Jeff Kaller

An insidious real estate fraud known as "flipping" is victimizing both home buyers and lenders in Maryland. In the spring of 2000, HUD and the U.S. Treasury held public forums on predatory lending. By the summer of 2000 the mortgage fraud problem was so large in so many major cities, that HUD put a moratorium on lenders from foreclosing on homes in the "hot zones"; from Baltimore to Los Angeles the predatory lending in urban locations was huge to stop foreclosures. Legislation was being drafted.

Lenders are keenly aware that this is an issue. Appraisers are in the middle of the issue because lenders need the appraiser to "help make the deals work." However it plays out, the appraiser is a part of the problem.

 There are good lenders, bad lenders, and everything in between. There are regulated lenders and unregulated lenders. Separate from them is the loan broker, which may be where the larger problem lies. How the changes unfold and how they impact appraisers is unclear. Appraisers need to understand what type of client they are dealing with. There are newspaper articles in most major cities dealing with the issue of predatory lending. Yet, the appraisal community, which is actively involved in appraisals for loan production has, on the whole, been slow to take a stand. Here is an excerpt from "Buyer Beware, Predatory Mortgage Brokers Don't Give Terms Promised, Causing Some to Lose Their Homes," by Teresa Dixon Murray:

The Predatory lenders have been stalking neighborhoods throughout the country virtually unchecked for the past several years, consumer advocates and legal experts say. Within the past 1 1/2 years however, the practice has mushroomed into a crisis as largely unregulated mortgage brokers cash in on the confusion and mounds of paperwork surrounding a home loan.

"The predatory lenders who are basically seducing people and ripping them off," says Rachel Robinson, an attorney with the Ohio State Legal Services Association in Columbus. Ned Wilson says he never realized he was committing to paying out $753 a month. Only the dollar amounts change from city to city. In Los Angeles, it might be a $200,000 property that ends up with $250,000 in loans. All of these require the help and assistance of an appraiser.

With regard to the predatory lending and mortgage fraud issue, appraisers have been playing the role of co-conspirator, but there is little record of appraisers demanding bribes or taking kickbacks. The Mortgage Bankers of America (MBA) issued a press release on the subprime topic .

In 1999 the Ohio Organized Crime Commission began investigating these mortgage issues as a form of Organized Crime which they are exploiting people who are in need of stopping foreclosures of their properties. Florida has its own Communications Fraud Act, which has already been used against an appraiser. In 1997, because of dramatic increases in predatory lending and mortgage fraud between 1993 and 1996, funding for the Housing Fraud Initiative began with investigations in 50 cities. Arrests began in 1998 and the first appraisers were convicted in 1999. This joint funding effort allows cooperation between the U.S. Department of Justice (USDOJ) , HUD Inspector General (IG), FBI, and Postal Inspectors.

Neil

While affordable housing has long held an important place on the federal government's policy agenda, budget cutbacks in recent years have forced the government to turn over many housing responsibilities to the states. Housing finance agencies (HFAs) have been created by states to issue tax-exempt bonds to finance mortgages for lower-income first-time home buyers and to build multi-family housing.

States are involved in a host of initiatives throughout the broad spectrum of housing finance and development. Interim construction financing programs which can reduce the basic costs of lower-income housing projects have been initiated in a number of states, together with innovative home ownership programs and programs directed toward rehabilitation and improved energy conservation.

States are also venturing into areas which have not received as much public sector attention until recently. By encouraging non-traditional types of housing, such as accessory units, shelters, and single room occupancy housing, states are addressing important elements of the housing market.

In Colorado, the state Housing and Finance Authority (CHFA) has issued more than $2 billions of bonds and notes since its establishment in 1973, providing housing for more than 33,000 families and individuals of low and moderate income; 19,000 first-time home buyers and over 14,500 rental housing units. In recent years the state has broadened CHFA's authority to allow it to develop finance programs to assist the growth of small business, help exports with insurance on goods sold overseas, and similar projects this is to stop foreclosures.

 Colorado has done more than simply help its citizens find housing: the programs have resulted in construction employment of more than 20,000 jobs, with wages estimated at almost $20 million in new local real estate taxes and an indirect gain of $1.6 billion for the state.Wisconsin, Maine and New York each have 20 programs including special ones for women and minorities, for disabled persons, and for environmental hazard removal.

Maryland operates 25 programs, including those to help people with closing costs and settlement expenses. It also has special funds available for the elderly and is developing an emergency mortgage fund to help people who have fallen behind in their payments aiding them to stop future foreclosures. Non-profit developers can also tap the state for money to build low-cost rental units.

