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Chapter 1: Financial Crisis

Chapter 1: Financial Crisis. Industry Insiders. Collaboration Collusion. U.S. Mortgage Fraud. Affects Real Estate Values Rental Markets. Mortgage Fraud in the US. Fraud 1974-1975 2000-2005. Effects of Foreclosures. Boarded Up Homes Negative Feelings Difficult to Find Buyers

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Chapter 1: Financial Crisis

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  1. Chapter 1: Financial Crisis

  2. Industry Insiders • Collaboration • Collusion

  3. U.S. Mortgage Fraud • Affects Real Estate Values • Rental Markets

  4. Mortgage Fraud in the US • Fraud • 1974-1975 • 2000-2005

  5. Effects of Foreclosures • Boarded Up Homes • Negative Feelings • Difficult to Find Buyers • Lower Tax Appraisals • Eroded Tax Base • Fewer Community Services

  6. Effects of Foreclosures • Foreclosed Property • Lowers for 1/8 Mile • .9% to 1.44% • Each Foreclosed Property • Reduces by 1.8% • There Goes the Neighborhood

  7. www.ftc.gov/idtheft Factors Leading to Foreclosures • Personal Bankruptcy • Poor Loan Servicing • ARM Adjustments • Identity Theft • Mortgage Fraud & Illegal Flipping • Predatory Lending

  8. Roles of Professionals • Loan Officers • Retail Loan Officer • Mortgage Broker • Loan Processors • Underwriters • Appraisers • Wholesale Lenders

  9. Regulation Trends • Licensing Mortgage Brokers • More Education

  10. Chapter 2: Mortgage Basics for Real Estate Licensees

  11. Impact of Liens • Promissory/Mortgage Note • Mortgage/Deed of Trust

  12. Value Time Cost of Borrowing Money Factors • Term of Loan • Time Value of Money • Assessing Borrower’s Borrowing History • Loan Amount

  13. Loan Sources • Government-Assisted Programs • Private Sector Programs

  14. Loan Types • Fixed-Rate Mortgage (FRM) • Adjustable-Rate Mortgage (ARM)

  15. Exotic Loans • Interest-Only (IO) Loans • Pay-Option ARMs • Negative Outcomes

  16. Underwriting Criteria • Income • Credit • Assets/Down Payment • Occupancy

  17. Alternatives to Traditional Requirements • Full Documentation Loan • Lite Doc/Alt Doc Loan • No Doc Loan • Stated Income Loan • Seller Carryback Loan • Combinations

  18. Role of Secondary Market • Primary Market • Secondary Market • Securitization • Tighter Standards • More Losses

  19. Manage Buyer Expectations • Lenders Who Specialize • Meet Buyers’ Needs • Use Reputable Lenders • Avoid Unrealistic Expectations

  20. Chapter 3 Mortgage Fraud

  21. Tracking Suspected Fraud • Financial Crimes Enforcement Network (FinCEN) • Financial Institution Fraud Unit (FIFU) • Suspicious Activities Reports (SARs) • Suspicious Mortgage Activity Report (SMARt Form)

  22. Mortgage Fraud • Define • Deception, False Facts • Collusion, False Premises • Lying • Types • Fraud for Housing • Fraud for Profit (& Business)

  23. Penalties for Fraud • Conspiracy • One Time • Looking the Other Way • Examples • Lying on Loan Application • Lying about Purchase Price

  24. Red FlagsPossible Mortgage Fraud • Shady Practices • Dual Contracts • Hidden Addenda • Silent Mortgage

  25. Red FlagsPossible Mortgage Fraud • Inflated Appraisals • False Information on Applications • Rebates to Borrowers • Creative Financing

  26. Fiction or Fact? • Hypothetical Situation • Real-Life Example • Casey Serin • Lived on Cash Back • Foreclosures • Fudge on Intent to Live • Etc.

