Paper Money - Paper Tales

Friday, November 24, 2006

Shisty Mortgage Broker Cheats "Captain Dumbass"!

Here's a tale from Denver Post proving that even "Captain Dumbass" is not immune from mortgage fraud.

**

Barbara Mattern called Altus Real Estate as soon as she heard the radio ad touting no mortgage payments for a year.

The "Freedom Loan" sounded too good to be true. For Mattern, who later lost her Morrison home to foreclosure, it was.

Mattern didn't qualify for the offer, so she took a loan with a low interest rate and monthly payments to refinance her home. Months later, she realized that the monthly payment to cover principal and interest was three times what she had expected.

"I wish I had never signed those loan papers," she said.

She's not the only one.

The Denver/Boulder Better Business Bureau has received 20 complaints about Altus during the past three years, more than any other mortgage company in Colorado. Five involve allegations that Altus brokers lied or misled them about loan terms.

Altus owner Ferren Rajput said in a statement that 15 of the complaints have been resolved. He added that the BBB complaints are a tiny fraction of the loans Altus handled in the past three years.

All loan terms are disclosed to customers prior to closing, Rajput said.

"The vast majority of Altus customers have been very satisfied," he said.

Rajput, 42, pleaded guilty last month to failure to pay $1.1 million in employment taxes from Altus Financial Inc., a predecessor to Altus Real Estate that went bankrupt in 2004. A judge told him jail time is likely.

Mortgage brokers play a key role in the American dream of homeownership. They connect borrowers with banks in more than two-thirds of mortgage transactions.

They can earn thousands of dollars more on some loans than on others. Lenders, for example, pay brokers based on a loan's profit margin.

Yet, deceptive practices by some brokers are helping to push homeowners into foreclosure, experts say.

"It's a serious problem. People are getting into loans they can't afford," said Colorado Attorney General John Suthers. "That puts them at a higher risk of foreclosure."

The state's foreclosure rate has led the nation for eight consecutive months, according to RealtyTrac, a California company that tracks foreclosures. One of every 327 Colorado homes is in the foreclosure process.

Some brokers take advantage of consumers with misleading advertising and sales tactics, luring them into expensive loans.

A typical pitch involves describing a loan with a rock-bottom interest rate as "fixed" or with a "fixed payment." But rather than a 30-year fixed-interest loan, it's an adjustable-rate mortgage with a one-month introductory rate and a minimum-payment option that builds up debt that can crush a homeowner.

It's buyer beware. Borrowers who fail to carefully read and understand their loan documents before signing have little legal recourse.

"The payment shock that comes with many of these option-ARMs ... is already leading to high foreclosures, and that rate is only going to go up," said Debbie Goldstein, executive vice president of the Center for Responsible Lending in Durham, N.C.

Registration soon mandatory

Colorado will soon take its first step toward regulating mortgage brokers. They must register through the state Division of Real Estate and pass criminal background checks as of Jan. 1. More than 1,100 brokers have either been approved or are awaiting a background
Mortgage Problems?
Have you obtained a mortgage, through a broker, that subjected you to higher payments than you expected when you signed the papers? Has that forced you into foreclosure or put you at immediate risk of foreclosure? If so, please contact Greg Griffin at The Denver Post, 303-954-1241 or ggriffin@denverpost.com.
check.

Brokers with convictions for crimes involving fraud, theft or deceit in the past five years will be barred from the business, as will those who have lost licenses in other states for those reasons.

The new law doesn't go far enough, some say. Unlike real-estate brokers and appraisers, mortgage brokers still won't need to be licensed. That means the state will not require training and cannot investigate and discipline rogue brokers.

Arizona, North Carolina and Oregon are states that require education, three years of experience and an exam before licensing. Prior to its new law, Colorado was one of just two states - Alaska is the other - that didn't regulate mortgage brokers at all.

Critics will be pushing for licensing legislation at the statehouse next year.

"You should have to take a test," said Chris Streiff, director of the Denver- based Society of Mortgage, Appraisal, Real Estate and Title Professionals. "You've got somebody's largest financial investment in your hands. You ought to know what you're doing."

The big opponent of licensing is the Colorado Mortgage Lenders Association, which says additional regulation will hurt the industry and drive up consumers' costs. The group advocates more enforcement.

But despite a rising number of complaints, there's been little enforcement of existing laws that protect consumers from unscrupulous brokers in Colorado.