Among Michigan's 29 programs and Minnesota's 25 are several for neighborhood revitalization. Minnesota also offers programs targeting the needs of urban Indians and migrant farm workers. Alaska, Oregon and Vermont offer financing for tenant acquisition of mobile home parks.

Funds are also available for persons who take steps to make their homes more energy efficient, for home owners and landlords who remove lead paint from dwelling units, for houses without plumbing or those with plumbing that is dysfunctional, for handicapped persons, and to help landlords defray the costs of bringing low-income housing into compliance with state and local housing codes. There are also funds for non-profit organizations to acquire or renovate existing houses and apartments for use as group homes for special needs such as mentally retarded.

In many states, elderly home owners can look to the HFA to obtain financing and/or support services they need to remain in their homes and avoid institutionalization. Some of the states have more than one agency dedicated to housing and we have attempted to list them all here. Also, many cities and counties have quasi-federal/quasi-local "housing authorities" with additional programs. Check your local government listings for these.

Neil

A report from First American CoreLogic showed that 58.2 percent of home mortgages in Las Vegas have negative equity, in which the loan balance exceeds the home's value. The report said Nevada has the highest percentage of underwater mortgage holders in the nation with more than a quarter of Nevadans, 28 percent, owing more than 125 percent of their home's value.

The Treasury Department last Wednesday throws $75 billion at a problem that some say sparked the economic downturn. The plan aims to help as many as 9 million homeowners who are struggling to stop foreclosure, but industry experts agreed few homeowners in Las Vegas and other hard-hit areas such as Phoenix and much of California, where home prices have tumbled more than 50 percent, are likely to qualify for the program.

Under Obama's plan, homeowners are generally eligible for refinancing or loan modifications if they are the owner-occupant of the home; the home is their primary residence; the home is not investor-owned; and the first-lien loan has an unpaid balance of less than $729,750.

Any stopping foreclosure action will be suspended during the loan modification trial period or while borrowers are considered for other options to prevent foreclosure. If these options fail, the foreclosure action may be resumed.

The plan helps two groups by refinancing up to 5 million homeowners into more affordable fixed-rate loans and by working with lenders to modify the loan terms for up to 4 million homeowners. The Obama plan’s second part  is intended to help modify loans for borrowers who have experienced economic hardship.

For the modification program, which runs through 2012, borrowers who are eligible will have to provide their most recent tax return, two pay stubs and an "affidavit of financial hardship" to qualify. In the affidavit, applicants will have to cite the reasons behind their financial woes, such as job loss or a drop in income. The government will take steps to verify the information. 

Borrowers are allowed to have their loans modified once, and the program applies for loans made on Jan. 1, 2009, or earlier. Mortgages for single-family properties that are worth more than $729,750 are excluded. Lenders could reduce a borrower's interest rate to as low as 2 percent for five years. Rates then would rise to about 5 percent until the mortgage is repaid. If the plan works as intended, it could be a big plus for some borrowers. 

We don't know what that program will do and how other programs are affected. We need to see the guidelines, how the administration is going to handle the rights of investors to have a decision in how to do these workouts, whether investors are forced into this or still have a right of approval."

Simon said the industry favors the "general terms" of the plan's affordability index formula, which sets monthly home payments at 38 percent of household income. The government will share 7 percent of the cost to take mortgages down to 31 percent. Critics of Obama's foreclosure plan say it will reward delinquent borrowers, many of whom should not have received mortgages in the first place, while responsible borrowers who continue to make their monthly home payments gain nothing.

Neil

Here's what might actually work……..

Let's have the government do something to fix the housing market. Ideas are flying around Washington. They include tax credits and cheaper mortgages for home buyers as well as leaning on lenders to rewrite mortgage terms for struggling borrowers. But maybe we should ask what, exactly, fixing the housing market means--and prepares ourselves for the limits of what these policies can actually accomplish.

Congress passed a bill last July to help the housing market; in an effort to churn demand and stabilize home prices, the bill created a $7,500 tax break for first-time home buyers. It also created a program to stop foreclosures. Bottom line: only 25 loans have been rewritten.  In December, houses sold for 15% less than they did a year earlier. Says Wellesley College economist Karl Case: "Let's not delude ourselves into thinking we're driving a speedboat when we're driving a tanker."

