Ethics

Ponzi/Investment Club/Chunking Characteristics

No real estate agent is employed (club recruits buyers and/or non-arm's length transaction) Property was recently in foreclosure or acquired at REO sale at a low sales price Borrower may have paid a membership fee to participate in the "club" First-time landlord with non-savvy investors Seller offers to manage these rental properties Borrower may have been told that the seller or the "club" would make mortgage payments Borrower purchased multiple properties simultaneously, but did not disclose other loans in process to their lender (this is called "shot-gunning;" watch for credit inquiries) The appraised value is fraudulently inflated (see "Property Flip Characteristics" section) Renovations performed by firms owned by members of the investment club

Unauthorized Fees and/or Payouts Characteristics

Short sale Closing Disclosure has unauthorized management, consulting, or short sale negotiation fees Short sale Closing Disclosure reflects excessive unauthorized payoffs to second lien holders

Short Sale Fraud Characteristics

Sudden default, no workout discussions, and immediate offer at short sale price Ambiguous or conflicting reasons for default The mortgage delinquency is inconsistent with the borrower's spending, savings, and other credit patterns Short sale offer is from a related party Short sale offering price is less than current market Cash-back at closing to the delinquent borrower or other disbursements that have not been expressly approved by the servicer (sometimes disguised as "repairs" or other payouts) The buyer and real estate agent may be the same person or related parties

Buy and Bail Characteristics

The borrower defaults on the original mortgage shortly after purchasing a second property The borrower will be a first-time landlord (renting out the original property) The borrower has minimal or no equity in the original property Inability to validate lease terms with the purported tenant Purported tenant has a pre-existing relationship with the homeowner

Foreclosure Rescue Characteristics

The borrower was advised by a foreclosure specialist to avoid contact with the servicer The borrower has paid someone to negotiate with the servicer on his or her behalf The borrower states that he or she is sending mortgage payments to a third party Borrower receives a purchase offer greater than the listing price Borrower states that he or she will be renting back from new owner The borrower quitclaimed (any portion of) the title to a third party at the advice of a foreclosure specialist Borrower signature varies between the short sale contract and loan origination documents The borrower has recently updated his or her contact information Borrower claims he or she does not have to pay because the mortgage is invalid (debt elimination)

Builder Bailout/Excessive Sales Incentive Characteristics

Typically involves new construction or new condo conversion Builder's marketing material advertises rent credit and/or payment credit to investors The Closing Disclosure reflects unexplained pay-outs or inflated commissions (paid outside closing to buyer) All comparables are from within the subject's development and also had inflated sales prices

Builder Bailout/Excessive Sales Incentive

A builder bailout is when a seller pays large financial incentives to the buyer and facilitates an inflated loan amount by increasing the sales price, concealing the incentive, and using a fraudulently inflated appraisal.

Double Sale

A double sale is the sale of one mortgage note to more than one investor.

Foreclosure Rescue

A foreclosure rescue scheme involves foreclosure "specialists" who promise to help the borrower avoid foreclosure. The borrowers often pays for services that they never receive and, ultimately, lose their homes.

Wire fraud

Ever increasing fraud, that the borrower is receiving a request for funds to be wired to someone that is not connected to the transaction. Important to tell the borrower not to wire any funds without asking you or the title company if the request is real

Occupancy fraud

FHA requires the borrower to owner occupy for 60 days Fannie, Freddie, USDA, and VA require the borrower to occupy the property Real estate listed on application, yet applicant is a renter § Applicant intends to lease current residence § Significant or unrealistic commute distance § Applicant is downgrading from a larger or more expensive house Rental property listed on application is more expensive than subject property § Different mailing address on applicant's bank statements, pay advices, etc. § Different address reported on credit report § Significant or unrealistic commute distance § Appraisal reflects vacant or tenant occupancy

How to verify the absence of property flipping:

A history showing the title changes regarding a property is required by an underwriter. A title report will show a chain of title, this chain of title will show how often a property has been sold or transferred. This chain of title can show potential illegal property flipping. Illegal property flipping occurs when the property is purchased and resold quickly at an artificially inflated price by utilizing fraudulently inflated appraisals.

Duties a loan processor may/may not perform

A loan processor or underwriter is an individual who performs clerical or support duties as an employee at the direction of and subject to the supervision and instruction of a person licensed. "Clerical or support duties" can include, after the receipt of an application: The receipt, collection, distribution, and analysis of information common for the processing or underwriting of a residential mortgage loan. Communicating with a consumer to obtain the information necessary for the processing or underwriting of a loan, as long as the communication does not include offering or negotiating loan rates or terms, or counseling consumers about residential mortgage loan rates or terms. Loan processors and underwriters are not required to be licensed, and so they are prohibited from advertising or presenting to the public that they are mortgage loan originators or negotiate rates and terms. For perspective, a loan processor's job is to help make the process of getting the loan from the beginning to the end smooth. Except for the application information, they obtain documents and other information from the borrower, and they obtain verifications of a borrower's employment and other financial information.

