Update on Potential Traps for the Unwary Senior
Here is an understandable explanation how the mortgage system is designed to work:
PREDATORY LENDING can occur, for example, when a Borrower is enticed to make a loan that the Borrower is unable repay.
The purpose of the federal DEFICENT REDUCTION ACT of 2005 (aka “DRA ’05”) which President Bush signed on 2/8/2006, was to reduce the federal deficit. To everyone who lives on a balanced budget, this appeared to be a Good Thing.
But Chapters 2 and 3 of this Act dramatically changed the eligibility rules for seniors and disabled persons for Medic-Aid, which for many seniors and disabled is the only medical care program available Medic-Aid is the bulwark of our PUBLIC HEALTH SAFETY NET, such as it is.
In California this program s called “Medi-Cal”. The federal Medic-Aid program is a partial reimbursement to California for its outflows for Medic-Aid care.
California has long been more generous than the federal Medic-Aid program. For example, California has allowed:
- larger CSRA and MMMNA amounts and calculations for additional assets,
- a shorter look-back period, and
- at the coverage level, provided more care than many other states
At the present time, California is not yet operating under the DRA ’05 rules which affect eligibility.
You might well wonder “what on earth does this medical business have to do with Predatory Lending?” Especially since Freddie Mac was criminally sanctioned for its fraudulent bookkeeping practices (of keeping a bad loan on the books, as an asset, so it looked like more was owned than was). Didn’t we already solve that problem? Well, yes and no.
This new law has a Home Equity limit of $750,000, so that in this highly appreciated residential real property market, where so many homes have appreciated beyond that sum, if California were to adopt this federal law, then seniors (who lack the years of income to pay back another 30-year mortgage) could be required to seek loans to pay for medical care, in order to qualify later for LTC Medi-Cal, which in the past in California has been an “interest-free loan” based on medical need and financial eligibility..
In that case, such seniors will not be eligible for loans from the traditional loan market. So driven by governmental regulations, ostensibly dealing with a legitimate medical need (but not really dealing with it), such seniors will be driven to the secondary loan market, the hard-money lenders, i.e. the lenders who make the loan NOT to “make the loan” but to GET THE SECURITY INTEREST, by foreclosing on a loan that foreseeably could not be re-paid at the time it was made!
If you or a loved one ever find yourself in a Predatory Lending situation, please call your local Bar Association for a referral to a qualified attorney to negotiate or litigate the remedies. Also, for more information, see http://www.hud.gov/local/ca/homeownership/predatorylending.cfm for updated current federal information. Hopefully, federally, the left hand will discover (and honor) what the Right had is doing.
Query if the MORTGAGE INDUSTRY will become more tightly regulated, so that we who buy those Mortgage-Backed Securities from anyone other than George nee Jimmy Stewart in “It’s A Wonderful Life” will receive the benefit of the investment?
The Flip Side Of Mortgage Boom: Fraud
By Brian Grow – July 6, 2003 – Chicago Tribune
Here’s something you won’t read amid all the glowing reports of low interest rates and widening homeownership: There’s another more ominous trend lurking behind America’s mortgage financing boom. It’s called mortgage fraud. Over the last three years mortgage swindlers have hit Chicago, using stolen identities to execute elaborate fraud schemes that “flipped” dozens of Chicago properties, officials say. Buying low and selling high aided by fake appraisals, the rings bilked local lenders out of at least $5.3 million on more than $20 million in loans. [emphasis added] “It’s the nature of the mortgage fraud scam — it’s hard to uncover and difficult to prosecute. And the potential payoff is huge,” says Fred Sheppard, assistant state’s attorney in the office of Cook County State’s Atty. Richard Devine. Sheppard says he has investigated several hundred properties alleged to be part of Chicago-area mortgage fraud schemes in the last two years. One Cook County ring broken up last month netted $2.2 million in bogus mortgage loans after its ringleader posed as an attorney preparing a will in order to steal an elderly South Side woman’s identity, officials say. Two other Chicago-based fraud groups took in at least $3 million in bogus loans. “There’s a definite increase in illegal ways to obtain money–mortgage fraud is one of them,” says Tom Bilyk, governmental and financial crimes supervisor for the Cook County state’s attorney. “It’s far more than the public realizes.”
Driven by rapidly rising home prices and a booming mortgage loan market, expected to top $3.34 trillion this year, according to the Mortgage Bankers Association of America, lenders and law enforcement officials from Atlanta to Los Angeles are battling a wave of mortgage fraud rings.”With the overheated mortgage market, you’re going to see a tremendous amount of mortgage fraud,” says Arthur Prieston, founder of The Prieston Group, a San Francisco-based legal, insurance and consulting firm specializing in mortgage fraud. “Ten percent of all mortgages–and probably higher–have some form of misrepresentation.” In a survey released in January by the Reston, Va.-based Mortgage Asset Research Institute Inc., which tracks mortgage fraud, 60 percent of prime lenders said fraud cases were rising moderately or significantly. At Sysdome Corp., a Calabasas, Calif., fraud prevention firm that publishes a quarterly mortgage fraud index, officials expect mortgage loan write-offs to leap substantially in 2003 from an estimated $1 billion in losses last year.
