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Don’t give in to temptation: Mortgage fraud on the rise

There’s no getting around the fact that qualifying for a mortgage has become more difficult. Although most home buyers accept their mortgage fate handed to them by underwriters, some are tempted to embellish their mortgage application so as to appear more qualified to receive a loan. Even though you may be tempted to cross over the line, don’t give in to temptation just to buy a home.

If you think that mortgage fraud is only about taking part in some elaborate conspiracy with others for financial gain – think again. “Fraud for profit” typically involves “Gross misrepresentations concerning appraisals and loan documents…”; and is one of two categories of mortgage fraud described by the Federal Bureau of Investigation’s latest mortgage fraud report, titled “2009 Mortgage Fraud Report ‘Year in Review’”(FBI.gov).

The other category is “Fraud for property;” and entails the exaggeration of personal information that is included in a mortgage application (including providing false supporting documents) to buy a home. If you think that fudging a little on your mortgage application won’t hurt anyone because you intend to repay the loan, think again. The FBI states that mortgage fraud “is a material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase, or insure a loan…”

Since the FBI reports that the usual suspects perpetrating mortgage fraud are typically “industry insiders” (such as lenders, appraisers, underwriters, real estate agents, settlement attorneys, etc.), it is possible that your loan officer or real estate agent might attempt to “recruit” you to be a participant or victim of mortgage loan origination fraud. Mortgage loan origination fraud involves falsifying a borrower’s information to increase the likelihood of qualifying. Besides falsifying information such as bank statements, W-2 forms, and tax returns; mortgage origination fraud could also include the use of a false identification, false asset rentals, backward applications, and the use of credit enhancement schemes.

Additionally, affinity fraud is reportedly a growing issue, such that co-conspirators are often recruited within the same ethnic group or gang. Although, affinity fraud could be an element of any mortgage fraud scheme, it is sometimes devised to launder money.

To alert consumers, the FBI’s mortgage fraud report also cites emerging trends. The list includes schemes such as commercial mortgage loan fraud, condominium conversion fraud, bankruptcy fraud, foreclosed property theft/fraudulent leasing, tax-related fraud, the resurgence of debt elimination/redemption schemes, first time homebuyer tax credit schemes, and flopping/short sale fraud (fraudulently lowering the value of a distressed property).

The FBI’s assessment is that mortgage fraud activity is likely to persist due to continued poor economic indicators (including employment and housing). The environment is not only ripe for perpetrators to implement the typical mortgage frauds (such as loan origination fraud); they are also devising new ways to circumvent mortgage guidelines and laws for personal gain. The FBI states that detecting fraud can sometimes lags behind industry indicators for up to two years, so increased fraud reporting efforts will not indicate any immediate changes.

Don’t let your desire for the American Dream turn into a nightmare. If you suspect that you are a victim or are being recruited for mortgage fraud, file a report with the local FBI field office. Additional resources are offered by the Financial Fraud Enforcement Task Force website, StopFraud.gov; including how to report suspected mortgage fraud.

By Dan Krell
Copyright © 2011

Original published at https://dankrell.com

This article is not intended to provide nor should it be relied upon for legal and financial advice.  Using this article without permission is a violation of copyright laws.

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Should you refinance your mortgage?

Have you refinanced your mortgage yet? Many home owners have recently taken advantage of some of the lowest mortgage interest rates we’ve seen in two generations. If you haven’t refinanced yet, it may not be too late. However before you run off to your local bank to sign mortgage documents, consider what you want to achieve and if it will benefit you.

Of course lowering your mortgage interest rate is a good thing, right? However you should also consider the mortgage terms and the cost of refinancing. Besides lowering the interest rate, you could refinance your mortgage to shorten the duration, change the mortgage type, cash-out on your home’s equity, or a combination of any of the above. These days, however, many homeowners are just hoping to capitalize on lower interest rates to reduce their monthly payments.

If you want to shorten the duration of your mortgage by refinancing your 30 year mortgage to 15 years, don’t expect to lower your monthly payment. Although mortgages with a shorter duration typically have lower interest rates, the monthly payment can be higher than a longer duration mortgage of the same type and amount because the amortization period is shortened.

If you want to change the type of mortgage you have, consider the advantages and drawbacks of various programs that may be available. There are many types of mortgages; some are considered to be risky or advantageous depending on prevailing markets and your personal financial situation. Not for every home owner, mortgage types such as the balloon mortgage, reverse mortgage, or the many configurations of hybrid mortgages offer the mortgage holder specific benefits and risks. Home owners with these types of mortgages may refinance more often because of changing markets and financial conditions.

Although it’s not in vogue these days, cash-out refinances are still offered by some lenders to pay down debt, home renovations, or any other sensible reason you could use cash. If you are seeking to cash-out equity in your home, be prepared for stricter underwriting to make for a rigorous mortgage process. Depending on the lender and program underwriting requirements, you may also be required to document the purpose for the cash.