Non-Arm's Length Short Sale

A non-arm's length short sale scheme involves a fictitious purchase offer made by the homeowner's accomplice (straw buyer) in an attempt to fraudulently reduce the indebtedness on the property and allow the borrower to remain in their home.

Definition of a referral

A referral is anything of value being given or received from a third party company, realtor or builder A referral includes any oral or written action directed to a person which has the effect of affirmatively influencing the selection by any person of a provider of a settlement service or business incident to or part of a settlement service when such person will pay for such settlement service or pay a charge attributable in whole or in part to such settlement service. A referral also occurs whenever a person paying for a settlement service is required to use a particular provider of a settlement service.

Substantial Injury

A substantial injury typically takes the form of monetary harm, like fees or costs paid by the borrowers because of the unfair act or practice. In the case of Dodd-Frank, a substantial injury does not just have to be monetary damage; it can also take other forms. If a significant risk of concrete harm is present, then that can be considered a substantial injury. In other words, if the intent to harm is there or the potential for substantial injury exists, that is still considered substantial harm and an unfair act.

Trigger Terms

A trigger term is a phrase that represents the attractive features of the credit plan within the advertisement. If any of the following are included in an advertisement it must include all of the triggered terms: The amount of percentage of any down payment. The number of payments or period of repayment. The amount of any payment. The amount of any finance charge. If anything like the above appears in an advertisement, the ad must also disclose the following triggered terms: The price of the home. The amount of the down payment required or that none is required. The number of payments necessary to repay the loan (the term of the loan). The amount of the monthly payment for the entire term of the loan. Due dates or period of payments scheduled to repay; and The APR.

Air Loan Characteristics

Air loans typically involve straw buyers No real estate agent is employed (fictitious transaction) Mortgage payments are made by an entity other than the borrower Common payer among loans is involved in scheme Common mailing address among loans is used in scheme Unable to independently validate chain of title The lender is experiencing financial distress

The required associated disclosures with a referral, if necessary

An Affiliated Business Arrangement (AfBA) Disclosure if the MLO or company have an interest in third party companies or if you are requiring a borrower to use any of your referral companies. An AfBA is required if an MLO is licensed as a Realtor and Loan Officer or if they or their family own as little as 1% of a third party company The AfBA disclosure must be delivered to the borrower at the time of the referral. An example of an AfBA is a mortgage lender's CEO has an ownership interest in a title insurance company, if the mortgage lender's MLOs want to refer their borrowers to use that title insurance company then the relationship must be disclosed between the CEO of the mortgage lender and the title insurance company at the time the MLO refers them

Violations of Gramm-Leach-Bliley Act

An MLO leaves a borrower's file open on his/her desk for just a moment. An Identity thief sees the borrower's credit report which contains a huge amount of information. Fortunately the MLO quickly returns (GLBA requires that we protect our borrower's non-public personal information. FACTA also includes the Disposal Rule which outlines specific requirements for handling the disposal of a borrower's personal information.)

Unauthorized Fees and/or Payouts

An advance fee scheme perpetrated by foreclosure rescue specialists during which fees and/or payouts that were not approved by the servicer agreeing to the short sale are reflected on the Closing Disclosure.

Air Loan

An air loan is a loan to a straw or non-existent buyer on a non-existent property

Equity Skimming

An investor buys a property from a homeowner facing foreclosure and agrees to lease the home to the homeowner who may remain in the house as a tenant. The fraudster then pays off the amount owed in the foreclosure to acquire the deed and receives any remaining portion of the homeowner's equity. The fraudster will re-convey the property back to the homeowner in the form of a lease or a contract for deed.

Redlining

An unethical practice where a financial institution makes it extremely difficult or impossible for residents of a particular neighborhood to borrower money, gain approval for a mortgage, take out insurance or gain access to other financial services because of a history of high default rates. Redlining typically occurs in poor inner-city neighborhoods. In the case of redlining, an individual's qualifications and creditworthiness are not considered.

Ponzi/Investment Club/Chunking

Chunking schemes involve the sale of properties at artificially inflated prices, pitched as investment opportunities to naïve real estate investors who are promised improbably high returns and low risks. The third-party helping the investor may use the investor's information to apply for loans at multiple institutions and then retain the proceeds leaving the borrower with multiple loans that cannot be repaid

Fraud for Housing

Committed by a borrower When a borrower materially misrepresents information on a mortgage loan application such as employment, income, assets or other types of supporting documents to obtain a mortgage. The borrower is motivated to acquire ownership of a house. A borrower wants to purchase a property they can't afford They typically intend to repay the loan but commit fraud to obtain the property.

What are prohibited acts?

