section 3

application process.

Falsifying employment, identity, income, assets and deposits, and undisclosed debt are some of the most common forms of fraud in the

Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act)

requires all states to have a loan originator licensing and registration system for residential mortgage loan originators (MLOs). The SAFE Act provides uniform national licensing standards requiring minimum licensing and education and gives a unique identifier number to loan originators registered in the national database.

Predatory lenders

target victims from a specific demographic, with common characteristics such as ethnicity, nationality, age, and socioeconomic variables, including occupation, education, and income. They have been known to recruit ethnic community members as co-conspirators to participate in mortgage loan origination fraud.

mortgage fraud ring

that involves many professionals—bank loan officers, real estate agents, appraisers, accountants, and mortgage brokers—working in collusion to defraud lenders is devastating

Fraud for property

typically represents illegal actions conducted solely by the borrower, who is motivated to acquire and maintain ownership of a house under false pretenses

forensic audit scam

, a forensic loan auditing company offers to have an attorney or other expert conduct a forensic audit of the homeowner's loan documents.

Short sale scammers

, calling themselves short sale negotiators or short sale processors, may promise to expedite a short sale for an upfront fee or for a percentage of the sale price. Charging advance fees is illegal in many states

Money Laundering Crimes

Bank Fraud Credit Card Fraud Drug Offenses Mortgage Fraud RICO Cases Securities Fraud Tax Evasion

MLO's Responsiblity

Comply with the spirit and letter of federal and state laws and regulations. Include your unique identifier number. State clearly that rates and terms are subject to change as well as the date the published rates are available. Use the organization's logo, address, phone numbers, and other pertinent information on business cards, letterhead, and correspondence of all types. Disclose membership affiliations with all industry organizations.

Mortgage Fraud Incident Notice (MFIN)

Freddie Mac and Fannie Mae are required to report suspicious mortgage fraud activity on a _______ to an examiner-in-charge.

Stage Three

If you acquiesce to gain approval, ("Go with the flow. Everyone is doing it.")

Stage Five

If you are convinced the system is broken and are rising above the law to feed your family and avoid bankruptcy and divorce

Mortgage Assistance Relief Services (MARS)

Rule in 2010, it is illegal for companies to collect any fees until a homeowner has actually received an offer of relief from his or her lender and accepted it.

mortgage rescue scam

These con artists pose as foreclosure counselors and convince desperate homeowners that they can save a house from foreclosure if the homeowner deeds the property to them and pays an exorbitant upfront fee.

prepayment penalty

Truth in Lending Act and establishing requirements for certain high-rate/high-fee loans. The rules, found in Section 32 of Regulation Z, ban most prepayment penalties from high-rate/high-fee loans if the consumer's total monthly debt payments exceed 50% of his or her monthly gross income at the consummation of the loan.

Freddie Mac Form 65/Fannie Mae Form 1003

When completing the Freddie Mac Form 65/Fannie Mae Form 1003, the borrower affirms, "I/We fully understand that it is a Federal crime punishable by fine or imprisonment, or both, to knowingly make any false statements concerning any of the above facts as applicable under the provisions of Title 18, United States Code, Section 1001, et seq."

conspiracy to defraud

Where a scheme and artifice to defraud is shared by two or more

equity stripping (or skimming)

a financially troubled owner is approached by a foreclosure specialist who promises to help stop the foreclosure or locate a purchaser. Equity stripping occurs when these predators prey on people who are often uninformed and in need of help

Phantom help schemes

are still widespread because there are still many distressed homeowners. Phantom help schemes are often used in association with advance fee or loan modification schemes

LexisNexis Mortgage Asset Research Institute

compiles a database called the Mortgage Industry Data Exchange (MIDEX)

RESPA prohibits

fee splitting and receiving unearned fees for services not actually performed. Unearned fees are payments in excess of the reasonable value of goods provided or services rendered.

Fraud

for property accounts for roughly 20% of known cases of fraud. Common cases of fraud for property involve stated income/stated assets, silent seconds, equity theft, and identity theft.

equity theft (or deed scam)

fraudsters locate an unoccupied property and forge a deed transfer or a satisfaction of lien.

excessive rates and fees

in the amount financed is another type of predatory lending

dishonest appraiser

inflates the value of the property and provides a misleading appraisal report to the lender

Occupancy fraud

is a type of mortgage fraud, whereby the borrower lies about whether or not the home will be owner occupied.

