Description
The term financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics.
Chapter 1: Financial Crisis
Industry Insiders
? Collaboration
? Collusion
U.S. Mortgage Fraud
? Affects Real Estate Values
? Rental Markets
State (2005 Data) MARI Fraud Ranking Subprime Loan Rank
Florida Utah Georgia Colorado Illinois Missouri Texas
1 2 3 4 5 6 7
1 2 5 6 4 3 7
Mortgage Fraud in the US
? Fraud
? 1974-1975
? 2000-2005
Effects of Foreclosures
? Boarded Up Homes
? Negative Feelings
? Difficult to Find Buyers
? Lower Tax Appraisals
? Eroded Tax Base
? Fewer Community Services
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
Factors Leading to Foreclosures
? Personal Bankruptcy ? Poor Loan Servicing ? ARM Adjustments ? Identity Theft ? Mortgage Fraud & Illegal Flipping
? Predatory Lending
www.ftc.gov/idtheft
Roles of Professionals
? Loan Officers
? Retail Loan Officer
? Mortgage Broker
? Loan Processors ? Underwriters ? Appraisers
? Wholesale Lenders
Regulation Trends
? Licensing Mortgage Brokers ? More Education
Chapter 2: Mortgage Basics for Real Estate Licensees
Impact of Liens
? Promissory/Mortgage Note ? Mortgage/Deed of Trust
Cost of Borrowing Money Factors
? Term of Loan
? Time Value of Money
? Assessing Borrower’s Borrowing History ? Loan Amount
Value
Time
Loan Sources
? Government-Assisted Programs
? Private Sector Programs
Loan Types
? Fixed-Rate Mortgage
(FRM) ? Adjustable-Rate Mortgage (ARM)
Exotic Loans
? Interest-Only (IO) Loans ? Pay-Option ARMs ? Negative Outcomes
Underwriting Criteria
? Income
? Credit
? Assets/Down Payment
? Occupancy
Length of Credit History 15% New Credit 10% Types of Credit 10%
Payment History 35%
Amounts Owed 30%
Alternatives to Traditional Requirements
? Full Documentation Loan
? Lite Doc/Alt Doc Loan
? No Doc Loan
? Stated Income Loan
? Seller Carryback Loan ? Combinations
Role of Secondary Market
? Primary Market
? Secondary Market
? Securitization ? Tighter Standards ? More Losses
Manage Buyer Expectations
? Lenders Who Specialize
? Meet Buyers’ Needs
? Use Reputable Lenders ? Avoid Unrealistic Expectations
Chapter 3 Mortgage Fraud
Tracking Suspected Fraud
? Financial Crimes Enforcement Network (FinCEN) ? Financial Institution Fraud Unit
(FIFU)
? Suspicious Activities Reports
(SARs)
? Suspicious Mortgage Activity Report (SMARt Form)
Mortgage Fraud
? Define
? Deception, False Facts
? Collusion, False Premises
? Lying
? Types
? Fraud for Housing ? Fraud for Profit (& Business)
Penalties for Fraud
? Conspiracy
? One Time
? Looking the Other Way
? Examples
? Lying on Loan Application ? Lying about Purchase Price
Red Flags Possible Mortgage Fraud
? Shady Practices
? Dual Contracts
? Hidden Addenda
? Silent Mortgage
Red Flags Possible Mortgage Fraud
? Inflated Appraisals
? False Information on Applications ? Rebates to Borrowers
? Creative Financing
Fiction or Fact?
? Hypothetical Situation
? Real-Life Example
? Casey Serin ? Lived on Cash Back ? Foreclosures ? Fudge on Intent to Live
? Etc.