Directly or indirectly employ any scheme, device, or artifice to defraud or mislead borrowers or lenders or to defraud any person. Engage in any unfair or deceptive practice toward any person. Obtain property by fraud or misrepresentation. Solicit or enter a contract with a borrower that states that the MLO may earn a fee or commission through "best efforts" to obtain a loan even though no loan closes. Solicit, advertise, or enter a contract for specific interest rates, points, or other financing terms unless the terms are actually available at the time of soliciting, advertising, or contracting. Conduct any business without holding a valid license or assist or aid and abet any person in the conduct of business without a valid license. Fail to make disclosures as required by this Act and any other applicable state or federal law, including regulations. Fail to comply with this Act or rules or regulations promulgated or fail to comply with any other state or federal law, including the rules and regulations thereunder, applicable to any business authorized or conducted. Make, in any manner, any false or deceptive statement or representation including, the rates, points, or other financing terms or conditions for a residential mortgage loan or engage in bait and switch advertising. Negligently make any false statement or knowingly and willfully make any omission of material fact about any information or reports filed with a governmental agency or the Nationwide Multi-State Licensing System and Registry or in connection with any investigation conducted by the Commissioner or another governmental agency. Make any payment, threat or promise, directly or indirectly, to any person to influence the independent judgment of the person in connection with a residential mortgage loan, or make any payment threat or promise, directly or indirectly, to any appraiser of a property, to influence the independent judgment of the appraiser concerning the value of the property. Collect, charge, attempt to collect or charge or use or propose any agreement purporting to collect or charge any prohibited fee. Cause or require a borrower to obtain property insurance coverage in an amount that exceeds the replacement cost of the improvements as established by the property insurer. Fail to truthfully account for monies belonging to a party to a residential mortgage loan transaction.

Employment fraud

Do the bank statement income deposits match the Verification of Income Applicant's job title is generic, e.g., "manager," "vice president" § Employer's address is a post office box, the property address, or applicant's current residence § Applicant's residence is (will be) in location remote from employer § Employer name is similar to a party to the transaction, e.g., uses the applicant's initials § Employer unable to be contacted

Red flags on a sales contract

Do the sellers on the contract match with the title owners listed on the Title Report Non-arm's length transaction: seller is real estate broker, relative, employer, etc. § Seller is not currently reflected on title § Purchaser is not the applicant § Purchaser(s) deleted from/added to sales contract § No real estate agent is involved § Power of attorney is used § Second mortgage is indicated, but not disclosed on the application

Income fraud

Do the verifications match the documentation provided by the borrower. 4506T to your tax returns. Verifications showing overtime and bonuses to continue No matter what type of income a borrower has, stable or variable, the underwriter is going to need to determine the monthly income that the borrower receives, see a history of that income, verify the income and see continuity in the income. § Applicant reports substantial income but has no cash in bank § Pay period dates overlap and/or do not correspond with other documentation § Abnormalities in paycheck numbering § Handwritten VOE, pay stubs, or W-2 forms § W-2 form presented is not the employee's copy

Asset fraud

Do your Verifications match the documentation given to you by the borrower Dates of bank statements are unusual or out of sequence § Recently deposited funds without a plausible paper-trail or explanation § Bank account ownership includes unknown parties § Balances verified as even dollar amounts

Discriminating against an applicant

ECOA makes it unlawful for "any lender to discriminate against any applicant with respect to any aspect of a credit transaction on the basis of race, color, religion, natural origin, sex, or marital status or age." ECOA also prohibits discrimination because all or part of the applicant's income derives from any public assistance program or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. A lender can consider any information in evaluating applicants if they do not use the information with the intent or the effect of discriminating against an applicant on a prohibited basis. To that end, a lender cannot: Consider any of the prohibited basis, including age and the receipt of public assistance. Use childbearing or child-rearing information, assumptions or statistics to determine whether an applicant's income may be interrupted or decreased. Consider whether there is a telephone listing in the applicant's name; or Discount or exclude part-time income from an applicant or the spouse of an applicant.

Prohibited Acts

Each state will have specific things they consider prohibited conduct. Most states used the Model Law to implement their SAFE Acts, in the Model law, there is a precise list of what should AT LEAST be considered prohibited. ex. Fraud Collecting a fee for best efforts Threatening, bribing or refusing to pay a third party (like an appraiser, an underwriter or your borrower) Don't forget all the disclosures Make sure what your advertising is actually available and avoid bait and switch tactics Unlicensed activity is prohibited Always account for your borrower's money - don't use it to pay your car payment!

Requests for personal information

Financial institutions also watch for fraudulent attempts to obtain customer information, require customer information be only for those that need to know, and require employee training on how to respond to requests for customer information. -- GLBA Safeguard Rule

Property Flip Characteristics

Flips typically involve straw buyers Flips sometimes involve naïve purchasers Seller very recently acquired title, or is acquiring title concurrent with the subject transaction No real estate agent is employed (non-arm's length transaction) Property was recently in foreclosure, or acquired at real estate owned (REO) sale at low sales price The appraised value is fraudulently inflated The appraiser frequently uses other property flips as comparables (examine comparable properties' sales histories) Owner listed on appraisal and/or title may not match the seller on the sales contract Refinance transaction used to pay off private short-term financing

Bait and switch scenarios

Getting the borrower to call you with enticing rates and then try to switch them to another product An example of bait and switch advertising would be advertising a low-interest rate like 2% on a 30-year fixed-rate mortgage to get people in the door, then providing them something completely different.