Asset-based lending

is the practice of predatory lenders making loans without regard to the borrower's ability to repay the loan

Loan flipping

is the repeated refinancing of a loan within a short time period, without any real benefit to the owner

Padding

is the unethical and often illegal practice of increasing or duplicating closing costs

Stage Four

occurs later in life and represents a respect for civil authority

he House King (Angelo Puentes)

paid straw buyers to sign bogus mortgage applications claiming that purchased homes would be their primary residences—when in reality, they had no intention of living there

industry insiders

people in the real estate and mortgage business.

Credit life insurance

provides for repayment of the loan should the borrower die. Because the borrower does not have to prove insurability, it is more expensive than insurance purchased separately. Fannie Mae and Freddie Mac will not buy any loan that includes financed credit insurance.

predatory lenders were targeting

the elderly; those with low-to-moderate incomes; people desperate to consolidate debt; and those who recently had gone through a divorce, death of a spouse or a bankruptcy. The victims were found most often through telemarketing; TV, print and direct mail ads; and court or credit bureau information.

TILA (Common Violations)

-Advertising a note rate without the APR -Using a trigger term, such as the amount of the down payment, without the required disclosures

Included Financial Institutions [18 USC §20]

-Any bank or savings association with deposits insured by the FDIC); -A credit union with accounts insured by the National Credit Union Share Insurance Fund; -A Federal home loan bank or a member; -A Farm Credit Bank, production credit association, agricultural credit association, bank for cooperatives, or any division, officer, or employee thereof, or of any regional agricultural credit corporation; -A small business investment company; -A bank holding company or a savings and loan holding company; -A Federal Reserve bank or a member bank of the Federal Reserve System; -A foreign branch of a national banking association operating under the Federal Reserve Act; -A branch or agency of a foreign bank; or -A mortgage lending business or any person or entity that makes in whole or in part a federally related mortgage loan.

Essential Elements of Mail Fraud

-Having devised or intending to devise a scheme to defraud (or to perform specified fraudulent acts), and -Use of the mail for the purpose of executing, or attempting to execute, the scheme (or specified fraudulent acts).

Ethical Business Principles

-Obey the law. Ethical business people abide by laws, rules, and regulations relating to their business activities. -Be honest in all communications and actions. Ethical business people are truthful, honest, and trustworthy. Ethical business people do not deliberately mislead or deceive others by misrepresentations, overstatements, partial truths, or selective omission of facts. -Maintain personal integrity. Integrity literally means having "wholeness" of character. It is demonstrated by consistency between thoughts, words, and actions. Maintaining personal integrity often requires moral courage, which is the courage to take action for moral reasons despite the risk of adverse consequences. Ethical business people do not sacrifice principles or expediency. -Keep promises and fulfill commitments. Ethical business people make every reasonable effort to keep their promises and they do not create justifications for escaping their commitments. -Be loyal. Ethical business people avoid conflicts of interest and they do not use or disclose information learned in confidence for personal advantage. -Be accountable and transparent. Ethical business people accept personal accountability for their decisions and omissions. They make decisions openly and with full disclosure. This allows anyone affected by the decisions to understand the basis for them. -Strive to be fair and just in all dealings. Ethical business people are committed to justice, the equal treatment of individuals, and the tolerance for and acceptance of diversity. -Commit to excellence. Ethical business people are committed to excellence when performing their duties. -Treat everyone with respect. Ethical business people are courteous and treat all people with equal respect and dignity regardless of sex, race, or national origin. They follow the Golden Rule, striving to treat others the way they would like to be treated. -Demonstrate concern for the well-being of others. Ethical business people seek to accomplish their business objectives in a manner that causes the least harm and the greatest positive good.

