December 23, 2011 09:30AM
By Kenneth R. Harney
Could gloomy popular assumptions about how tough it is to get approved for a mortgage be scaring away large numbers of people who are qualified from even applying?
Could the same worries -- I can't come up with the big down payment I need, my credit scores are too low, my bank account has almost none of the "reserves" lenders want to see -- put a needless damper on a housing recovery in the new year?
You bet. Lenders and economists will tell you flat out: The lack of accurate information about the availability of loan programs that are designed to address special needs is discouraging far too many consumers from even considering an application, much less shopping around.
Mortgage banker Alex Stenback of the Residential Mortgage Group in Minnetonka, Minn., said he sees it every day: "People just aren't aware of what's possible right now" and as a result, they are missing real estate prices and long-term interest rate opportunities they shouldn't. Doug Lebda, founder and CEO of LendingTree, the online site that allows banks to make competing offers to applicants, believes that "the fear of being rejected" because they don't conform to standards that may not even exist, is keeping qualified applicants on the sidelines for no reason.
For example, what's needed for an acceptable down payment? Is it 20 percent? Ten percent? Less? Yes, it's less -- and potentially a lot less if you qualify for the right program. The widespread erroneous assumption that banks require a minimum 20 percent for conventional loans may have arisen from heavy media coverage this spring and summer of a controversial proposal by federal agencies calling for borrowers to put down that much if they want to get the best interest rates and lowest fees.
Also contributing to incorrect beliefs about down payments: The Obama administration floated the idea of a phased-in move to 10 percent upfront cash for all loans eligible for purchase by mortgage giants Fannie Mae and Freddie Mac, who together dominate the conventional home-loan sector. But neither the 20 percent nor the 10 percent plan has been adopted and the odds of either moving forward in 2012 are remote. Fannie Mae's and Freddie Mac's standard minimums are still 5 percent with mandatory mortgage insurance coverage.
If you have little or no cash to put down, there are multiple options for you: FHA requires just 3.5 percent down on its insured mortgages. Other programs let you go to zero -- even finance more than the price on the house when fees are rolled into the mortgage -- provided you fit into an eligibility niche. If you qualify as a veteran or active member of the military, you can get a zero-down VA-guaranteed mortgage. Plus the VA allows your seller to pay your loan fees and closing costs provided they don't exceed 6 percent of the house price.
You can also buy with nothing down if you are purchasing a home in any of the many communities around the country that are eligible for rural (USDA) guaranteed mortgages. Though the property may be located on the outskirts of a large metropolitan area and might not strike you as particularly "rural," if the local population is below roughly 20,000, there's a decent chance you're eligible. The little-publicized USDA guaranteed home loan program, by the way, is booming. In the last fiscal year alone, according to housing administrator Tammye Trevino, more than 130,000 borrowers received low or no down payment guaranteed mortgages -- quadruple the number of loans extended as recently as 2006.
What about credit? Haven't lenders been pushing up minimum FICO scores into the mid-700s and rejecting applications with lower scores outright? Not everywhere. Though most lenders doing FHA loans require 620 to 640 scores to get you in the door, a few of the biggest FHA originators, such as Quicken Loans, will accept scores down to 580. Bob Walters, Quicken's chief economist, said underwriters scrutinize low FICO applications extra carefully but are seeing good to excellent performance from them: Not one has gone seriously delinquent this year.
And how about debt-to-income ratios? Aren't they tighter than ever? Not really. Lenders say that when loan applications go through the "automated underwriting" systems used by Fannie, Freddie and FHA, borrowers with high total monthly debt levels of 45 percent to 55 percent of household income -- well beyond the posted limits -- frequently get approved if they have positive compensating information elsewhere in the application.
Bottom line: Don't assume you can't qualify for a mortgage in 2012. Talk to lenders and seek out loan products that offer flexibility where you need it. You just might be surprised.