 Most proposals on the table are designed to boost demand without distorting the market and at the same time restrain supply by keeping people in their homes. The core issue is that there aren't enough people buying houses. Usually when price goes down, demand rises, but in the housing market, falling values make potential buyers fearful, sending them to the sidelines as they wait to see how much cheaper homes will get. If we could restore buyers to the market, the thinking goes, prices would stabilize, delinquent borrowers could sell instead of falling into foreclosure which is undeniably hard to stop, and the value of the mortgage-related securities contaminating our financial system would stop being such a mystery.

 Ideas aimed at kick-starting this process include giving everyone who buys a house a tax credit worth 10% of the purchase price and driving down mortgage rates--perhaps to as low as 4%. Nearly one-fifth of all borrowers owe more than their house is worth. At the same time, some houses are still overvalued. Economists disagree by how much, and the answer changes from region to region. Houses in Cleveland are undoubtedly cheap. They could use some new home buyers there. In some ways, proposals to stimulate the housing market aren't really aimed at bringing in new buyers. Extending tax credits to people selling one home to buy another and letting homeowners use cheap mortgages to refinance won't get rid of excess housing inventory. These policies are meant to do something else: stimulate the economy by delivering money to homeowners. The other core issue is that too many people can no longer afford their mortgage. Maybe they took out an adjustable-rate loan that has reset higher, or they lost a job in the slowing economy. If we could stop the cycle of defaults and foreclosures, the thinking goes, we could prevent deeply discounted, bank-sold homes from flooding the market, keep losses from further impairing mortgage-backed securities and preserve property values. That's how we wind up with ideas like paying mortgage servicers to make loans more affordable and changing the bankruptcy code to allow judges to reduce the amount borrowers owe their mortgage company.

 "We need to recognize the goal is not to keep everyone in their houses for as long as possible," says Edward Glaeser, professor of economics at Harvard University.

 But there are also plenty of people who might be able to keep their homes with a lower interest rate or a longer loan period. "Servicers don't have the right incentives," says Christopher Mayer, professor of real estate at Columbia University's Business School. Cutting them a check in return for a modification of the loan, or trumpeting their legal authority to do so, is meant to prime the mortgage-rewriting pump, as is letting bankruptcy judges revise mortgages.  Part of what drives up the redefault rate, though, are changes that don't lower, or may even increase, a borrower's monthly payments. A targeted tool like loan modification is probably a more useful allocation of resources than a blanket policy like cheaper mortgages. Make Some Owners Renters

 Yet no policy can change the fact that both property prices and home-ownership rates went off the charts. 

Neil

In the Cleveland area, one out of every five mortgages is subprime, and in Slavic Village subprimes account for more than half of all loans. On Wall Street, though, high risk means high returns. Investment banks buy up thousands of loans at a time from mortgage companies, pool the loans into trusts, and then resell shares in these funds to investors. Mortgage-backed securities that include large numbers of subprime loans are the most lucrative, bringing returns of up to 15 percent. Ohio isn't on Wall Street's radar: Its foreclosure disaster is just a dent in a shiny moneymaking machine. South Euclid has about 150 vacant houses; a few years ago it had about 40. It is predatory lending inflated appraisals, brazen financial companies.

 The sellers send the buyers to independent mortgage brokers who get paid once they close a deal; the more loans the brokers sell, the more fees they make. "We have $20,000 or $30,000 houses selling for $80,000 and $90,000," says City Council member Anthony Brancatelli, who represents Slavic Village. On an annual income of just $26,000, she had borrowed $197,200 from Argent Mortgage to refinance a high-interest loan on her new home and pay off other debts. The bank had loaned her nearly three times the county's assessed value of her house.

Argent sells more mortgages than tany lender in Cleveland, and it took just one year to hit No. 1. Ameriquest agreed to disclose interest rates and fees up front, use independent agents at closings, and refinance loans only if a transaction benefits a borrower. Argent has a loan product for pretty much any customer: borrowers whose income isn't enough to justify a mortgage, borrowers with horrific credit scores, borrowers who want to buy a second home, who want to pay interest only for five years, who want a 40-year mortgage then later on they can not be able to stop foreclosures. Argent denies just 6 percent of applications.

Argent Mortgage defends its lending practices. "Argent takes a number of steps to monitor and select brokers. As for brokers, the company's website points out, Argent sells loans through independent agents over whom it has limited control. In Cleveland, FBI agents are reportedly investigating a single mother living in subsidized housing who bought five houses in a day, and a night-shift postal worker who bought four, all with Argent loans and all in foreclosure.