Suthers' office has yet to prosecute such a case. The office recently began investigating a handful of mortgage companies for deceptive marketing. Suthers would not say if Altus is among them.

Altus has never been charged with deceptive advertising or illegal sales tactics.

However, some of its brokers have run afoul of the law, either before or after working at Altus companies.

Thomas and Janel Skinner, who worked for Altus Financial from 2001 to 2003, went to jail last year after pleading guilty to falsifying documents and defrauding lenders in 2000 and 2001, pocketing $274,800. The activities occurred before they worked for Altus.

A federal grand jury indicted former Altus Financial broker Torrence James in August in an alleged $2.1 million fraud ring. James has pleaded not guilty. The alleged mortgage fraud occurred after he left Altus.

It's unclear what effect Colorado's new mortgage-broker law will have on Altus' operations.

Mortgage companies are not regulated, just brokers. Though his tax charge could disqualify him from brokering loans, state officials said, it would not keep Rajput from owning a mortgage brokerage.

If any current Altus brokers have fraud convictions, they would be barred from originating loans under the new law.

"To the best of Altus' knowledge, no mortgage brokers affiliated with Altus have any felony criminal record," wrote Sean Paris, an attorney for Rajput, in an e-mail in response to The Denver Post.

Talked into a different loan

Mitch Hyder cringes as he looks through the loan-refinancing documents he signed in December 2005.

There, on one document, is the 7.46 percent interest rate. Another document spells out details of his option ARM, an adjustable-rate mortgage with a variety of payment options.

His mortgage brokerage: Altus Real Estate. Hyder called Altus after hearing a radio spot offering no payments for 12 months. His wife, Reva, had quit work after they adopted a daughter, and they needed help adjusting to one income.

Hyder said the broker quickly talked him into a different loan, with a 2.9 percent interest rate for five years. The broker never told him it was an option ARM or that the low numbers were for a payment that would cause his loan debt to grow up to 125 percent of the original balance, Hyder said.

He admits he didn't read the closing documents carefully, relying instead on what the broker told him.

"I now call myself Capt. Dumbass," said Hyder, 43, a radio sports announcer who calls games for the University of Denver Pioneers basketball team.

Hyder's $244,000 loan and an accompanying $48,800 equity line of credit were through lender Washington Mutual. Altus collected $11,100 in fees, $7,800 from Washington Mutual and $3,300 from Hyder.

"We're making the minimum payment and losing all the equity in our home," Hyder said. "It's going to be a very expensive lesson."

The Hyders are trying to determine what's next. They hope Reva doesn't have to take a job, but they don't want to sell the house at a loss or, worse, lose it to foreclosure.

Barbara Mattern's experience was similar. The former Morrison resident said she was told by an Altus broker that the monthly payment on her $556,0000 loan would be less than $1,000. But when her first mortgage-payment stub arrived in mid-2005, the principal-and-interest payment was about $3,000, she said.

Mattern, 58, walked away from the home she loved. The loan was just one factor in her foreclosure. Others included a divorce, loss of her business, bankruptcy and the purchase and loss of yet another house - in Lakewood.

Now she's living with a relative in Nebraska, and her belongings are in storage. "I don't know what I'm going to do," she said. "I'm just kind of lost right now."

In a written statement, Rajput said this about the Mattern and Hyder cases:

"In both of these instances, full disclosure was made both verbally, and in writing, through the closing documents. Further, each also had three days after closing, ... in which time they could cancel their transaction without penalty. In each of these cases, the customer expressed a need to increase monthly cash flow. In each case that objective was met."

More disclosure on risky ARMs

Deceptive lending practices have been gaining the attention of regulators and lawmakers nationwide.

Federal regulators recently issued stricter guidelines directing banks to disclose more to customers about risky adjustable-rate loans. Banks were instructed to use the highest possible interest rate to qualify borrowers.

The Federal Trade Commission has sued 21 mortgage companies in recent years for unfair practices. An affiliate of Citigroup Inc. paid $215 million in 2002 to settle claims in the largest case.

Last year, the FTC secured a $128,300 judgment against Colorado Springs mortgage broker Phillip Ranney for advertising no-cost, low-interest loans that weren't delivered.

Altus owner Rajput said his company's ads - which have run prominently in The Denver Post and Rocky Mountain News business sections and on radio stations - comply with the federal Truth in Lending Act.