Chapter 4 Predatory Lending
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
Signs of Predatory Lending
? Subprime Not Always Predatory ? Legal Interests Not in Best Interest of Borrower ? Lack of Competition from Prime Lenders
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
Steering & Targeting
? Elderly
? Racial Profiling
? Immigrants
? Those with Low Credit Scores
? Flipping Loans ? Unnecessary Products ? Misleading or No Information about Loans
Changing the Climate
? Automated Underwriting Systems ? More Regulation ? Prohibit Appraisal Fraud ? Consumer Education
HUD Borrower’s Bill of Rights
Chapter 5 Illegal Flipping
Real Estate Flips
? Positive Effects
? Gentrification
? Construction Jobs ? Increase Tax Base
? Negative Effects
? Locals Forced Out
? Tenants Displaced
Real Estate Flips
? Equitable Title
? Beneficiary
? Developer ? Foreclosed Property Purchaser ? Vendee in Installment Sale
? Back-to-Back Closings
Illegal Flipping
? Schemes
? Use of Kickbacks
? Fake Documents ? Straw Buyers
? False Identities
? Real-Life Examples
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
Magnitude of Fraud
? All Parts of Country
? Real-Life Examples
? Connecticut ? Southern California ? Twin Cities, MN
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)
Federal & State Involvement
? Financial Institution Fraud Unit (FIFU) ? States w/ Most Reported Fraud
? Florida ? Colorado & Illinois
? Greatest Improvement
? Georgia ? South Carolina
Fraud vs. Subprime Loan Rates
State (2005 Data) MARI Fraud Ranking Subprime Loan Rank
Florida Utah
1 2
1 2
Georgia
Colorado Illinois Missouri Texas
3
4 5 6 7
5
6 4 3 7
Protect Against Illegal Flipping
? Know Market
? Use Competitive Market Analysis
(CMA)
? Thoroughly Inspect ? Know Extent of Repairs ? Meticulous Documentation
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)
Educate Buyer Borrowers
? HUD Web Site
? HUD Pamphlet
? English ? Spanish
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
RESPA (continued)
? Prohibits Kickbacks
? Disclosures at Settlement/Closing
? Disclosure After Settlement/Closing
? Escrow Account Rules ? Servicing Transfer Statement
www.realtor.org
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
RESPA Enforcement
? Injunctive Relief ? File a Complaint with HUD
? In Writing ? Confidentiality
Truth-in-Lending Act (TILA)
? Implemented by Regulation Z
? No Coverage
? Business, Commercial, Agricultural, Organizational Loans
? More than $25,000 Loan
? Student Loan Programs
Truth-in-Lending Act (TILA)
? Right of Rescission
? Trigger Items
? Penalties
? Fines ? Imprisonment
? Missing Information from Disclosure
Home Mortgage Disclosure Act
(HMDA)
? Implemented by Reg C
? Monitors Reporting of Loan Data
? Serving Community Needs? ? Investments Attracting Private Investments? ? Possible Discriminatory Lending Patterns?
Community Reinvestment Act
( CRA )
? Regulations 12 CFR
? Meet Credit Needs of Community ? Loan Applicants Asked
? Ethnicity, Race, & Color ? Applicants Should Answer Honestly ? Used to Monitor Compliance
Tips for Real Estate Licensees
? Know the Laws
? Find Buyers Earlier
? Help Find Appropriate Lender
? Manage Expectations
Reporting Appraisal & Mortgage Fraud
? Federal Bureau of Investigation (FBI)
? Federal Trade Commission (FTC) ? Dept of Housing and Urban Development (HUD) ? Department of Justice (DOJ)
doc_977410458.ppt
The term financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics.
Chapter 1: Financial Crisis
Industry Insiders
? Collaboration
? Collusion
U.S. Mortgage Fraud
? Affects Real Estate Values
? Rental Markets
State (2005 Data) MARI Fraud Ranking Subprime Loan Rank
Florida Utah Georgia Colorado Illinois Missouri Texas
1 2 3 4 5 6 7
1 2 5 6 4 3 7
Mortgage Fraud in the US
? Fraud
? 1974-1975
? 2000-2005
Effects of Foreclosures
? Boarded Up Homes
? Negative Feelings
? Difficult to Find Buyers
? Lower Tax Appraisals
? Eroded Tax Base
? Fewer Community Services
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
Factors Leading to Foreclosures
? Personal Bankruptcy ? Poor Loan Servicing ? ARM Adjustments ? Identity Theft ? Mortgage Fraud & Illegal Flipping
? Predatory Lending
www.ftc.gov/idtheft
Roles of Professionals
? Loan Officers
? Retail Loan Officer
? Mortgage Broker
? Loan Processors ? Underwriters ? Appraisers
? Wholesale Lenders
Regulation Trends
? Licensing Mortgage Brokers ? More Education
Chapter 2: Mortgage Basics for Real Estate Licensees
Impact of Liens
? Promissory/Mortgage Note ? Mortgage/Deed of Trust
Cost of Borrowing Money Factors
? Term of Loan
? Time Value of Money
? Assessing Borrower’s Borrowing History ? Loan Amount
Value
Time
Loan Sources
? Government-Assisted Programs
? Private Sector Programs
Loan Types
? Fixed-Rate Mortgage
(FRM) ? Adjustable-Rate Mortgage (ARM)
Exotic Loans
? Interest-Only (IO) Loans ? Pay-Option ARMs ? Negative Outcomes
Underwriting Criteria
? Income
? Credit
? Assets/Down Payment
? Occupancy
Length of Credit History 15% New Credit 10% Types of Credit 10%
Payment History 35%
Amounts Owed 30%
Alternatives to Traditional Requirements
? Full Documentation Loan
? Lite Doc/Alt Doc Loan
? No Doc Loan
? Stated Income Loan
? Seller Carryback Loan ? Combinations
Role of Secondary Market
? Primary Market
? Secondary Market
? Securitization ? Tighter Standards ? More Losses
Manage Buyer Expectations
? Lenders Who Specialize
? Meet Buyers’ Needs
? Use Reputable Lenders ? Avoid Unrealistic Expectations
Chapter 3 Mortgage Fraud
Tracking Suspected Fraud
? Financial Crimes Enforcement Network (FinCEN) ? Financial Institution Fraud Unit
(FIFU)
? Suspicious Activities Reports
(SARs)
? Suspicious Mortgage Activity Report (SMARt Form)
Mortgage Fraud
? Define
? Deception, False Facts
? Collusion, False Premises
? Lying
? Types
? Fraud for Housing ? Fraud for Profit (& Business)
Penalties for Fraud
? Conspiracy
? One Time
? Looking the Other Way
? Examples
? Lying on Loan Application ? Lying about Purchase Price
Red Flags Possible Mortgage Fraud
? Shady Practices
? Dual Contracts
? Hidden Addenda
? Silent Mortgage
Red Flags Possible Mortgage Fraud
? Inflated Appraisals
? False Information on Applications ? Rebates to Borrowers
? Creative Financing
Fiction or Fact?