Adam Simmons
Crystal Clear Mortgage LLC
adam@crystalclearmortgage.com
888-634-6911
www.CrystalClearMortgage.com
Wednesday, December 28, 2011
Monday, December 19, 2011
Real Estate Market Again Ripe for Fraud
Real-estate market again ripe for fraud
In an ironic twist, there are signs that the wreckage left over from the housing bust may be reigniting dubious real-estate schemes and fraud.
By Kenneth R. Harney
DEC 16, 2010
WASHINGTON — Could today's seductive conditions in the housing market — severely marked-down prices, record low interest rates and hundreds of thousands of foreclosures waiting to be resold — be breeding new generations of the very practices that led to the crash?
In an ironic twist, there are signs that the wreckage left over from the housing bust may be reigniting dubious real-estate schemes and fraud. According to researchers:
• Property flippers are back in action in places like South Florida and Las Vegas, where condo prices crashed but are now seeing appreciation again in some areas.
• So-called "floppers" are defrauding banks by hijacking short sales at prices below what legitimate purchasers are willing to pay. In these schemes, realty agents obtain fraudulent appraisals to persuade banks to sell houses at below-market prices to investor groups. The investors then flip the houses at fair market prices to ordinary homebuyers and split the quick profits.
• Creative "credit enhancement" companies are "renting" investors the bank-account balances they need to demonstrate to lenders that they have the financial wherewithal to qualify for a mortgage. The accounts are for real, but they don't belong to the loan applicants who claim them. Account names are assigned to applicants — who pay for the service — but they are never allowed access to the money. When mortgage underwriters check to verify the deposits — which are in reality fraudulent sub-accounts — they are told the money is in the name of the loan applicant. One investigator pretending to be a purchaser was verified as having funding available in the amount of $850,000. The loan application was to buy 935 Pennsylvania Ave. N.W., in Washington D.C., which is the headquarters building of the FBI.
• Investors are hoodwinking lenders into giving them low down payments and rock-bottom interest rates by lying about their intentions to occupy the property they plan to buy as a principal residence. Some investors consider such dissembling nothing more than a fib, but in reality it's bank fraud. Researchers at the Federal Reserve Bank of New York have documented that widespread falsehoods by investors about occupancy played a major but previously unrecognized role in the real-estate bust.
To Ann Fulmer, a former white-collar-crime prosecutor who is now a vice president with mortgage-fraud analytics company Interthinx, this all amounts to a "past is prologue" situation — the market conditions are ripe for a reprise of some of the worst behavior of the boom and bust.
Her firm's latest study of mortgage fraud nationwide, covering loan origination and other data from the third quarter, found that applicants' dishonesty about their employment and income was up 9 percent from the same period the year before and a stunning 50 percent from the third quarter of 2009. The reason: Borrowers increasingly are falsifying W-2s and other records in order to meet the tougher debt-to-income thresholds lenders adopted after the bust and recession.
Interthinx works with major mortgage lenders to spot fraud and has access to vast loan-application databases, credit-bureau data and other information, and runs it all through proprietary models to establish estimates of fraud risk. For example, when an applicant claims to be purchasing a home as a principal residence, Interthinx pulls credit-bureau files and public records and may find that the applicant already has other homes listed as principal residences. The anti-fraud systems also spot cases where buyers apply to multiple lenders for the same property.
For the sixth straight quarter, the states that Interthinx ranked riskiest for mortgage fraud are the same that experienced the most explosive booms and the most crushing busts between 2004 and 2008: Nevada, Arizona, California and Florida. California alone accounted for half of the 10 highest-risk metropolitan areas in the most recent rankings. Miami-Fort Lauderdale and Cape Coral-Fort Myers, Fla., are high on the list as well. Metropolitan Washington, D.C., which had been ranked sixth in fraud risk earlier this year, dropped to 24th place in the most recent study.
San Jose, Calif., saw a 16 percent jump in "identity fraud" schemes where loan applicants seek — and get — new identities and credit histories good enough to qualify them for mortgages that would otherwise be beyond reach.
Déjà vu? "I wouldn't be surprised," says Fulmer. "There's so much money on the sidelines" looking for high returns in the face of a volatile stock market and low yields on conventional investments. If you have larceny in your heart, mortgages and houses can be tempting targets.