The company's ads catch the eye with offers such as 12 months without payments, no closing costs, or both. A recent Altus print ad touted a 4.6 percent rate on a 40-year fixed mortgage. In fine print, Altus discloses it is an "equivalent bi-weekly rate," which accelerates the borrower's repayment of the loan.

Another Altus newspaper ad quotes a $685 monthly payment on a $350,000 loan. It's unclear what kind of loan it is or what interest rate it carries.

Altus isn't the only Denver-area mortgage company running such advertising. Many brokers advertise interest rates as low as 1 percent for five years. Typically those are one-month rates on loans that could put borrowers deeper in debt later on.

Altus spent a quarter of its revenue on marketing in 2004, according to documents from Rajput's bankruptcy. Rajput has said Altus' sales will be about $4 million this year.

The ads work. The phones in Altus' office in the Inverness business park in Douglas County ring constantly, according to former brokers.

"The sole purpose of these ads is to get people to pick up the phone and call," said Bill McClearn Jr., who worked for Altus Financial in 2003.

McClearn said he wasn't pressured by Rajput or Altus managers to put people in loans they couldn't afford.

The temptation to do so is there for any broker. Loans with higher rates or prepayment penalties can boost the lender-paid broker commission by one to three percentage points, or up to $9,000 on a $300,000 loan.

A former Altus broker said Altus tried to put customers into high-commission loans. "I was asked by a manager 'Why aren't you selling the option-ARM?"' said the former broker, who asked not to be named.

Rajput said brokers using "shady tactics" will be fired. In a September interview, he said that fewer than one third of Altus' loans are option-ARMs.

"When offering an option ARM mortgage ... it is Altus' company policy that the loan officer discusses all the pros and cons. ... We understand that this loan is not appropriate for all customers," he said. Altus brokers "present other mortgage programs so the customer can make an intelligent decision."

In all cases, Rajput added, customers sign legally binding documents explaining their loans.

That pinpoints a challenge for law enforcement. The 18th Judicial District Attorney's office has received at least 18 complaints about Altus.

Those customers "all signed the closing documents," said Mason Finks, the district's director of fraud prevention. "That's a hard thing to overcome."