Characteristics of Predatory Lenders

-Offer easy access to money but often use high-pressure sales tactics. -Inflate interest rates, charge outrageous fees, and have unaffordable repayment terms. -Steer or direct borrowers to high-rate/high-fees loans even though the borrowers could have qualified for loans with lower fees and rates. -Trick buyers into taking out a loan they cannot afford to repay, knowing the homeowner is at a high risk of losing the home to foreclosure. -Use harassing collection tactics. -Aggressively seek out distressed homeowners. -Provide little or no information about the loan modification, short sale, or foreclosure process. -Ask for an upfront fee before providing any services. -Accept payment only by cashier's check or wire transfer. -May claim government affiliation. -Guarantee to get a loan modification or stop the foreclosure process-no matter the circumstances. -Use affinity marketing, i.e., Spanish-speakers marketing to Spanish-speakers, Christians to Christians, senior citizens to senior citizens, and so on. -Offer "testimonials" from other customers. -Tell homeowners to cease all contact with mortgage lenders, lawyers, or housing counselors. -Tell homeowners to make their mortgage payments directly to them, rather than their lenders. -Coerce homeowners to transfer their deeds to them. -Offer to buy the house for cash for much lower than the selling price of similar houses in the neighborhood. -Pressure homeowners to sign papers they have not had a chance to read thoroughly or do not understand.

Code of Ethics for Lenders

-Protect all they deal with against fraud, misrepresentation, or unethical practices of any nature. -Adopt a policy that will enable them to avoid errors, exaggeration, misrepresentation or the concealment of any pertinent facts. Steer clear of engaging in the practice of law and refrain from providing legal advice. -Follow the spirit and letter of the law of Truth in Advertising. -Provide written disclosure of all financial terms of the transaction. -Charge for their services only such fees as are fair and reasonable and which are in accordance with ethical practice in similar transactions. -Never condone, engage in or be a party to questionable appraisal values, falsified selling prices, concealment of pertinent information and/or misrepresentation of facts, including the cash equity of the mortgagor in the subject property. -Not knowingly put customers in jeopardy of losing their home, nor consciously impair the equity in their property through fraudulent or unsound lending practices. -Avoid derogatory comments about their competitors but answer all questions in a professional manner. -Protect the consumer's right to confidentiality. -Disclose any equity or financial interest they may have in the collateral being offered to secure the loan. -Affirm commitment to the Fair Housing Act and the Equal Credit Opportunity Act.

Essential Elements of Wire Fraud

-Scheme to defraud by means of false pretenses, -Defendant's knowing and willful participation in scheme with intent to defraud, and -Use of interstate wire communications in furtherance of the scheme

Steps to Minimize Risk

-Treat each and every person fairly, provide all pertinent disclosures, and objectively evaluate their financial situation -Never knowingly arrange a loan beyond the borrowers' ability to repay -Provide timely disclosures -Advertise loans and loan products in compliance with Reg. Z -Provide timely and accurate estimates of closing costs, fair time tables, and clear expectations -Fully disclose all information and not make false representations -Carefully document the entire transaction -Verify that the HUD-1 statement accurately reflects the transaction -Do not participate in or accept unethical conduct or practices -Do not give or receive illegal kickbacks. A kickback is an illegal payment made in return for a referral that results in a transaction. This applies to almost every loan made for residential property. -Never condone, engage in, or allow oneself to be party to unscrupulous appraisal practices -Do not participate in dishonest or fraudulent conduct -Never ask borrowers or employees to sign blank documents -Immediately terminate your relationship with a borrower if the borrower asks you to do anything that is illegal or if you become aware that the borrower has provided false information that could deceive a lender or others. -Report fraud if it is suspected.

National Foreclosure Mitigation Counseling program

58% of homeowners receiving foreclosure counseling listed unemployment as the main reason for default. High unemployment and mortgage loan delinquencies/defaults are contributing factors to an increasing pool of homeowners vulnerable to mortgage fraud and predatory lending.

Stage One

generally is representative of younger subjects who are afraid of parental confrontations

Bank Fraud

Federal prosecutors use bank fraud charges as a way to prosecute banking and financial institution related offenses, including fraudulent loan applications, fraudulent loans, and mortgage fraud. A person knowingly executes or attempts to execute a "scheme" or "artifice" to defraud a bank or other financial institution. A person knowingly executes or attempts to execute a "scheme" or "artifice" to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.

highest mortgage fraud index in the nation

LexisNexis through the 4th quarter of 2013, Florida, with a MFI score of 529, followed by Nevada (221), New Jersey (209), Arizona (201), and Illinois (180)

Lulling Letters, Telegrams, and Telephone Calls

Lulling Letters, Telegrams, and Telephone Calls After receiving money from their victims, fraudsters often send letters, emails, or make other communication with the victims that are designed to lull the victims into a false sense of security, postpone inquiries or complaints, or make the transaction less suspect. This use of mailings or wire transmissions that helps continue the scheme is considered mail and/or wire fraud.