  27. Chapter 4Predatory Lending

  28. Dilemma for Low Income& Poor Credit • Federal Housing Administration (FHA) Loans • Not Kept Pace • Lost Market Share • Growth of Subprime Market • Concentration of Credit Problems • Little or No Credit History

  29. Signs of Predatory Lending • Subprime Not Always Predatory • Legal Interests Not in Best Interest of Borrower • Lack of Competition from Prime Lenders

  30. Subprime Lending Practices • Higher Interest Rates • Adjustable Rate Mortgages (ARMs) • Excessive Origination & Closing Fees • Prepayment Penalty Fees • Binding Mandatory Arbitration (BMA) • Yield Spread Premiums (YSPs) as Kickbacks

  31. Steering & Targeting • Elderly • Racial Profiling • Immigrants • Those with Low Credit Scores • Flipping Loans • Unnecessary Products • Misleading or No Information about Loans

  32. Changing the Climate • Automated Underwriting Systems • More Regulation • Prohibit Appraisal Fraud • Consumer Education

  33. HUD Borrower’s Bill of Rights

  34. Chapter 5Illegal Flipping

  35. Real Estate Flips • Positive Effects • Gentrification • Construction Jobs • Increase Tax Base • Negative Effects • Locals Forced Out • Tenants Displaced

  36. Real Estate Flips • Equitable Title • Beneficiary • Developer • Foreclosed Property Purchaser • Vendee in Installment Sale • Back-to-Back Closings

  37. Illegal Flipping • Schemes • Use of Kickbacks • Fake Documents • Straw Buyers • False Identities • Real-Life Examples

  38. Signs of Illegal Flipping • Lender Fraud • Possible Activities • Deed Not in Seller’s Name & Lender Unaware • Owned for Short Period • Seller Orders Appraisal • Rapid Increase in Value • Unusual Payments

  39. Magnitude of Fraud • All Parts of Country • Real-Life Examples • Connecticut • Southern California • Twin Cities, MN

  40. Results of Illegal Flipping • Neighborhood Responses • Housing & Urban Development (HUD) • Illinois Efforts • Neighborhood Housing Services of America (NHSA) • Georgia Real Estate Fraud Prevention & Awareness (GREFPAC)

  41. Federal & State Involvement • Financial Institution Fraud Unit (FIFU) • States w/ Most Reported Fraud • Florida • Colorado & Illinois • Greatest Improvement • Georgia • South Carolina

  42. Fraud vs. Subprime Loan Rates

  43. Protect Against Illegal Flipping • Know Market • Use Competitive Market Analysis (CMA) • Thoroughly Inspect • Know Extent of Repairs • Meticulous Documentation

  44. Chapter 6: Federal Protections • Fair Housing Act • Equal Credit Opportunity Act (ECOA) • Home Mortgage Disclosure Act (HMDA) • Community Reinvestment Act (CRA) • Real Estate Settlement Procedures Act (RESPA) • Truth –in-Lending Act (TILA)

  45. Educate Buyer Borrowers • HUD Web Site • HUD Pamphlet • English • Spanish

  46. Real Estate Settlement Procedures Act (RESPA) • Federally-Related Residential Loans • Disclosures at Time of Application • Information Booklet • Good-Faith Estimate (GFE) • Affiliated Business Arrangement (AfBA) • Seller Cannot Require Certain Title Insurance Company

  47. www.realtor.org RESPA (continued) • Prohibits Kickbacks • Disclosures at Settlement/Closing • Disclosure After Settlement/Closing • Escrow Account Rules • Servicing Transfer Statement

  48. RESPA Enforcement • Section 6: Servicing of Loans • Section 8: Anti-kickbacks & Unearned Referral Fees • Section 9: No Specific Title Insurance Company • Section 10: Limits on Escrow Accounts

  49. RESPA Enforcement • Injunctive Relief • File a Complaint with HUD • In Writing • Confidentiality

  50. Truth-in-Lending Act (TILA) • Implemented by Regulation Z • No Coverage • Business, Commercial, Agricultural, Organizational Loans • More than $25,000 Loan • Student Loan Programs

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