Scammers in the Neighborhood

Oct 19, 2012 by Kenneth R. Harney

WASHINGTON — No one wants to take the blame for the housing bust in this political season, but scammers and rip-off artists in the hundreds are working overtime to siphon dollars out of the wreckage of the crash and its still-vulnerable victims.

You’ve probably heard about the loan-modification predators who promise financially ailing homeowners that they’ll prevent or forestall foreclosures. But they are really after thousands of dollars in fees, for which they do nothing.

Now the second largest source of mortgage money in the country — Freddie Mac — is warning about a troubling new wave of post-crash fraud: scammers who illegally rent out its foreclosed and for-sale homes to unsuspecting consumers shopping for houses to lease. The bogus landlords don’t own the properties — Freddie does — and they have no right to offer them to anyone. But they use Craigslist and other online sites to advertise them to prospective tenants.

Typically the rents are tantalizing — say $1,200 a month for a three bedroom home in a neighborhood where similar houses command double that — and the terms are straightforward: Pay us a one-month security deposit and one or two months’ rent upfront — always in cash or money order — and we give you the keys, no questions asked. The fraud promoters sometimes change the locks on the front door, remove the “lockbox” installed by the realty broker marketing the house for Freddie Mac, and they tell prospects: Oh, and don’t worry about that real estate sign in the front yard offering the house for sale. We tried to sell the house but it didn’t work out, so now we’re renting it.

According to real estate brokers working with Freddie, this type of scam can bilk unsuspecting rental home shoppers — some of whom have themselves lost their own homes to foreclosure or short sales — out of hundreds or thousands of dollars. According to Robert O’Hara, a foreclosure specialist with Re/Max Synergy in suburban Chicago, one victim told him that she lost a total of $10,000 in upfront fees and rental payments to a fraudulent landlord before being forced to leave the property.

“This is happening all over the place, in every price range,” said O’Hara. “They take the [victims'] money and disappear.” Sometimes the tenants don’t even get the keys; they fill out a fake lease application, disclose sensitive personal information such as Social Security and financial data, send the money and never hear a thing again.

Other times they move in and are later discovered by property managers or the real estate agent who listed the house for sale. If they refuse to move out, they’re evicted, though in some areas of the country, this can take extended periods of time.

Robert Hagberg, Freddie Mac’s associate director of fraud investigations, said in an interview that foreclosure rental scams are becoming a significant problem, in part because of the sheer number of foreclosed properties on the market for sale. Freddie Mac had more than 53,000 houses

A full plate for lame ducks By KENNETH R. HARNEY

Oct 5, 2012

Washington – Though the news spotlight has been on the presidential debates and the Nov. 6 elections, a more pressing personal issue for large numbers of homeowners across the country involves the lame-duck congressional session scheduled to begin Nov. 13.

Along with the federal budget, billions in tax increases, draconian spending cuts and efforts to avoid the “fiscal cliff” looming Dec. 31, the lame-duck session is expected to answer what’s estimated to be a multibillion-dollar question for housing: Will Congress renew the mortgage debt forgiveness tax provisions for owners whose mortgage lenders agree to write off portions of their debt, either as part of loan modifications, foreclosures, short sales or deeds-in-lieu of foreclosure? Without an extension, borrowers who receive reductions in principal next year would be hit with federal income taxes at their regular marginal rates on the amounts forgiven.

The lame-duck session also will have to deal with a slew of other real estate-related issues including write-offs for mortgage insurance premiums, tax benefits for homeowners who install energy-saving improvements, tax credits for builders of energy-efficient new houses, and extension of current relief for middle-income taxpayers from the alternative minimum tax (AMT), among others.

While President Obama, Republican challenger Mitt Romney and most members of Congress have been campaigning, staffs of key House and Senate tax and finance committees – along with hordes of lobbyists – have been working out game plans for the lame-duck session. One key piece of strategy: Could the Family and Business Tax Cut Certainty Act of 2012 – which passed the Senate Finance Committee in August and includes mortgage forgiveness relief and other housing-related tax extensions along with AMT relief, research and development tax credits and dozens of other targeted tax benefits – be treated as a stand-alone bill? If not, there’s a strong risk of it getting caught up in the much larger partisan fights over spending, the federal debt ceiling and the whole fiscal cliff debate.

Senate Democrats reportedly were prepared to bring the bill to the floor for a vote before the election recess, but it never happened. Now the fate of the legislation appears to be up in the air and House leaders may come up with a version of their own.

Here’s a quick overview of some of what’s at stake in all this for homeowners:

. Mortgage debt tax relief. Besides the Senate Finance Committee’s bill awaiting action in that chamber, there are at least four separate bills that have been introduced in the House that would extend the law. Rep. James McDermott, D-Wash., is sponsoring a bill that would extend the mortgage forgiveness relief through 2015. Rep. Charles Rangel, D-N.Y., wants to extend it through 2014. Both McDermott and Rangel are members of the tax-writing Ways and Means Committee. Rep. Dan Lungren, R-Calif., is pushing for a three-year extension, and Rep. Tom Reed, R-N.Y., favors a one-year extension, through 2013.

The fact that there is significant bipartisan support for an extension in the House greatly increases the odds that mortgage forgiveness tax relief in some form will pass before the end of the session. One housing lobbyist gives it a 60 percent chance of eventual passage, even better if post-election lame ducks and victors find ways to compromise on the bigger issues. The main obstacle to extension: revenue cost to the federal government. Congressional tax experts estimate that even a simple one-year extension would cost the Treasury $1.3 billion over 10 years.