URAR Form Freddie Mac Form 70/Fannie Mae Form 1004

Paragraph #25 of the Uniform Residential Appraisal Report Form Freddie Mac Form 70/Fannie Mae Form 1004 includes a similar statement. It states, "Any intentional or negligent misrepresentation(s) contained in this appraisal report may result in civil liability and/or criminal penalties including, but not limited to, fine or imprisonment or both under the provisions of Title 18, United States Code, Section 1001, et seq., or similar state laws."

Mail Fraud

Section 1341 states that it is illegal to use the United States Postal Service or any private or commercial interstate carrier to promote fraudulent schemes. [18 USC §1341].

Wire Fraud

Section 1344 states that it is illegal to promote fraudulent schemes by writings, signs, signals, pictures, or sounds through wire, radio, or television communication in interstate or foreign commerce.

six stages of moral reasoning

Stage One Might makes Right / Obedience to Authority Two Looking out for Number One / Be nice to others IF they will be nice to you Three Good Girl, Nice Guy / Approval is more important than specific rewards Four Law and Order / Obey the laws created by the powers that be Five Social Contract / If the rules of society are destructive, the contract with society is over Six Universal Ethical Principles / Universals determine right versus wrong and might contradict legal authority

Mortgage fraud scams

employ some type of material misstatement, misrepresentation, or omission relating to the property or potential borrower that is relied on by an underwriter or lender to fund, purchase, or insure a loan

identity fraud,.

an identity is intentionally altered, created, or stolen to obtain a mortgage. The applicant's name, personal identifying information, and credit history are used without the true person's knowledge. The first sign that a person's identity was stolen can be a receipt of a notice of default on a property that he or she does not own

commercial email message

an unsolicited email message sent by a MLO to people on a mailing list for the purpose of offering that MLO's services

seven types of fraud and misrepresentations:

applications, appraisals, verifications of employment, verifications of deposit, credit documents, tax returns/financial statements, and escrow/closing documents

organized fraud rings

are comprised of industry insiders

mortgage fraud

as "any material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase or insure a loan."

predatory lenders

as those "who operate in unethical and, often, illegal ways, using high-pressure sales tactics to help people to obtain credit while charging extremely high costs and interest for their services." mortgage practices that are deceptive, unfair, or even blatantly fraudulent examples of predatory lending practices include failing to provide all RESPA documentation, e.g., Good Faith Estimate, Special Information Booklet, Truth in Lending, etc., so the borrower may clearly understand the mortgage terms and lender policies and not disclosing hidden fees BEFORE the settlement/closing. convince borrowers to refinance a loan without any true benefit or influence the borrower to obtain a higher loan amount using inflated appraisals

unique identifier number

assigned for life, allow MLOs to be tracked if they move between state and federal jurisdictions and/or change employers, and help consumers to find certain information about a particular MLO when they search on the Registry's consumer access portal

Mortgage Industry Data Exchange (MIDEX)

consists of information about persons who participated in mortgage fraud. This information is contributed voluntarily by lenders, insurers, and regulatory agencies

Suspicious Activity Report (SAR)

contains data fields for subject addresses, the institution's main office address, and the branch address where the suspicious activity was discovered

Professional ethics

define standards of conduct or practice that help a professional choose what to do when faced with a problem at work that raises a moral issue.

stated income/stated asset loan (liar loan)

had its place. However, they can easily be abused by a borrower providing false information because there was no documentation required. Liar loans depended on a borrower's credit score and the LTV rather the the borrower's actual ability to repay the mortgage. Liar loans combined with inflated appraisals put borrowers into homes they could not afford. Because of the Ability to Repay/Qualified Mortgage rules, lenders are verifying sources of income.

