fight mortgage fraud
with routine background checks
Mortgage loan servicing companies and investors
on the secondary mortgage market demand and get
more and broader scrutiny by lenders of all players
in home sale transactions.
Another mortgage fraud case from the housing boom worked through federal court this week when a Midwest City man was sentenced to federal prison for conspiracy to commit wire fraud in two home sales.
The transactions were in 2006 and 2007. With the boom long over, such cases could be fewer and farther between because of safeguards lenders have put in place at the insistence of third-party loan-servicing companies and investors who buy home loans on the secondary market, said Betty Shaw, president of the Oklahoma Mortgage Bankers Association.
False high prices
In this week's case, U.S. District Judge Timothy D. DeGiusti sentenced Derrick Reuben Smith, 47, to 40 months in federal prison, then two years of supervised release, and ordered him to pay almost $370,000 in restitution. A jury convicted him in April.
Prosecutors said Smith conspired with two others to induce lenders to fund mortgages for the purchase of two new houses, based on falsely inflated prices, in Raintree Acres addition, south of Memorial Road and east of Air Depot Boulevard. He also misrepresented loan proceeds that he pocketed as commissions and bonuses paid to T&T Realty, owned by Trina Tahir.
The houses eventually went into foreclosure and later sold for $100,000 less than the loans Smith helped arrange, prosecutors said. Michael Gipson pleaded guilty to conspiracy and money laundering in the case. Tahir pleaded guilty to money laundering in another case.
Gipson and Tahir, to be sentenced in coming weeks, face up to 20 years in prison, a fine of $500,000 and restitution.
Now, all players in a mortgage transaction are scrutinized in ways they weren't five years ago, from the real estate agents to the appraiser to the escrow specialist at the title company and everyone else, said Shaw, senior vice president and mortgage operations manager for SpiritBank.
“They check everything. All the parties interested or participating in the transaction are checked,” Shaw said.
Lenders had done some background checks themselves before the boom and bust, she said, mainly because the Federal Housing Administration required it for loans it guaranteed. But now all loans are scrutinized up front. SpiritBank just this year farmed out loan risk mitigation to Agoura Hills, Calif.-based Interthinx and its FraudGUARD service, she said.
“If there's a hit, they notify us that a certain party to a transaction has showed up on one of their major lists,” she said.
An appraisal turns out to have been wildly higher than the market value of a house that ends in foreclosure? The appraiser goes on a watch list, Shaw said.
The case that involved home sales at inflated prices in Edmond's upscale Oak Tree addition five years ago probably could not happen now exactly as it did then.
In that case, she said, the real estate agent for a home seller conspired with an agent working for a buyer to falsify a document saying the seller would pay closing costs that were kicked back to the buyer through a title company.
A credit check on the borrower is just the beginning now, Shaw said, but even that has become a tool for fraud detection.
Calling on the IRS
Lenders now routinely require borrowers to give them access to their tax returns, she said, by way of IRS Form 4605-T, “Request for Transcript of Tax Return.”
One thing loan underwriters look for is non-
reimbursed business expenses that are written off; if they are high, then income shown on paystubs and W-2s might not actually reflect income available for making mortgage payments.
“It could just be a paper write-off,” Shaw said, noting that SpiritBank contracts with Lender Processing Services in Jacksonville, Fla., to handle inquiries with the Internal Revenue Service.
Not all of the extra safeguards came because of the housing bust and fraud associated with the boom, although routine use of the 4605-T goes back no more than a couple of years, said Glenn Reynolds, vice president and manager of mortgage lending in Oklahoma City for Arvest Bank.
Technology was making “liar's loans,” NINJA loans — “no income, no job, no assets” — and other fraud easier even before the housing and mortgage markets collapsed, he said.
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