. Mortgage insurance premium deductions. Under tax code provisions that expired last December, buyers and refinancers who pay either private or government mortgage insurance premiums could write them off subject to household income limitations. The Senate Finance Committee bill would reauthorize these deductions retroactively to Jan. 1, 2012, and extend them through the end of 2013. Since this would cost the government an estimated $1.3 billion over 10 years and has not attracted as intensive a lobbying effort as mortgage debt forgiveness, it may be more vulnerable if negotiators are looking for ways to boost revenues to pay for other cuts or extensions.

. Energy-efficiency improvements to homes. The Senate Finance Committee-passed bill would extend for two years – through 2013 – tax credits for installation of energy-conserving windows, doors and other improvements. The Senate’s bill would also extend credits available to builders of energy-efficient homes. These have a reasonable shot at extension, given strong support from homebuilders and product manufacturers.

Bottom line: On issues like tax-system support for financially distressed households, energy conservation and others, the November elections are important in the long run, but the decisions made during the lame-duck session will be crucial and have immediate impact on thousands of homeowners.

Mortgage Lenders Brace for CFPB Exams; Fair-Lending Is Top Concern

By Kate Berry

OCT 3, 2012 12:42pm ET

LAS VEGAS – Mortgage lenders are scrambling to prepare for an onslaught of exams by the Consumer Financial Protection Bureau and they have identified several themes the bureau is likely to focus on by parsing through the recent settlements with credit card companies Capital One, Discover Financial Services and American Express.

Bank lawyers, consultants and lenders who gathered at a mortgage conference this week say the data-driven CFPB is primarily concerned with the quality of data reported to regulators under the Home Mortgage Disclosure Act. Banks and thrifts already must report HMDA data to their primary regulators, and the CFPB has the authority to apply it to nonbank mortgage lenders.

The bureau also is focused on ferreting out lenders with large numbers of consumer complaints and in determining if mortgage applicants are discriminated against – even unknowingly – due to lax policies and procedures, experts said.

“You have to have your HMDA right and be focused on vulnerable customers,” Jo Ann Barefoot, a co-chairman at Treliant Risk Advisors, told mortgage lenders at an Ellie Mae conference, which drew about 1,200 bankers, compliance officers and nonbank mortgage lenders.

Angst over fair-lending enforcement was palpable at the conference as mortgage lenders – particularly nonbanks that generally do not have fair-lending programs – asked questions about what could get them into hot water with their new regulator. For example, they wondered if they would be dinged by the CFPB for such practices as giving a lower interest rate to a borrower with a high credit score who has made a substantial down payment.

“If you have pricing flexibility, you better test to see who got what price and whether protected classes are paying more,” said John Konyk, an executive director of government affairs at the law firm Weiner Brodsky Sidman Kider.

The bureau will produce “transformational change” in the lending industry, said Barefoot, a former deputy comptroller of the currency who was one of 25 people named last month to the CFPB’s consumer advisory board.

The CFPB has no jurisdiction over the Community Reinvestment Act, but Barefoot and others are convinced that the agency will seek to make nonbank mortgage lenders meet at least some CRA requirements, which are aimed at reducing discriminatory credit practices in low-income neighborhoods.

“They are determined to make it unprofitable if you do things that are considered unfair … by hitting companies with eye-popping penalties,” said Barefoot.

Mortgage lenders fear the CFPB is on “a fair-lending jihad” and they are looking for insight from attorneys and consultants about how to stay out of trouble, Konyk said,

Of particular concern is the agency’s independent litigating authority under which it can bring fair-lending cases against banks and nonbanks in federal court.

It can also hold adjudication proceedings before bureau administrative judges, who can issue cease-and-desist orders and penalties and provide relief to borrowers.

Jim Brodsky of Weiner Brodsky said the CFPB has scheduled 48 exams of bank and nonbank mortgage lenders. Exams can last up to three months and often include enforcement attorneys and state examiners.

“It’s rigorous, it’s challenging, it’s intrusive,” Brodsky said.

Lawyers and consultants provided some insights into how mortgage lenders can prepare for CFPB exams:

. Pay close attention to the quality of HMDA data, one of the primary tools used to search for predatory lending and fair lending violations. The CFPB will seek to confirm whether data is accurate. It will be expanding the data fields included in HMDA next year.

. Check the accuracy and dependability of disclosure documents given to consumers. In the recent settlements with Capital One, Discover and American Express, regulators cited violations of federal law in marketing and disclosure documents. “They are customer-centric,” said Barefoot. “The bureau is interested in the customer experience and if the customer thinks they were harmed unfairly.”

. Conduct mock exams by identifying practices and policies that could potentially affect a protected or vulnerable class. “If there is an area of the market you do not service, you have to be ready to explain why you are not servicing that group,” said Konyk.

. Ensure that compliance and legal personnel are communicating with sales and operations teams. Lawyers caution that if a lender’s compliance staff is found to have discussed a critical issue with loan officers but nothing changed as a result, the outcome with the CFPB could be much worse. “You have to document in writing why you did what you did,” said Steve Jacobson, chief executive at Fairway Independent Mortgage.

. Invest in technology. Gone are the days when regulators asked for just 20 loan files to review, says Brodsky. The bureau prides itself on being a technology innovator, and examiners are reviewing 100% of a mortgage lender’s loan files, he said.

. Do not wait for clarity – you won’t get it any time soon. Mortgage lenders have to comply with a slew of new rules and regulations from different agencies. It may be difficult to navigate an uncertain regulatory landscape, but waiting for guidance is a “suicidal strategy,” Barefoot said.

Because regulators are willing to send a strong message, including stiff penalties, to financial institutions, being proactive in addressing consumer protection issues is the best approach. “In this new environment, they are looking for the clueless people,” Barefoot said.