3 Comments:

  • I have written a book on mortgage fraud and written an online Mortgage Fraud and Awareness course that can be found on www.preventmortgagefraud.com.
    My hope is you will understand the heart of this problem and assist me in my fight to prevent mortgage fraud by supporting my efforts by educating yourself.
    I have been in business for almost 26 years, and a successful person until as a business owner became a victim of mortgage fraud, I owned a mortgage company and real estate company and I lost my companies over this issue and the fraudsters are still out there working the system. As you might imagine, I have been devastated, the guilt by association has made me feel at times shameful, depressed, and alarmed. I have felt betrayed, violated, and taken advantage of by white-collar criminals.
    The Mortgage and Real estate industry is driving down the same road as the S & L crisis in the 80's, you have to ask why is this issue being swept under the table by many industry agencies and professionals? Although more executives talk about mortgage fraud but they really do not invest in the proper steps to prevent mortgage fraud.
    "Willful blindness" is the heart of mortgage fraud and it expresses the contention that the industry exhibits. The “willful blindness” to obvious fraud has been ignored at so many levels of a real estate transaction for so long by industry professionals it has allowed real estate fraud to flourish to an unknown size.
    If you are in the mortgage business you do not ever say the “F” word in public? You do not even dare to bring the “F” word up in polite conversation? After all, if you even mention the “F” word it makes any honest, hard working real estate professional quiver. The “F” word is a dirty word in the mortgage industry, and for good reason.
    So, have you guessed it yet? What, exactly, is the “F” word?
    “Fraud.” More specifically: “Mortgage Fraud.”
    Don’t get me wrong: fraud isn’t a factor in every mortgage loan, or even in every mortgage or real estate branch, but the outcome of even one fraudulent loan gone badly can affect the entire real estate industry, in general, and individual practitioners, in particular.
    The ripple effect of fraud is as deep as it is far-reaching. The mortgage lenders and borrowers stand to lose much more than the cost of the damages when fraud appears. At risk is their very reputation in the industry or community. And the honest hard working people know in THIS industry our word is our bond; our reputation is our bread and butter.
    Who of us, after all, can afford to lose that precious commodity?
    In any industry for that matter!
    Where does mortgage fraud begin and how do we prevent – or at least begin to stop – mortgage fraud? They say timing is everything, and in this case there’s never been a better time to commit – or fall prey to – mortgage fraud. The unprecedented real estate boom over the last few years has led to the doubly dangerous refinancing craze that swept the nation.
    This one-two double-whammy has sucker-punched its share of lenders, real estate agents and consumers, resulting in widespread appraisal fraud whereby property values are greatly – and unjustifiably – inflated to prey on the unsophisticated buyer who is then left holding the note on a property worth but a fraction of the value at which it had been improperly appraised.
    The homeowner is unwittingly the first to allow for fraud, and the last to know about it. We know that fraud exists, we know who most likely perpetrates it and, in fact, the various ways in which they commit fraud. But how is the consumer, how is the potential homeowner, affected? The cost of fraud may not be felt immediately, but it’s there, lurking under the surface and spreading out like pollution to infect millions of innocent homeowners in a variety of ways both seen and unseen.
    I know from my personal experience the significant cost that fraud-prevention measures have added to my operational deficit, ending my business. The price of detecting, reporting, and preventing fraud is not cheap, and there’s no doubt some of that cost – albeit as little as possible – eventually gets passed on to the consumer who comes looking for a loan.
    Inflated appraisals? Could they really drive up the property taxes in a neighborhood? You bet! If the real estate boom has taught us anything it’s that the perception really does become the reality, especially if hyped by the media to the point that people believe popular opinion is the truth.
    In fact, if enough fraudulent properties are improperly appraised, the ripple effect is impactful and immediate. And who pays those higher taxes? You, me, and thousands of unwitting homeowners who would never in a million years think of committing real estate fraud.
    These significant costs are just the local after effects. What about the bigger picture? How about the national level? Much of the information I’ve gathered have come from government officials be they FBI agents, HUD or others.
    You know when the government gets involved in a problem, not only is it big but costly. Someone has to pay those agents to track down fraud, someone has to pay to try cases of all those fraudsters, and if convicted someone has to pay to feed, clothe, and shelter them.
    Who? Who will bear the brunt of these costs? Same answer as before: You, me, and thousands of unwitting homeowners who would never in a million years think of committing real estate fraud.
    There’s no doubt that homeowners pay the price of mortgage fraud. The only way such costs can be avoided is to eliminate, or greatly reduce, the problem. That means you, me, and thousands of unwitting homeowners who would never in a million years think of committing real estate fraud are going to have to start thinking about it, and thinking about it soon.
    Of course, that’s just what happens on the consumer end. Mortgage professionals, as practitioners working within the industry, control the mortgage fraud equation? Unfortunately, the problem is as internal as it is systemic. The person behind the act usually isn’t a professional thief – or even the borrower – it’s one or more of – the loan officer, appraiser, real estate agent, and title agent – working together during the mortgage application and approval process. In a large amount of fraud – 80 percent by some estimates – it involves an insider…
    Is it any wonder? After all, loan originators and their team members have detailed access to the borrower’s information in the transaction. From social security numbers to bank account information, it’s all above board and on the table. Many of us treat such information as sacrosanct, keeping it under lock and key and using it for one purpose and one purpose only. To those who would perpetrate fraud, however, such information becomes the key they use to unlock the door to fraud.