Liability fraud

Has the borrower disclosed all debts, alimony, or child support payments Have they disclosed the debts that are not on the credit report

Scenarios where information is not provided to a borrower

If a SAR's has been filed against the borrower and any information that is on your Verifications, you would not provide that information to the borrower

Rules Surrounding Contact (Do Not Call List)

If a client requests not to be called, the company may not solicit even if they meet any of the below relationships. The client has a right to request the company to not call them, and the company must put the client on their own internal do not call list. A mortgage loan originator may solicit a client on the do not call list based on Client Relationship as follows: ● A previous client from an established business relationship you may solicit for up to 18 months after the last transaction, even if the consumer is on the Do Not Call Registry. ● A prospective client who submits an inquiry or application you may solicit for up to 3 months. ● A client who has given written permission may be solicited with an unspecified time frame even if the client is on the Do Not Call Registry. Businesses may use questionnaires or surveys for customers to submit, as a way to establish a business relationship. Once a relationship is established, they may call to solicit those on the do not call registry for the specified relationship time period. Calls from or on behalf of political organizations, charities, and telephone surveyors are permitted and are not subject to these rules.

Examples of lawful advertising

If a creditor advertises directly to a borrower they are required to: Only terms that can be advertised are the specific terms that the creditor will offer in credit plans; If a finance charge is listed, it must include Annual Percentage Rate or APR; If the APR might increase after consummation of the loan, the ad must be specific on this detail; A simple annual or periodic rate applied to an unpaid balance may be advertised in conjunction with the APR, but not more conspicuous than the APR. If the rate is present in the advertisement, the APR must be disclosed. One way to remember is if you list any number in your advertisement, it will most likely "trigger" the requirement to disclose the APR.

Application red flags

If information on the credit report and application do not match, such as the names, social security numbers, residency and work history Significant or contradictory changes from handwritten to typed application § Unsigned or undated application § Employer's address shown only as a post office box § Loan purpose is cash-out refinance on a recently acquired property § Buyer currently resides in subject property § Same telephone number for applicant and employer § Extreme payment shock (may signal straw buyer and/or or inflated income) § Purchaser of investment property does not own residence

The penalty for a loan officer violating RESPA by paying a referral fee to a real estate agent

If someone violates Section 8 of RESPA, they are looking at a fine of up to $10,000, up to 1 year in prison or both. They also may be required to make payment to damaged parties up to 3 times the original fee that violated the section and if more than one individual is involved, then all parties are liable to the damaged borrower both jointly and separately.

Scenarios where the appraiser has a conflict of interest

If the appraiser is connected in any way to anyone in the loan/transaction, the appraiser must be replaced or excuse themselves from the assignment Contacting the appraiser to influence value, threaten payment, or cut them off of any new business

Scenarios where information is misleading within an advertisement

If you do not have the rates, product, or program, do not advertise and mislead the borrower Do not make, in any manner, any false or deceptive statement or representation including, the rates, points, or other financing terms or conditions for a residential mortgage loan An act or practice is considered deceptive when: The act or practice misleads or is likely to mislead the consumer, The consumer's interpretation is reasonable under the circumstances, and The misleading act or practice is material.

Property Flip

Illegal property flipping occurs when property is purchased and resold quickly at an artificially inflated price, using a fraudulently inflated appraisal.

How does the Fair Housing Act regulate the Mortgage Industry?

In Mortgage Lending, the FHA states it is illegal to discriminate but also to: Refuse to make a mortgage loan or provide other financial assistance for a dwelling Refuse to provide information regarding loans Impose different terms or conditions on a loan such as different interest rates, points or fees Discriminate in appraising a dwelling Condition the availability of a loan on a person's response to harassment Refuse to purchase a loan

Reverse Mortgage Fraud

In a reverse mortgage fraud scheme, the perpetrator manipulates a senior citizen into obtaining a reverse mortgage loan and then pockets the senior victim's reverse mortgage loan proceeds.

Short Sale Flip

In a short sale flip scheme, the perpetrator manipulates the short sale lender into approving a short payoff and conceals an immediate contingent sale to a pre-arranged end buyer at a significantly higher sales price.

Affinity Fraud

In affinity fraud, perpetrators rely on a common bond and exploit the trust and friendship that typically exist in the group of individuals with a common bond to support the scheme. Certain ethnic, religious, professional, or age-related groups are targeted.

Reverse Occupancy Fraud

In reverse occupancy fraud, a borrower buys a home as an investment property and lists rent proceeds as income to qualify for the mortgage. But then instead of renting the home, the borrower occupies the home as a primary residence.

Short Sale Fraud

In short sale fraud, the perpetrator profits by concealing contingent transactions or falsifying material information, including the true value of the property, so the servicer cannot make an informed short sale decision.

What does the Fair Housing Act cover?

In very limited circumstances, the Act exempts: Owner-occupied buildings with no more than 4 units, single-family houses sold or rented by the owner without the use of an agent, and housing operated by religious organizations and private clubs that limit occupancy to members.

