Spring Conference Review - reomac

Early Session 1 – continued from page 38
Loan application stage: Looking at
cross outs again. If you have a borrower
that is a renter and is purchasing it as an
investment, you want to find out if this
is their first endeavor into investing or
is it a side business where they have had
experience. Legitimate reasons need to
be ascertained. If a borrower cannot
explain exactly what they are doing with
the money, maybe they are a straw buyer
and haven’t been schooled well enough
to give the right answers. Language and
communication issues are other indicators
of straw buyers.
Processing Step: Multiple mortgage
inquiries in last 90 days or unusually high
income for the profile of the applicant.
She once had a loan where the applicant
stated that they were a gardener and
making $19,000 per month after only one
year in business. That is a good example
of a red flag.
Underwriting: This position is key.
Underwriters need to be good qualified,
well trained people. They are the
ones responsible for qualifying the
loan. They are the ones that should be
catching inconsistencies of information
on the application, sales contract and the
preliminary HUD I. Change of ownership
in the past 12 months, comparables used
that do not seem reasonable. Inability
to verify income, bank statements with
several different types of font or huge
balances, but showing NSF charges. One
person getting multiple loans within a
short period of time. Excessive repair
bills on HUD I.
Funding: This is the last chance to catch
fraud before it actually becomes a loan.
This is where you catch things like notary
issues, forged documents, unrecorded
deeds that are being paid off during your
closing, pay offs to fake improvements,
and down payments that come from
third parties.
Next, Eileen Newhall was questioned
about what role the legislature plays in
helping to reduce mortgage fraud. She
stated that we have got to keep our eyes
and ears open so we can close loopholes
when they are identified. We also have to
be careful that when we add law, we also
add enforcement mechanisms to them.
There is no single law that is going to
prevent fraud, mortgage or otherwise if it
cannot be enforced. One of her favorite
enforcement mechanisms is making the
law a licensing violation. She also warned
that there must be adequate resources to
enforce the violations. For example, The
California Department of Real Estate is
responsible for overseeing the activities
of about 530,000 licensees and they have
a staff of only 340 people.
PREVENTION
The panel was asked what agents can
do to minimize exposure to foreclosed
properties. Also, what checks and balance
can be implemented and at what points to
help protect against mortgage fraud.
Ms. Rodriquez stated that she recommends
taking pictures and changing the locks
as soon as you know the property was
foreclosed. Go to your local police
department for a trespass letter and keep
an eye on Craig’s list to make sure your
property is not being advertised.
Ms. Sorensen stated that there are many
opportunities to implement checks and
balances to protect ourselves. The first
one and probably the strongest one is the
staff you hire. Know your staff. She has
a client who will not hire anyone unless
they come through an internal referral
and there has to be at least two people
who already work for the company and
know the prospective employee. They
have very little turnover and zero incidents
of fraud. Training of your staff, internal
programs put in place and staff knowing
how you do your business. Having
processes in place that are adhered to
and followed, that are documented so
that when you have a brand new person
who comes in, they have something that
they can look at, a manual that step by
step takes them through the process that
they are supposed to follow. Have a very
strong underwriting department, this is
a key role in a company and is extremely
important to a company’s success. Giving
your underwriters the authority to check
and to stop a loan if they see something
wrong. Also let them know they will not
be reprimanded for stopping a loan if they
have concerns.
Policies and procedures at the corporate
and department level are very important,
as well as ensuring that those policies
procedures are followed. Internal audits
should be performed to make sure they are
following all the steps they are supposed
to follow.
Have an exception desk. Even if you
have the best staff and processes, there
will always be the deals that do not fit
into the square box. There needs to be
a procedure to handle those exceptions
and the best way to do that is to have an
exception desk.
According to Ms. Newhall it is vastly
easier to stop fraud if it is stopped before
it occurs. She agreed with Alice in that
clearly the best way of stopping fraud is to
have great internal policies and procedures
before it happens.
Moving on to some of the legislation, she
talked about a loophole closer. Senate Bill
1737 was enacted last year and prevents
real estate licensees that have lost their
license to work in other aspects of real
estate such as title, escrow, etc.
Senate Bill 223 which was enacted on
an emergency basis in 2007 made it a
clear violation of the law to attempt to
improperly influence an appraiser either
through coercion, extortion or bribery.
Senate Bill 385, also enacted in 2007, states
that anyone being considered for a loan
must be qualified at the fully indexed rate
vs. the teaser rate.
The panel agreed that prevention of fraud
is the best way to eliminate it. The panel
took time to answer questions from
the audience. This session was most
informative and all attendees should
have gained valuable insights on how to
be aware of different types of fraud and
how it can be prevented.
REOMAC ® update tm Ma y / Jun e 2009 39