    Every part of the mortgage lending process presents another window of opportunity to unscrupulous loan originators, who by the very nature of their job description come in contact with builders, real estate agents, borrowers, processors, underwriters, appraisers, lender account reps, and title closers.
    Each one of these positions or areas needed to get a mortgage leaves an opportunity for fraud!
    The American Epidemic. Consider that phrase for a moment. Epidemic may sound like a strong word to you, but after considering the latest figures on real estate fraud it is my sincere belief that the word is, in fact, not quite strong enough!
    According to the FBI’s May 2005 Financial Crimes Report to the Public, the number of mortgage fraud reports filed has escalated nearly 150% since 2003. The report also showed that 80% of the cases involve either overstated property appraisals or non-existent properties. Early estimates are that in 2006 mortgage fraud could increase by as much as 60%, since home sales are slowing and interest rates are rising.
    Mortgage Fraud statistics point to nothing short of an epidemic. And yet, really, what do we know about fraud? In point of fact, it’s not what we know about fraud that’s dangerous; it’s what we don’t know. What’s worse is the staggering amount of opportunity with which the American real estate mortgage industry provides those who commit fraud.
    According to the Mortgage Bankers of America, or MBA, their 2005 Mortgage Originations Forecast estimates some $2,738,000,000,000 (that extra trio of zeroes isn’t a typo; that’s over 2 trillion dollars!) in new loans.
    This staggering number includes about 20 million in new mortgages required to cover new and existing home sales. Those are big numbers, and now even the MBA is including the likelihood of fraud in their statistics, estimating that 10% to 15% of mortgage loans have some kind of fraud involved. This means that between 2 to 3 million home loans originated this year could be fraudulent; that equates to over "7,500" new fraudulent loans every business day and if estimates are correct for 2006 that could "12,000" new fraudulent loans per day.
    Now, that is an epidemic…
    Who benefits from such fraud? By my own calculations based on such industry standards, loan officers and others in the mortgage transaction accounted for roughly $8 billion in loan fees and commissions for fraudulent closed loans while real estate agents and real estate companies themselves raked in over $13 billion in commissions from those fraudulent transactions.
    The statistics on fraud may be sobering, but what’s worse is the sparse amount of stopgap measures currently in place to prevent this all too common felony. Many of us come to the industry by way of other careers. With the real estate bubble growing exponentially, and the resulting refinance craze declining with rising interest rates, it is not uncommon for experienced mortgage professionals to be working alongside relative newcomers from diverse careers.
    Clearly, the amount of money to be made in real estate – both residential and commercial – lends itself to abuse. New employees mean new training, and lack of new training leads to old mistakes. The growth of fraud is insidious; it creeps up on us, taking us by surprise until, before we know it, someone we work with, someone we work for, or even those who work for us, is committing fraud.
    It’s so easy, so slick, and until now so largely un-enforced. A number fudged there, a figure left out here, a bogus appraisal, a friend of a friend who plays it fast and loose with a client’s verification of rent and a newly scrubbed credit report, and soon enough a mortgage loan is approved, “clear to close,” but is in fact fraudulent.
    Once a white-collar criminal gets away with it, the process quickly becomes addictive. Success breeds more success, and before long such crafters of fraudulent mortgage loans clearly begin feeling that not only are they above the law but, in fact, they aren’t doing anything wrong in the first place.
    But those of us who take our profession seriously, who are in this business to help sincere, hardworking, law-abiding citizens obtain housing in a fair market for a mortgage that works for them can think of little worse than those who prey on the innocent, the righteous, the unsophisticated and the trusting.
    Fraud can happen to anyone: employees, buyers, sellers, investors, and owners. It can happen anywhere: big cities, small towns, storied and well-recognized firms and smaller mom and pop businesses who just want to do the right thing.
    Do you think “epidemic” is too harsh a word?!?
    According to the Mortgage Bankers Association of America, “…the U.S. Attorney and others have suggested that as much as 80 percent of mortgage fraud can be avoided through aggressive fraud awareness and detection efforts.”
    Why do all mortgage companies not use the preventative tools available? That’s where I come in: I became a specialist in preventing mortgage fraud, based on my personal experiences with mortgage fraud I ended up with a doctoral degree from the school of hard knocks. Much like most people, I “never thought it could happen to Me.” after all I am a mortgage professional with 25 years of business experience
    But it did.
    It can.
    And if the statistics prove out, it probably will…
    Even after all I’ve been through I still work every day full of hope that progress can be made in preventing mortgage fraud because of all the good, honest, hard working people in the Real Estate & Mortgage industry – and mostly for all of the people that deserve to buy a new home as they need good, honest help in accomplishing the American dream of owing that home!!!!!
    We have to believe that good will prevail!!!
    Sincerely,
    Michael S. Richardson
    NexWest Inc.-Prevent Mortgage Fraud
    Managing Director-Fraud Prevention
    michaelr@preventmortgagefraud.com
    2465 Sheridan Blvd
    Suite 200
    Denver, Co 80214
    tel: 303-339-4534
    fax: 303-233-1281
    mobile: 303-641-5435
    www.preventmortgagefraud.com

    By Blogger Real Estate & Mortgage Fraud, at 2:02 PM  

  • For more stories on "foreclosure rescue" scams, go to the Home Equity Theft Reporter at:

    http://homeequitytheft.blogspot.com

    By Blogger Home Equity Theft Reporter, at 8:39 AM  

  • while your lawyer reviews the transaction and you make the necessary financial arrangements. cash call mortgage calculator

    By Blogger Flip Jork, at 10:29 PM  

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