In an ironic twist, there are signs that the wreckage left over from the housing bust may be reigniting dubious real-estate schemes and fraud.
By Kenneth R. Harney
DEC 16, 2010
WASHINGTON — Could today's seductive conditions in the housing market — severely marked-down prices, record low interest rates and hundreds of thousands of foreclosures waiting to be resold — be breeding new generations of the very practices that led to the crash?
In an ironic twist, there are signs that the wreckage left over from the housing bust may be reigniting dubious real-estate schemes and fraud. According to researchers:
• Property flippers are back in action in places like South Florida and Las Vegas, where condo prices crashed but are now seeing appreciation again in some areas.
• So-called "floppers" are defrauding banks by hijacking short sales at prices below what legitimate purchasers are willing to pay. In these schemes, realty agents obtain fraudulent appraisals to persuade banks to sell houses at below-market prices to investor groups. The investors then flip the houses at fair market prices to ordinary homebuyers and split the quick profits.
• Creative "credit enhancement" companies are "renting" investors the bank-account balances they need to demonstrate to lenders that they have the financial wherewithal to qualify for a mortgage. The accounts are for real, but they don't belong to the loan applicants who claim them. Account names are assigned to applicants — who pay for the service — but they are never allowed access to the money. When mortgage underwriters check to verify the deposits — which are in reality fraudulent sub-accounts — they are told the money is in the name of the loan applicant. One investigator pretending to be a purchaser was verified as having funding available in the amount of $850,000. The loan application was to buy 935 Pennsylvania Ave. N.W., in Washington D.C., which is the headquarters building of the FBI.
• Investors are hoodwinking lenders into giving them low down payments and rock-bottom interest rates by lying about their intentions to occupy the property they plan to buy as a principal residence. Some investors consider such dissembling nothing more than a fib, but in reality it's bank fraud. Researchers at the Federal Reserve Bank of New York have documented that widespread falsehoods by investors about occupancy played a major but previously unrecognized role in the real-estate bust.
To Ann Fulmer, a former white-collar-crime prosecutor who is now a vice president with mortgage-fraud analytics company Interthinx, this all amounts to a "past is prologue" situation — the market conditions are ripe for a reprise of some of the worst behavior of the boom and bust.
Her firm's latest study of mortgage fraud nationwide, covering loan origination and other data from the third quarter, found that applicants' dishonesty about their employment and income was up 9 percent from the same period the year before and a stunning 50 percent from the third quarter of 2009. The reason: Borrowers increasingly are falsifying W-2s and other records in order to meet the tougher debt-to-income thresholds lenders adopted after the bust and recession.
Interthinx works with major mortgage lenders to spot fraud and has access to vast loan-application databases, credit-bureau data and other information, and runs it all through proprietary models to establish estimates of fraud risk. For example, when an applicant claims to be purchasing a home as a principal residence, Interthinx pulls credit-bureau files and public records and may find that the applicant already has other homes listed as principal residences. The anti-fraud systems also spot cases where buyers apply to multiple lenders for the same property.
For the sixth straight quarter, the states that Interthinx ranked riskiest for mortgage fraud are the same that experienced the most explosive booms and the most crushing busts between 2004 and 2008: Nevada, Arizona, California and Florida. California alone accounted for half of the 10 highest-risk metropolitan areas in the most recent rankings. Miami-Fort Lauderdale and Cape Coral-Fort Myers, Fla., are high on the list as well. Metropolitan Washington, D.C., which had been ranked sixth in fraud risk earlier this year, dropped to 24th place in the most recent study.
San Jose, Calif., saw a 16 percent jump in "identity fraud" schemes where loan applicants seek — and get — new identities and credit histories good enough to qualify them for mortgages that would otherwise be beyond reach.
Déjà vu? "I wouldn't be surprised," says Fulmer. "There's so much money on the sidelines" looking for high returns in the face of a volatile stock market and low yields on conventional investments. If you have larceny in your heart, mortgages and houses can be tempting targets.
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