Examples of Prohibited Acts

MLO Joe is working with a borrower and has been for six months. Joe has yet to be able to find a loan product for this borrower, so he's decided to tell his borrower he can't help him, but he owes him $1,000 for his time. This act would be prohibited. Advertising an interest rate of 4.5% on a 30-year fixed rate when that is not something that you can offer. Aiding and abetting someone in unlicensed activity would be like allowing a processor (who's unlicensed) to take a loan application. An example of bait and switch advertising would be advertising a low-interest rate like 2% on a 30-year fixed-rate mortgage to get people in the door, then providing them something completely different. Lying on the MU4 and stating that you've never been convicted of a felony when you have. Withholding payment to an appraiser because the appraised value of the property came back too low Bribing an underwriter to approve a loan. A borrower's house is worth $250,000, and the lender requires the borrower to get $300,000 in homeowners' insurance - this would be excessive. Collecting money for an appraisal. MLOs are required to be able to account for where that money goes, so don't use it to pay your car payment.

Double Sale Characteristics

Mortgage payments are made by an entity other than the borrower Mailing address is not the borrower's address Two mortgages recorded on the same property Mortgage is not recorded in first lien position The lender is experiencing financial distress Two notes may be identical except for signatures (or one may be a color copy) ex. A borrower colluded with a mortgage broker to use the borrower's property as collateral for numerous home equity lines of credit (HELOCs) at different financial institutions. The scheme was executed by closing on multiple HELOCs in a short period of time to take advantage of the delay in recording the mortgages. In addition, the mortgage broker misrepresented the borrower's financial information in order to increase the borrower's debt capacity. The property with less than $125,000 in equity was used to obtain over $1 million in credit from several financial institutions

Straw Buyer Characteristics

Mortgage payments are made by an entity other than the borrower The loan is usually an early payment default First-time home buyer with a substantial increase in housing expense Buyer does not intend to occupy: unrealistic commute, size or condition of property, etc. No real estate agent is employed (non-arm's length transaction) Power of attorney may be used "Boiler plate" contract with limited insertions not reflective of a true negotiation Income, savings, and/or credit patterns are inconsistent with the applicant's overall profile High loan-to-value (LTV) ratio, limited reserves, and/or seller-paid concessions Inconsistent signatures found throughout the file Use of gift funds for down payment and/or closing costs, minimum borrower contribution Title to the property is transferred after the sale closes

Examples of "kickbacks"

No person may give or receive a fee, kickback, or any other form of valuable compensation (or arrange to do so) for referring a potential borrower to a certain lender or service provider for a federally-related mortgage loan. -- RESPA Section 8 Not allowed in receiving or paying on any transaction An MLO can't purchase tickets to a sporting event or pay for the real estate agents' round of golf

Acceptable/non-acceptable practices under RESPA

Not all referrals arrangements fall under RESPA's referral restriction, to simplify there are three things allowed: • Educational activities -These activities must not defray the expenses that the real estate broker/agent otherwise would have had to pay. Meaning you can't pay for the real estate agents CE or renewal fees as part of it and it cannot be in exchange for or tied in any way to referrals. • Payments for Goods or Services Actually Provided - The fee has to be what market value is for the service provided - so if it's in excess of that market value it would be a violation of RESPA Section 8 • Affiliated Business Arrangements

Blockbusting

Occurs when real estate agents and building developers attempt to convince white property owners to sell their houses at low prices by promoting fears in those homeowners that racial minorities would soon be moving into the neighborhood.

Affinity Fraud Characteristics

Parties to the transaction (loan officer, closer, realtor, borrower, appraiser, etc) have a common bond Common surnames for multiple parties to the transaction The borrower's excessive assets do not align with job type Large gifts from group members as the source of down payment The borrower works for what appears to be a member of the group Common tactics include the use of straw buyers, falsified gift funds, and altered employment or asset documentation

Fair Housing Act (FHA)

Protects people from discrimination when they are engaging in ANY housing-related activities. Prohibits discrimination in housing because of: race, color, national origin, religion, sex, familial status, disability It covers most housing

Non-Arm's Length Short Sale Characteristics

Purchaser has previous or current ownership of the subject property Purchaser address matches the borrower's address Purchaser's name is similar to the borrower's Purchaser employment address matches the borrower's employment address

RESPA (Real Estate Settlement Procedures Act)

RESPA was created to help educate borrowers about the costs associated with the loan, which would lead borrowers to understanding what questions they need to ask when shopping for a mortgage loan. The AfBA disclosure must be delivered to the borrower at the time of the referral. Section 8 also states that no person may give or receive a fee, kickback, or any other form of valuable compensation (a thing of value) or arrange to do so for referring a potential borrower to a certain lender or service provider for a federally-related mortgage loan. No one can either give or receive any portion, split, or percentage of any charge made for settlement service that is not actually performed. RESPA covers the costs associated with a loan and it states that fees must be reasonable but does not regulate the amount of fees.

Churning

Refinancing a home over and over again when it is not necessary for the purpose of obtaining additional fees Excessive selling/lending activity to generating fees and commissions. In some cases, the lender steps the rate down through multiple refinances. Each refinance is only to a slightly lower rate until the pre-arranged rate is reached. In other cases, the lender switched the borrower from a fixed-rate loan to an adjustable-rate a few months later and then back to a fixed rate with little to no actual benefit to the borrower.