Mortgage fraud

harms the lender and occurs when a borrower perpetrates a fraud in order to purchase or keep ownership of a property.

Mortgage fraud

has become such a widespread problem that the FBI has opened a division specifically for dealing with fraud. The two basic kinds of fraud are fraud for property and fraud for profit

mortgage fraud (types of people involved)

include licensed and non-licensed mortgage brokers, mortgage loan originators, lenders, appraisers, underwriters, accountants, real estate agents, settlement attorneys, land developers, investors, builders, bank account representatives, and trust account representatives.

scheme or artifice to defraud

includes a scheme or artifice to deprive another of the intangible right of honest services

six measures of fraud risk

income and assets, undisclosed debt, occupancy, employment, identity, and property

Application fraud and misrepresentation includes

incorrect name(s) used for the borrower(s), occupancy, income, employment, debt and asset misrepresentation, different signature(s) for the same name(s), invalid Social Security number(s), misrepresented citizen/alien status, incorrect address(es) or address history, and incorrect transaction type.

Property flopping

involves deflating the value of the property below market value and selling it to a friendly party, who resells it at a higher price on the deal.

unethical practice

involves inserting hidden clauses in contracts stating that a borrower promises to pay the broker or lender a fee whether the mortgage closes or not

Fraud for profit

is a complex scheme involving multiple parties, including mortgage lending professionals, in a financially motivated attempt to defraud the lender of large sums of money. A high percentage of mortgage fraud for profit involves collusion by industry insiders, such as appraisers, mortgage brokers, attorneys, loan originators, and other professionals engaged in the industry. examples of fraud for profit include borrowers making misrepresentations on loan applications or outright creating bogus loan documents with fraudulent qualifications, flipping, straw borrowers, straw buyers, inflated appraisals, and air loans.

Mortgage fraud

is a crime in which the intent is to materially misrepresent or omit information on a mortgage loan application to obtain a loan or to obtain a larger loan than would have been obtained had the lender or borrower known the truth

Mortgage Fraud Index (MFI)

is a measure of fraudulent mortgage case activity

Fraud for profit

is a more sophisticated version of mortgage fraud because it involves real estate agents, appraisers, lenders, and closing agents or attorneys. Some examples of fraud for profit include flipping, straw buyers, bogus sales, inflated appraisals, and air loans.

air loan

is a non-existent property loan that has no collateral. The scammer invents borrowers and properties, establishes accounts for payments, and maintains custodial accounts for escrows

straw buyer

is a person used to buy property in order to conceal the actual owner. The straw buyer does not intend to occupy the property or make payments. In fact, no payments are made and the lender forecloses on the loan. The straw buyer is usually compensated for use of his or her identity.

Fraud

is an intentional act meant to deceive in order to get someone to part with something of value.

Undisclosed debt fraud

is an intentional failure to disclose debts during the loan application process

Income and/or asset fraud

is an intentional misrepresentation of income and/or assets on a mortgage loan application in order to qualify for a mortgage.

Property flipping

is best described as purchasing properties and artificially inflating the appraised value through false appraisals.

Ethics

is defined as a system of moral principles or standards that govern the conduct of members of a group.

White-collar crime

is defined as a variety of nonviolent financial crimes, generally committed by business people involving mail and wire fraud, financial fraud or swindles, money laundering, consumer fraud, insider trading on the stock market, embezzlement, and other dishonest schemes.

Mortgage Fraud

is investigated by the Federal Bureau of Investigation and is punishable by up to 30 years in federal prison or $1,000,000 fine, or both

Money laundering

is simply a process of trying to make illegally earned income appear to be legitimately earned

fraudster or swindler

is someone who commits fraud. Individual buyers commit fraud if they falsify information on their credit applications or submit false or inaccurate documents. use their experience in the banking, mortgage, and real estate-related industries to exploit vulnerabilities in the mortgage and banking sectors to conduct multifaceted mortgage fraud schemes. have access to the financial documents, systems, mortgage origination software, notary seals, and professional licensure information necessary to commit mortgage fraud and have demonstrated their ability to adapt to changes in legislation and mortgage lending regulations to modify existing schemes or create new ones. commit mortgage fraud by using falsified credit applications, altered credit reports, and forged Verifications of Employment

Predatory lending

is the abusive practice of extending credit with the intent to deceive and take advantage of the borrower results in loans to borrowers that include inflated interest rates, outrageous fees, and unaffordable repayment terms make money preying on homeowners and lenders by perpetuating and modifying old schemes (i.e., straw buyers and property flipping) or creating new schemes (i.e., phony loan modification and foreclosure rescue scams).