? Hypothetical Situation
? Real-Life Example
? Casey Serin ? Lived on Cash Back ? Foreclosures ? Fudge on Intent to Live
? Etc.
Chapter 4 Predatory Lending
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
Signs of Predatory Lending
? Subprime Not Always Predatory ? Legal Interests Not in Best Interest of Borrower ? Lack of Competition from Prime Lenders
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
Steering & Targeting
? Elderly
? Racial Profiling
? Immigrants
? Those with Low Credit Scores
? Flipping Loans ? Unnecessary Products ? Misleading or No Information about Loans
Changing the Climate
? Automated Underwriting Systems ? More Regulation ? Prohibit Appraisal Fraud ? Consumer Education
HUD Borrower’s Bill of Rights
Chapter 5 Illegal Flipping
Real Estate Flips
? Positive Effects
? Gentrification
? Construction Jobs ? Increase Tax Base
? Negative Effects
? Locals Forced Out
? Tenants Displaced
Real Estate Flips
? Equitable Title
? Beneficiary
? Developer ? Foreclosed Property Purchaser ? Vendee in Installment Sale
? Back-to-Back Closings
Illegal Flipping
? Schemes
? Use of Kickbacks
? Fake Documents ? Straw Buyers
? False Identities
? Real-Life Examples
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
Magnitude of Fraud
? All Parts of Country
? Real-Life Examples
? Connecticut ? Southern California ? Twin Cities, MN
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)
Federal & State Involvement
? Financial Institution Fraud Unit (FIFU) ? States w/ Most Reported Fraud
? Florida ? Colorado & Illinois
? Greatest Improvement
? Georgia ? South Carolina
Fraud vs. Subprime Loan Rates
State (2005 Data) MARI Fraud Ranking Subprime Loan Rank
Florida Utah
1 2
1 2
Georgia
Colorado Illinois Missouri Texas
3
4 5 6 7
5
6 4 3 7
Protect Against Illegal Flipping
? Know Market
? Use Competitive Market Analysis
(CMA)
? Thoroughly Inspect ? Know Extent of Repairs ? Meticulous Documentation
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)
Educate Buyer Borrowers
? HUD Web Site
? HUD Pamphlet
? English ? Spanish
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
RESPA (continued)
? Prohibits Kickbacks
? Disclosures at Settlement/Closing
? Disclosure After Settlement/Closing
? Escrow Account Rules ? Servicing Transfer Statement
www.realtor.org
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
RESPA Enforcement
? Injunctive Relief ? File a Complaint with HUD
? In Writing ? Confidentiality
Truth-in-Lending Act (TILA)
? Implemented by Regulation Z
? No Coverage
? Business, Commercial, Agricultural, Organizational Loans
? More than $25,000 Loan
? Student Loan Programs
Truth-in-Lending Act (TILA)
? Right of Rescission
? Trigger Items
? Penalties
? Fines ? Imprisonment
? Missing Information from Disclosure
Home Mortgage Disclosure Act
(HMDA)
? Implemented by Reg C
? Monitors Reporting of Loan Data
? Serving Community Needs? ? Investments Attracting Private Investments? ? Possible Discriminatory Lending Patterns?
Community Reinvestment Act
( CRA )
? Regulations 12 CFR
? Meet Credit Needs of Community ? Loan Applicants Asked
? Ethnicity, Race, & Color ? Applicants Should Answer Honestly ? Used to Monitor Compliance
Tips for Real Estate Licensees
? Know the Laws
? Find Buyers Earlier
? Help Find Appropriate Lender
? Manage Expectations
Reporting Appraisal & Mortgage Fraud
? Federal Bureau of Investigation (FBI)
? Federal Trade Commission (FTC) ? Dept of Housing and Urban Development (HUD) ? Department of Justice (DOJ)
doc_977410458.ppt