Reverse Redlining

Reverse Redlining is the opposite of redlining; it is where a financial institution lends specifically in poor inner-city neighborhoods to charge them more than a comparable white consumer.

Short Sale Flip Characteristics

Short Sale Flip: Title Issues -Transfer to Business, LLC or Trust Short Sale Loan: The borrower is not in title to the property on the date the short sale closes Short sale Closing Disclosure dated after title transferred to third party, yet borrower is listed as seller The borrower is transferring title to a business, trust, or LLC End Purchase Loan: The seller is not the recorded title holder The seller on the sales contract does not match current owner on appraisal or vesting on title The title commitment is dated prior to the sales contract or initial loan application Title commitment requires additional deeds to be recorded to perfect "current vested owner"

General red flags that could represent fraud

Social Security number discrepancies within the loan file § Address discrepancies within the loan file § Verifications addressed to a specific party's attention § Verifications completed on the same day they were ordered § Verifications completed on weekend or holiday § Documentation that includes deletions, correction fluid, or other alterations § Numbers on the documentation that appear to be "squeezed" due to alteration § Different handwriting or type styles within a document § Excessive number of automated underwriting system submissions

Non-Trigger Terms

Some examples of terms that do not require the APR be listed in the advertisement include: Easy monthly payments. Low down payments. No down payment. Pay bi-weekly. Terms to fit any budget. Financing available; and FHA or VA loans available. "We have the best rates in town."

Examples of Trigger Terms

Some examples of trigger terms are: 10 percent down payment $1000 down 80 percent financing Monthly payments less than $800 on all loan plans Pay $32.11 per $1000 borrowed Own this home for $870 per month Refinance today, rates of 4.025 available. Trade-in with $5,000 appraised value. $850 per month.

Unfair Acts or Practices

Something that causes or is likely to cause substantial injury to consumers. The injury is not reasonably avoidable by consumers. The injury is not outweighed by countervailing benefits to the consumers or competition.

Coercion scenarios

Steering becomes a problem when an MLO steers a borrower into a loan that could potentially harm them for the sole purpose of obtaining a higher commission. Steering or targeting occurs when an MLO steers a borrower into a subprime product when they could qualify for a loan with better terms. Generally, this is done because the MLO gets something in return for putting that borrower into the subprime loan, like additional compensation. Predatory lending is unscrupulous actions carried out by a lender to entice, induce or assist a borrower in taking a mortgage that carries high fees, a high-interest rate, strips the borrower of equity, or places the borrower in a lower credit-rated loan to the benefit of the lender

Straw Buyer

Straw buyers are loan applicants used by fraud perpetrators to obtain mortgages and are used to disguise the true buyer or the true nature of the transaction.

Types of advertisements that are subject to federal regulations

TILA defines an advertisement is anything produced with the intent to sell a credit plan including: Newspapers and magazine ads Leaflets and flyers Catalogs Radio, TV, or public address systems Signs or displays Billboards Point of sale literature Price tags Cash register receipts Internet social media Websites Rate sheets use for internal purposes, education, and state-required material unless combined with a sales offer, and brochures that explain details about a mortgage, are not considered advertisements.

What must be on any marketing piece, radio, TV, or newspaper that has a number on it?

The Annual Percentage Rate (APR) i.e. rates, mortgage amount, or closing costs

Suspicious activity

The Bank Secrecy Act/Anti-Money Laundering or BSA/AML specifically requires financial institutions to institute a compliance program and annual training to detect money laundering and suspicious activity. SARs must be filed with FinCEN when one of the following circumstances occurs: • Insider abuse involving any amount.• Transactions aggregating five thousand dollars ($5,000) or more where a suspect can be identified.• Transactions aggregating twenty-five thousand dollars ($25,000) or more regardless of potential suspects.• Transactions aggregating five thousand dollars ($5,000) or more that involve potential money laundering or violations of the Bank Secrecy Act. Lenders are required to file SARs no later than thirty (30) calendar days after the date of the initial detection of the issue. Lenders must maintain a copy of any SAR filed and all supporting documentation for five (5) years from the date of the filing.

Unfair, deceptive, or abusive acts or practices (UDAAPs)

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), prohibited all covered persons and service providers from committing unfair, deceptive, or abusive acts or practices (UDAAPs) UDAAPs may cause significant financial injury to consumers, erode consumer confidence, and undermine fair competition in the financial marketplace.

Abusive Acts or Practices

The act materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service. The act takes unreasonable advantage of: o A consumer's lack of understanding of the material risks, costs, or conditions of the product or service. o A consumer's inability to protect his or her interests in selecting or using a consumer financial product or service. o A consumer's reasonable reliance on a covered person to act in his or her interest.

Deceptive Acts or Practices

The act or practice misleads or is likely to mislead the consumer, The consumer's interpretation is reasonable under the circumstances, and The misleading act or practice is material. Deceptive acts or practices can take the form of representation or an omission. Ensuring that claims are supported before they are made minimizes the risk of omitting material information or making false statements that could mislead consumers.

