A.2d 864 (2005), on our initiative while the appeal was pending in the intermediate appellate court, in order to consider the following question of first impression in this State:5

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3   

The Depository Institutions Deregulation and Monetary Control Act is codified at 12 U.S.C. § 1735f-7a (2000).
4   

Md. Code (1975, 2002 Repl. Vol.), § 5-107 of the Courts and Judicial Proceedings Article provides that “[a] prosecution or suit for a fine, penalty, or forfeiture shall be instituted within one year after the offense was committed.”
5   

In considering an appeal on bypass of the intermediate appellate court, this Court considers only those issues that would have been properly before the Court of Special Appeals. Md. Rule 8-131(b)(2). See Converge Servs. Group, LLC v. Curran, 383 Md. 462, 467 n.1, 860 A.2d 871, 874 n.1 (2004).

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Is Maryland’s Finder’s Fee Law, and the limits it places on the fees that mortgage brokers may charge, preempted by the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA)?

Based on our analysis of the federal statute, and an investigation of the legislative history behind the DIDMCA, we hold that the Maryland Finder’s Fee Law is not preempted in this case. Accordingly, we shall reverse the judgment of the Circuit Court for Frederick County and remand this matter for further proceedings.
I.
A.

On 29 August 2000, Savings First acted as a mortgage broker in obtaining a refinance loan for Ms. Sweeney and Harry E. Stockman6 secured by a residence at 9204 Oak Tree Circle in Frederick, Maryland. The amount of the loan was $140,250 and the lender for the transaction was First Union National Bank of Delaware. As payment for its efforts in brokering the loan, Savings First received a mortgage broker fee of $8,427. The following year, on or about 12 July 2001, Savings First arranged a replacement mortgage refinance loan for the same residence for Ms. Sweeney and Mr. Stockman in the amount of $158,400. The lender in this second transaction was Concorde Acceptance Corporation (Concorde). The mortgage broker fee paid to Savings First in the second transaction was $10,788. The mortgage broker fee for each transaction was rolled into the amounts financed.

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6   

Mr. Stockman is not a party to this controversy.

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B.

Ms. Sweeney filed a complaint on 1 March 2004 in the Circuit Court for Frederick County seeking a judgment in the amount of $30,564 against Savings First.7 Ms. Sweeney contended that the maximum fee allowed by Maryland law for Savings First’s brokering of the second loan was $1,452, or 8% of $18,150, the amount of the second loan in excess of the first loan. The relevant portions of § 12-804 of the Maryland Finder’s Fee Law state:

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7   

Section 12-807 states:
   

Any mortgage broker who violates any provision of this subtitle shall forfeit to the borrower the greater of:
(1)   

Three times the amount of the finder’s fee collected; or
(2)   

The sum of $500.

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Fees mortgage broker permitted to charge.
   

(a) Maximum amount of finder’s fee. - A mortgage broker may charge a finder’s fee not in excess of 8 percent of the amount of the loan or advance.
* * * * *

(c) Mortgage loan obtained more than once on same property. - A mortgage broker obtaining a mortgage loan with respect to the same property more than once within a 24-month period may charge a finder’s fee only on so much of the loan as is in excess of the initial loan.

Md. Code, § 12-804.

Savings First filed its motion to dismiss for failure to state a claim, or, in the alternative, for summary judgment, on 14 May 2004. Savings First argued that Ms. Sweeney’s complaint stated no basis for relief because her claim was barred by law for either of two reasons. The first contention was that § 501(a)(1) of the DIDMCA expressly preempts application of the Maryland Finder’s Fee Law. Under this federal statute, a state is prohibited from “expressly limiting the rate or amount of interest, discount points, finance charges, or other charges” applying to qualifying mortgages. 12 U.S.C. § 1735f-7a(a)(1) (2000). Savings First’s alternate argument was that Ms. Sweeney’s claim was barred by the one-year statute of limitations applicable to penalties and forfeitures.8 Savings First included affidavits in support of its motion demonstrating particular facts, beyond those alleged in Ms. Sweeney’s complaint, that it contended were material and not in genuine dispute.

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8   

The Circuit Court held that the applicable statute of limitations was not one year, but did not opine what the correct applicable limitations period was. Savings First initially filed a cross-appeal in the Court of Special Appeals, but has not briefed or argued before us the limitations issue. Thus, we shall not address the statute of limitations question. See Ricker v. Abrams, 263 Md. 509, 516, 283 A.2d 583, 587 (1971) (stating that an issue not raised in the brief(s) or oral argument is waived); see also Md. Rule 8-504.

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At the conclusion of the motions hearing on 18 August 2004, the Circuit Court ostensibly granted the motion to dismiss Ms. Sweeney’s claim, with prejudice, because §1735f-7a preempted the cause of action brought under § 12-804 of the Maryland Commercial Law Article. In ruling on the motion, the Circuit Court did not state whether it had considered the additional facts offered by Savings First in its affidavits.9

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9   

We note also that although the order entered by the court did not specify whether the court was granting Savings First’s motion to dismiss or motion for summary judgment, it was stated at the conclusion of the hearing that summary judgment was being granted. This was the proper procedural action under Maryland Rule 2-322(c). See Dual, Inc. v. Lockheed Martin Corp., 383 Md. 151, 161, 857 A.2d 1095, 1100 (2004) (stating that, when factual allegations are presented beyond those alleged in the complaint, and consideration of same is not excluded expressly by the judge, the facial grant of a motion to dismiss will be treated for purposes of appellate review as the grant of summary judgment).

Read more….

A delegation from the National Association of Responsible Loan Officers (NARLO), the trade association of mortgage loan originators, recently visited with lawmakers in Washington, D.C., to discuss loan officer issues.

NARLO was represented by Ella Gurfinkel of Executive Financial Solutions Inc., Portland Ore.; Christopher Cruise, Baltimore, Md.; and Robert Skrob, NARLO executive director.

The highlight of the group’s trip to Washington was its meeting with Brian Montgomery, Federal Housing Administration commissioner and assistant secretary for housing at the U.S. Department of Housing and Urban Development (HUD).

The representatives from NARLO were joined by John L. Garvin, senior advisor; Lily Lee, deputy assistant secretary for single family housing; Phil Murray, associate deputy assistant secretary for single family housing; and Margaret Burns, director, Office of Single Family Program Development.

“The members of the National Association of Responsible Loan Officers are fed up with mortgage loan fraud and the low barriers to entry into the mortgage industry,” Skrob said. “For NARLO members, minimum licensing standards are not acceptable. We must clean up our industry, and to do that we must require all entrants into our industry to undergo a minimum of 40 hours of training, testing and background checks.”

The National Association of Responsible Loan Officers represents the 400,000 mortgage loan originators throughout the country that are employed by mortgage brokers. NARLO fights mortgage fraud by advocating stricter standards for loan officers and through public education.
 

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