Although mortgage refinancing has recently been appealing due to very low interest rates, many home owners are having trouble qualifying. Remember that just because you may have qualified for a mortgage in the past, changes to your finances and credit history as well as changes in the mortgage industry could affect your ability to refinance. Another qualifying issue to consider is the loan-to value of the refinance, since many homes across the country have recently depreciated in value.

Even obtaining a FHA or VA streamline refinance has become increasingly difficult for some home owners. Once considered a “fast-track” refinance option, obtaining these streamline refinances have become more difficult in the last year because of changes to lender underwriting requirements.

If you’re still thinking about refinancing, compare rates as well as lender fees and mortgage terms. Determine if the cost of the refinance merits the advantages, as well as if there are alternatives. The Federal Reserve Board (federalreserve.gov/pubs/refinancings), the Federal Trade Commission (ftc.gov), Fannie Mae (fanniemae.com) and Freddie Mac (freddiemac.com) offer consumer resources to help you understand the benefits, drawbacks, and considerations of mortgage refinancing.

By Dan Krell
Copyright © 2010

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Protect your pipes from cold weather

Even though insurance agencies and home contractors often release statements this time of year alerting home owners to take precautions to protect their pipes from freezing, I’m sometimes stunned by some home owners’ lack of knowledge about the subject. If not taken seriously, extensive damage could occur in a home due to a frozen or ruptured pipe.

A common misconception that many have about cold weather’s effects on pipes is that the frozen water inside the pipe causes the rupture. However, it’s not the ice, per se, that makes a pipe burst; but rather the pressure that builds inside the pipe that makes it rupture. When a pipe freezes, excessive air pressure builds up between the ice blockage and a closed faucet.

Experts describe ice buildup in pipes, which can occur through contact with cooled air, as being more common than people know. In extreme weather situations, precautions should be taken to help prevent frozen and ruptured pipes. Besides temperature, wind chill is sometimes the culprit of freezing pipes; holes in walls or foundations can allow chilled air to come into contact with your home’s interior- including pipes. Depending on the pipe placement and weather conditions, pipes can freeze any time the temperature dips below freezing; however, extra precautions should be taken when the weather becomes extreme.

Common precautions used to prevent freezing and bursting pipes include insulating pipes, “the dripping faucet,” and “winterizing.” Some experts suggest that insulating pipes may prevent a frozen or ruptured pipe- but it is not a guarantee. Pipe insulation can vary by type and price; foam sleeves or fiberglass jackets are most commonly used. The materials in the sleeves and jackets insulate pipes from cold air much like the insulation in your home’s walls and attic insulates home’s interior from cold air.

In extreme weather, the “dripping faucet” is one of the most commonly used methods by home owners to prevent a busted pipe. The water drip may not stop a pipe from freezing; however, it can relieve some pressure from the system to prevent a pipe from rupturing in case freezing does occur.

“Winterizing” is a term used to describe the draining of water and pressure from the plumbing system. Experts recommend winterizing your home if you plan an extended winter trip, leaving your home vacant. Winterizing and de-winterizing your home can put additional stress on your home’s plumbing system and components, so hiring a plumber to perform this procedure is recommended.

Short overnight trips may not require you to winterize your home, however experts caution that lowering the thermostat overnight could put your pipes in jeopardy.

Pipes can still freeze or rupture even when you take precautions. If you have a frozen pipe- call your plumber. Opening faucets can reduce air pressure in the system so as to prevent a rupture. Your plumber should guide you on how to thaw the frozen pipe, since you should be cautious for obvious reasons. However, homeowners have often used hair dryers to lamps to thaw frozen pipes. Finding a frozen pipe can be tricky since pipes are often hidden inside walls and between floors. If a pipe does burst, close the main water valve immediately and call your plumber immediately.

Additional information about protecting your home from frozen or ruptured pipes can be obtained from your plumber and/or insurance agent.

by Dan Krell
© 2010

Comments are welcome. This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Optimistic about housing in 2011

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Would you have ever imagined that home prices could depreciate one third since the market peak? 33.5% is the overall decrease of the Standard and Poor’s/Case-Shiller Home Price Index 10 city composite from June/July 2006 through April 2009. If the index is expanded to the 20 city composite the decrease is only 32.6%; the peak to date decrease (through September 2010) is just under 29% (standardandpoors.com).

Although the latest index indicates another decrease in home prices, the Washington, DC metropolitan area was one of two metro areas that had a slight increase (the other metro area was Las Vegas, NV). DC metro area home prices increased 0.3% in the third quarter of 2010, preceded by a 0.2% increase during the second quarter.

Similarly, the Federal Housing Finance Agency’s seasonally adjusted House Price Index (HPI) also indicated an overall drop in home prices (a 3.2% decrease from Q3 2009 to Q3 2010). However, Washington, DC is one of ten cities that experienced price increases over the past four quarters (FHFA.gov).