Padding or Packing

The practice of charging customers unearned, concealed, or unwarranted fees

Silent Second

The buyer of a property borrows the down payment from the seller through the issuance of a undisclosed second mortgage The primary lender believes the borrower has invested his own money in the down payment, when in fact, it is borrowed. The second mortgage may not be recorded to further conceal its status from the primary lender

Buy and Bail

The homeowner is current on the mortgage, but the value of the home has fallen below the amount owed, so he or she applies for a purchase money mortgage on another home. After the new property has been secured, the buy and bail borrower will allow the first home to go into foreclosure.

Performing a due diligence review of advertisements prior to publication

The lender must honor any plan it advertises. Advertising has to be honest with what you have and an APR anytime you have a number on your marketing piece Do not use any language, words, or information that is detrimental to the borrower or indicate to the borrower they should not apply with you (ECOA- For example, a lender cannot advertise its credit services exclusively to one class if it discourages other classes.)

Collateral or Equity Stripping

The practice of making loans that rely on the liquidation value of the borrower's home or other collateral rather than the borrower's ability to repay Done by getting the borrower into a loan they do not qualify for, sometimes by encouraging a borrower to "pad" their income to get approved for the loan. The lender doesn't care whether the borrower can pay their mortgage payments. As soon as the borrower fails to make a payment, the lender will foreclosure on the home, taking the home and stripping the equity that the borrower has spent years building up.

Gramm-Leach-Bliley Act (GLBA)

The privacy sections restrict the disclosure of non-public personal information (NPI) GLBA also imposes criminal penalties for anyone who obtains customer information from a financial institution under false pretenses. When customer information is obtained under false pretenses, including impersonating someone to use their personal information fraudulently is considered pretexting. A pretexter may call someone acting as if he is from a research company and ask a few questions to try to obtain personal information and then will call a financial institution pretending to get more information to defraud the innocent victim. Pretexting is prohibited by GLBA The pretexting rule also prohibits the use of forged, counterfeit, lost, or stolen documents to obtain customer information from a financial institution. It is also illegal to ask another person to obtain someone else's information using false, fictitious or fraudulent statements to obtain the information from a financial institution. Not sending out the appropriate privacy notices

Reverse Mortgage Fraud Characteristics

The senior claims he/she received the house free from a "special government program" Distressed property is quitclaimed to the senior just prior to the reverse mortgage loan application There is a power of attorney acting on behalf of the senior A caregiver or family member appears to be coaching the senior The power of attorney is held by a caregiver but the senior has relatives (children, grandchildren) The senior has no prior homeownership "For Sale" sign in the yard Appraisal photos suggest the property is vacant Appraisal uses comparable sales that are outdated or outside of the property's neighborhood Communication with the loan officer is only done through the person holding power of attorney The senior's credit report is inconsistent with information on the loan application

Reverse Occupancy Fraud Characteristics

The subject properties are sold as investment properties Purchasers are first-time home buyers with minimal or no established credit Purchasers have low income but significant liquid assets that are authenticated by bank statements Purchasers make large down payments The appraisal has a comparable rent schedule (to show expected rental income from the subject property) Purchasers present "rent free" letters stating they are not paying rent to live in their primary residence The purchasers and other parties to the transaction belong to an identifiable group that share certain characteristics that are often seen in cases of affinity fraud Transactions occurring in a specific geographic region

Established Business Relationship

The term "time of establishing a customer relationship" is defined by the regulations for a financial institution as to when they engage in extending credit directly to consumers to finance purchases of goods or services, to mean the "time of establishing the credit relationship" with the consumer. At the closing of the loan, the lender's business relationship starts. A special rule defines the customer relationship when several financial institutions participate in a loan transaction. A financial institution establishes a customer relationship with an individual when: ● It originates a loan or closes the loan. ● If the financial institution sells the loan but maintains the servicing rights, it continues to have a customer relationship with the individual. ● If the financial institution transfers the servicing rights but retains an ownership interest in the loan, the individual is a "consumer" of that institution and a "customer" of the institution with the servicing rights. ● If other institutions hold an ownership interest in the loan (but not the servicing rights), the individual is their consumer, too.

Scenarios surrounding a consumer's bank activity

The underwriter might also require the borrower's bank statements; the statements must cover the most recent full two-month period of account activity (60 days). Also, if the borrower is using a retirement fund, the underwriter will require that account statement as well. For a reserve to be considered seasoned and acceptable, the funds must be on deposit in a financial institution in the borrower's name for at least sixty (60) days. Fraud alerts are notes on a consumer's credit report that require a creditor that check a borrower's credit to confirm the borrower's identity before opening a new account.

Verifying loan application information

To verify the assets the borrower has, you can use bank statements, investment statements, Verification of Deposits. The income is verified with 1099's, W-2's, Paystubs, tax returns with a 4506T and a Verification of Employment VOM (Verification of Mortgage): Used to verify that a borrower has X mortgage.VOR (Verification of Rent): Used to verify that a borrower pays rent and pays their rent on time.