Predatory lending

is the abusive practice of extending credit with the intent to deceive and take advantage of the borrower.

Money laundering

is the act of making money that comes from "Source A" look like it comes from "Source B" punishable by up to 20 years in prison, a $500,000 fine or two times the value of the proceeds laundered

Packing

is the inclusion of fees and costs in the amount financed, which include points, mortgage broker fees, prepayment penalties on a prior loan, and charges for additional related products, such as single-premium credit life insurance, without the borrower's informed consent.

Property fraud

is the intentional misrepresentation of a property's value as higher than or lower than market value to achieve illegitimate profit

flopping

is the intentional misrepresentation of house prices. opposite of property flipping

kickback

is the payment of something of value to an individual with the goal of persuading or influencing his or her decision or performance in a certain situation. Nearly every fraud scheme involves some type of illegal kickback.

Bid rigging

is the practice whereby two or more investors decide not to bid against a designated bidder among them at a public auction so that the designated bidder buys the foreclosed property at an artificially low price. Bid rigging violates the Sherman Anti-Trust Act. Conviction carries a maximum prison term of 10 years and a $1 million fine.

Misrepresentation

making a false statement or concealing a material fact, causing someone loss or harm in the mortgage industry is the intentional erroneous presentation of information, including false statements or omissions, on which the approval of the loan relies

Employment fraud

occurs when a borrower claims self-employment in a non-existent company or intentionally misrepresents an employer's name, length of employment, position or related information on a loan application to provide justification for a fraudulent representation of the borrower's income.

Flipping

occurs when a person buys a property at one price and re-selling it within a short period at a higher price.

Golden Rule(Ethic of Reciprocity)

often expressed as do unto others as you would have them do unto you.

Section 8 of RESPA

prohibits anyone from giving or accepting a fee, kickback or anything of value in exchange for referrals of settlement service business involving a federally related mortgage loan

Fair Housing Act and the Equal Credit Opportunity Act (ECOA)

protect borrowers against discrimination when they apply for a mortgage loan, a refinance loan, or a home improvement loan. prohibits discrimination in residential real estate transactions and the Equal Credit Opportunity Act prohibits discrimination in all credit transactions.

Ethical principles

provide a guide to making decisions and also establish the criteria by which your decisions will be judged by others.

Ethical principles

provide a guide to making decisions and also establish the criteria by which your decisions will be judged by others. In business, how people judge your character is critical to sustainable success because it is the basis of trust and credibility

National Reverse Mortgage Lenders Association (NRMLA)

was established in 1997 to enhance the professionalism of the reverse mortgage business divided into two parts—Part I-Values and Part II-Rules. The Values convey the ethical and professional principles that NRMLA Members are expected to portray in all business and professional interactions. The Rules address the guidelines and standards of ethical and professional behavior applicable to NRMLA Members.

National Association of Mortgage Brokers (NAMB)

was founded in 1973 and is affiliated with all 50 state associations and the District of Columbia, such as the California Association of Mortgage Professionals (CAMP), the Arizona Association of Mortgage Professionals (AzAMP), or the Louisiana Mortgage Lenders Association (LMLA). Members must follow the NAMB Code of Ethics.

Ethic of Reciprocity(Golden Rule)

which describes a reciprocal, or two-way, relationship between one's self and others that involves both sides equally, and in a mutual fashion.

redlining

which is the refusal to extend credit to someone based solely on the geographic location of the property.

Office of the Controller of the Currency (OCC),

which regulates national banks, issues guidelines to tell banks how to guard against abusive lending practices

MFI of 0

would indicate no reported fraud to MIDEX for a state

MFI of 100

would indicate that the reported fraud for a state is level with expectations specific to fraud rates, given the number of loan originations for that state.

the Home Ownership and Equity Protection Act (HOEPA)

—is specifically designed to combat predatory lending.