If you haven’t yet become indifferent, some industry experts are expressing optimism for 2011 – for a change of pace.

Fannie Mae Vice President and Chief Economist, Doug Duncan, expressed cautioned optimism in Fannie Mae’s November Economic Outlook podcast (fanniemae.com). Dr. Duncan expects slight improvements in home sales and other economic factors in 2011. These slight improvements, along with expected low mortgage rates through 2011 will assist a slight recovery.

Freddie Mac Chief Economist Frank Nothaft shared some optimism in his December 6th commentary in the Freddie Mac’s “Executive Perspectives Blog, Insights on Housing Finance” (freddiemac.com). Dr. Nothaft expects that foreclosure inventories will continue to affect local markets and home prices. However, home affordability (which is at the lowest point in years) combined with low mortgage rates should give the housing market a boost in the second half of the year.

The National Association of Realtor’s Chief Economist, Lawrence Yun, expects that the biggest push for the housing market will be through the extension of the Bush tax cuts. In a November 16th NAR press release, Dr. Yun explains that the recovery of the housing market depends on jobs. He expects about 1.5 million jobs to be created if the Bush tax cuts are extended for those earning up to $250,000, and an additional 400,000 jobs to be created “if the Bush tax cuts are extended for everyone” (Realtor.org).

Of course, many factors can influence our presently impressionable economy. For example, recent Congressional testimony by two Governors of the Federal Reserve Board (Elizabeth Duke on November 18th and Daniel Tarullo on December 1st) discussed the impact of foreclosures going into 2011 (federalreserve.gov). Governor Tarullo concluded his testimony to the Committee on Banking, Housing, and Urban Affairs by stating, “…I regret to say that the hangover from the housing bubble of this past decade is still very much with us…”

The bottom line is that although most expect foreclosure inventories to continue to drag home prices, there is optimism – for the second half of 2011. As job numbers begin to improve, employment will be the big news. A slightly better employment picture combined with low mortgage interest rates and the most affordable housing market in decades will provide the spark that the housing market and economy have been seeking for over two years.

By Dan Krell
Copyright © 2010

Comments are welcome. This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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The mortgage interest tax deduction: Arguments to save and eliminate it

When I wrote about the demise of the mortgage interest tax deduction (MID) just over a year ago, many people found the idea intolerable. As budget deficits continue to be an issue, the MID seems to be on the chopping block again. And for some people, that’s just fine.

You see, the MID has been under attack for many years by those who have argued that the MID is poor economic policy. Critics of the MID claim that it not only entices consumers to purchase homes that they can’t afford; it does nothing to increase home ownership, it inflates home prices and is mostly used by the wealthy.

Conversely, arguments are made by proponents that the MID makes housing more affordable and encourages home ownership; of course, one of the more vocal advocates is the National Association of Realtors® (NAR). In a December 1, 2010 press release, NAR president Ron Phipps stated “The tax deductibility of interest paid on mortgages is a powerful incentive for home ownership and has been one of the simplest provisions in the federal tax code for more than 80 years. In a new survey commissioned by NAR and conducted online in October 2010 by Harris Interactive of nearly 3,000 homeowners and renters, nearly three-fourths of homeowners and two-thirds of renters said the mortgage interest deduction was extremely or very important to them.” (Realtor.org)

If you’re wondering how the MID began, its origination is not extraordinary (although its preservation could be described as remarkable). An article written by Roger Lowenstein (“Who Needs the Mortgage-Interest Deduction?”; The New York Times, March 5, 2006) offers a fact/fiction history of the MID. Although written as a critique of the MID (Lowenstein calls the MID “patently regressive”), the article is referenced by many on both sides of the issue as a source of historical information.

According to Lowenstein, the MID, like all loan interest, was deductable when income tax was first collected. As consumer credit ballooned (credit cards, auto loans, etc), people took advantage of the tax “loop hole” to deduct the interest paid on their consumer loans. It was not until the 1980’s, (during a different recession) that Congress acted to reduce deficits by eliminating interest deductions from some consumer loans (such as credit cards); however, the MID survived (albeit in a limited form).

Is it Déjà vu, or just unavoidable? It was just last year when the Congressional Budget Office made recommendations to eliminate the MID. However, the most recent attack on the MID, also as a means to reduce budget deficits, came earlier this month from the National Commission on Fiscal Responsibility and Reform (also known as the President’s Deficit Reduction Commission). The Commission’s report, “The Moment of Truth: Report Of The National Commission On Fiscal Responsibility And Reform, December 2010” recommends that the MID be further limited by capping the mortgage limit from $1M to $500,000 and eliminate the MID from second homes and home equity lines.

Advocates of the MID say that proposed changes will hurt an already suffering housing market, while critics say that elimination of the MID can help stabilize the housing market; regardless, both sides agree that further limitations on the MID will depreciate housing prices. Where do you stand on the issue? Get involved and voice your opinion to your Congressperson.

by Dan Krell
© 2010

Comments are welcome. This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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