Loan Modification

Typically involves a company that claims they can assist homeowners facing delinquency or foreclosure with options that allow them to keep their property, refinance or modify their existing mortgage, repair credit or help them stay in the home longer. Typically, these companies charge excessive upfront fees for their work, fail to execute any of their promises, and put the homeowners at a much higher risk of losing their home.

Requirement to treat all applicants with the same level of fairness

Under Fair Lending, Fair Housing and ECOA, it is required you must allow all consumers to apply for a loan, it doesn't mean the loan will be granted, but they must be allowed to apply. Fair lending is essentially granting access to credit to everyone and anyone who wishes to submit an application and qualifies for a loan.

Scenarios where "unfair, deceptive, or abusive acts" are undertaken

Unfair Acts: Refusing to release lien after the consumer makes the final payment on a mortgage. Dishonoring credit card convenience checks without notice. Processing payments for companies engaged in fraudulent activities Failing to post payments timely or properly or to credit a consumer's account with payments that the consumer submitted on time and then charging late fees to that consumer Deceptive Acts: Inadequate disclosure of material lease terms in television advertising. Misrepresentation about loan terms.

Disparate Treatment

either overt discrimination, or there is comparative evidence of discrimination Illegal disparate treatment occurs when a lender bases its lending decision on one or more of the prohibited discriminatory factors covered by the fair lending laws.

Fraud for Criminal Enterprise

fraud committed by organized crime organizations or for money laundering The Bank Secrecy Act as well as the Patriot Act both look to stem money laundering and fraud for criminal enterprise

Fraud for Profit

may involve a group of industry insiders attempting to defraud lenders for profit Those who commit this type of mortgage fraud use their specialized knowledge or authority to commit or facilitate the fraud. This collusion by industry insiders may include mortgage loan originators, appraisers, mortgage brokers, attorneys, or other professionals engaged in the industry. Fraud for profit aims not to secure housing, but to misuse the mortgage lending process to steal cash and equity from lenders or homeowners. Fraud for profit is the type of fraud federal agencies target as it does the most damage to consumers and the mortgage industry.

Disparate Impact

occurs when a facially neutral policy or practice is applied equally to all applicants, but the policy or practice disproportionately excludes or burdens certain groups of people on a prohibited basis. An example is a lender who has a minimum loan amount that they will lend on, say that is $150,000. Still, the average home value in a minority neighborhood is $100,000, so the lender does not help anyone in that minority neighborhood. The result is disparate impact and discrimination.

You just closed a loan with a customer and would like to take them out to dinner to celebrate their new home purchase. Midway through the meal, you realize paying for your clients' meals may be considered a violation of RESPA. You should:

proceed; it is ok to for you to pay for their meals. (If you are paying for their meal simply to celebrate their loan closing and not in anticipation or as a thank you for referrals they've made, it should not be a violation of RESPA Section 8.)

Examples of "redlining"

refusing to take an application because of the location of the property If you were to draw a circle around a specific area on the map, and then reuse to lend there

Comparative evidence

the treatment of a credit applicant differently based on one of the prohibited basis, differences in treatment that are not fully explained by legitimate non- discriminatory factors, and does not require any evidence that the treatment was motivated by prejudice or that the creditor intended to discriminate against a person. An example of comparative evidence is that someone with the same credit file but perhaps one is white and the other is Hispanic has a higher interest rate even though their credit profile is the same as the non- Hispanic applicant

Overt discrimination

when a lender openly discriminates on a prohibited basis; this can be in a written policy or an oral statement. An example of overt discrimination would be that a credit card company has a written policy that anyone who is age 21-27 can only have a credit limit of $1,000. Still, anyone over 30 automatically gets a credit limit of $5,000. This policy violates ECOA's prohibition of discrimination based on age

Examples under RESPA

• An MLO takes a real estate agent to lunch to introduce themselves and services. This is OK. What would not be ok is if the MLO sends the real estate a gift card to a restaurant as a thank you for referring a borrower to them. • An MLO can provide content, coffee and doughnuts for training real estate agents on new mortgage products. What would not be acceptable would be if the real estate agents pay the real estate agents CE classes and filing fees for renewal. • An MLO can lease space from a real estate agent and pay fair market rent but it becomes an issue if the MLO rents conference room in the real estate agent's office for their closings at a high fair market value. • A lender can sponsor a real estate agents holiday part and receive recognition on invitations, programs, and signage as well as receiving tickets to attend, set up a table to display marketing materials and is given the opportunity to address all the attendees. What would not be acceptable is if the lender pays for the party because of how many referrals they received from the real estate agents. • An MLO can send real estate agents seasonal candy baring their logo or information but it becomes an issue when the MLO only sends referring agents' boxes of expensive candy as a holiday gift. • An MLO attends and caters an agent's caravan with signage touting promotional consideration beside displayed business cards - this is OK, but it's not ok if the MLO pays for the caterer for an agent's open house. • An MLO can create a flyer featuring themselves and an agent and have the agent print and distribute but the MLO cannot create, print and mail and pay for postcard featuring the loan originator, lender and agent. • An MLO can't purchase tickets to a sporting event or pay for the real estate agents' round of golf, this would also be a violation of RESPA section 8.