Record expected: “We’re expecting fraud records to be set this year,” says Ben Graboske, a Sysdome vice president. “It’s on the rise and the losses are getting bigger.” The reason: Experts say so-called `fraud-for-profit,’ which includes tactics such as property flipping, using insiders to file false loan applications, identity theft and hiring straw buyers for a fee, is the fastest-growing component of the mortgage fraud industry. Mortgage industry experts say rising “fraud-for-profit” is a more serious concern than “fraud-for-housing,” in which home buyers fudge their income to qualify for a larger mortgage, but rarely default. Higher levels of “fraud-for-profit” are being driven, in large part, by a changing mortgage industry that experts suggest may make mortgage fraud easier. The most significant shift: Mortgage loan originations, once a stalwart of community banks, are now dominated by hundreds of small brokers working on commission, and less likely to develop long-term relationships with their clients. “Twenty years ago, mortgage brokers originated 15 to 20 percent of loans. Now it’s 60 to 70 percent,” said Bill Matthews, vice president of operations at the Mortgage Asset Resource Institute. “If they get in financial trouble, they close down one shop and open another.” Many mortgage lenders are not willing to disclose fraud-related losses, say officials, for fear they will lose future business. That makes mortgage fraud notoriously hard to track for regulators and law enforcement officials. “A large mortgage lender doesn’t want to tarnish its image,” Matthews says. “So, they don’t report the fraud.” All three Chicago fraud rings were able to obtain fraudulent mortgage loans from CitiFinancial, the sub-prime lending unit of Citigroup, from offices in Chicago and Cicero, Bilyk says. The bogus loans, which Bilyk says were secured with help from an insider, resulted in at least a $2.2 million loss to CitiFinancial. “CitiFinancial takes all incidents of fraud very seriously and works hard to eliminate any improper activity,” says CitiFinancial spokeswoman Maria Mendler. In 2000, the company says, it launched an investigation of suspicious loans originated in the Chicago area and subsequently terminated several employees. The company declined to provide estimates for total loan losses attributable to fraud. “We continue to cooperate with the appropriate authorities concerning this matter,” Mendler said.
Specialized teams: Fraud watchers also say mortgage fraud rings are becoming harder to uncover. That is because they are increasingly operated in specialized teams linking dubious loan officers with closing agents, licensed appraisers, title companies and fake buyers. In many cases, they use high quality, but fake, personal identity documents, income statements and appraisal forms to dupe lenders. “Anybody in the mortgage business for more than a year knows how to commit fraud,” says Jerome Mayne, 36, a convicted mortgage fraudster from Minneapolis, who served 16 months for helping a fraud ring while working as a loan officer. “It’s pretty easy to do.” In Chicago, recent mortgage fraud scams fit that pattern, Bilyk says. Here is how they work. Focused primarily on run-down, inner-city properties that are part of foreclosure or tax sales, a member of a mortgage fraud ring applies to buy a property on the cheap, often using their own name, from the local government or a property broker. Quietly, the group conducts cosmetic renovations to the homes: a coat of paint or new windows. Then, they “flip” the home in a second sale. Using a bogus appraisal, they artificially inflate the home price. Then, they sell it to a phantom buyer created by a stolen identity. By duping lenders such as CitiFinancial into issuing large new mortgage loans, the three recent mortgage fraud rings in Chicago turned a massive profit, Bilyk says.
One Chicago gang was brazen, he says. On June 8, 2000, members purchased a dilapidated house at 3924 W. Grenshaw St. for $63,000 in a county auction, and sold it the same day for $200,000. Today that address is a vacant lot. Two months later, they bought one half of a duplex at 1143 W. 111th St. for $36,500 and sold it the same day for $120,000. And the perpetrators were able to turn a $275,000 profit after buying a run-down greystone at 4631 S. Calumet in Chicago for $175,000 and selling it several hours later for $450,000. “But for stealing the identities, they might not have been caught,” Bilyk says. Fourteen alleged members of three Chicago fraud rings were charged with money laundering and theft last month, after a year-long investigation involving the Cook County state’s attorney, the Chicago Police Department, the FBI and officials from the HUD inspector general’s office. Trials are set to begin at the end of July. One alleged ringleader, Michael Dishmon, remains at large. To cover their tracks, the Chicago rings usually made mortgage payments on the properties for up to six months, officials say. Then they defaulted. The result: Alleged victims of stolen identities were left on the hook. At least four women–and one deceased man–whose personal data was allegedly used received mortgage foreclosure notices, damaged credit ratings, and now endure legal wrangles to clear their names. “You don’t usually know about the fraud until the foreclosure notices start coming,” says Sheppard, which can be more than six months after the fraud is executed. With mortgage foreclosures reaching a record high in the first quarter, according to the Mortgage Bankers Association of America, mortgage fraud experts say more must be done to regulate the mortgage industry.