In late 2004, Ameriquest foreclosed on the property's absentee owner. Ameriquest turned around and sold the house to an investor; that investor resold it a couple of months later to Farrow. It wasn't the only Cleveland house Farrow purchased. Last year, Farrow left her boyfriend and moved with her infant son back to her mother's house. Christopher Siedlecki, who has since pleaded guilty to 14 counts of fraud, bought a house on East 53rd Street for $34,000. For $61,500, He sold it to Lawrence Reasor, in a transaction financed by a small mortgage company called Entrust. In 2003, Reasor refinanced with a $68,000 Argent loan; he went into foreclosure in March 2005.

Reasor's robin's-egg-blue rooming house is one of them. For two years now, Congress has been cutting funds for housing vouchers for low-income tenants. A week later, the day's first auction is Argent Mortgage v. Charity Stewart, et al., starting bid $36,667. Charity Stewart wasn't waiting for Argent to throw her out. When the decay started, not long after she moved in, Stewart called the mortgage company. Argent went to Cuyahoga County Court that November and filed for, to stop foreclosure. Stewart had borrowed $85,000, and still owed $84,795.87. Almost no one in Cleveland puts money down to buy a home anymore. Stewart got a $10,000 loan directly from the seller of the house, a handyman named Steve Dragmen. (Dragmen asserts that the funds were not for a down payment, but simply to qualify Stewart for the mortgage.) The house cost $100,000-more than double what Dragmen had bought it for three months earlier. Dragmen sent Stewart to an Argent broker, who informed her that she didn't earn enough to qualify for an $85,000 mortgage. "Yeah, right," says Stewart. Stewart instructs her.

At Stewart's foreclosure sale, Argent is the only bidder. 

Neil

Federal programs that extended unwarranted credit, such as requiring banks to extend loans in high-risk areas, helped distort the housing market. Predictably, Washington is responding by further expanding the role of government, guaranteeing more credit, and rewarding recklessness - as if one could put out a fire by fanning its flames. President Bush's proposed rescue, for example, involves propping up the Federal Housing Administration that dates back to FDR's early days in office. Take Brian Montgomery, HUD's assistant secretary in charge of FHA. The Associated Press quoted him as saying that 'the entire mortgage market needs the stability that FHA brings.'"

"But far from bringing stability to the mortgage market, over the past decade - under both the Clinton and Bush administrations - the FHA's underwriting methods have rivaled the carelessness of many subprime lending practices, and have contributed to current housing woes. The delinquency rate on FHA-backed mortgages has been close to that subprime category and has sometimes even exceeded it. In the last quarter of 2006, for instance, the delinquency rate for subprimes had increased to 13.33% in the industry's National Delinquency Survey. But in the FHA category, the rate had risen to 13.46 percent - 'a new record.' For instance, Senator Johnny Isakson (R-Ga.) tacked on a $7,000 tax credit to buy homes out of foreclosure. As pointed out by William Niskanen, chairman of the Washington, D.C.-based Cato Institute:

One provision of this act is a temporary $7,000 tax credit for buyers of foreclosed properties, the primary benefits of which would accrue to those grieving bankers who made bad loans. Another provision is a temporary tax deduction worth up to $1,000 for families who pay property taxes, the primary beneficiaries of which would be high-income home owners. The most expensive provision is a three-year tax break for homebuilders, which would increase the supply of unsold homes and delay the recovery of housing prices.

 Barney Frank, chairman of the House Financial Services Committee, blew his own horn, bragging that his piece of legislation has "no downside." Frank's proposal actually "will put billions of taxpayer dollars at risk and undermine the already successful Hope Now program," observed the Heritage Foundation. "Hope Now is a voluntary alliance of scores of servicers, investors, counselors, and other mortgage market participants ranging from Catholic Charities to the Bank of America. Partakers in the alliance seek to reach out aggressively to potentially at-risk, credit-worthy homeowners to help them rework their mortgages. With the help of the Hope Now alliance the mortgage industry is helping more than 160,000 families a month to keep their homes either by modifying their loans or by developing more realistic repayment plans."

The chairman's proposal has "two glaring problems: one moral, the other economic," comments Robert Samuelson in Newsweek:

 About 50 million homeowners have mortgages or to have their homes to under stop foreclosures proceedings. Who wouldn't like the government to cut their monthly payments by 20 or 30 percent? But Frank's plan reserves that privilege for an estimated 1 million to 2 million homeowners who are the weakest and most careless borrowers. Government punishes prudence and rewards irresponsibility. Frank is more than willing to use the force of government to twist the arms of lenders who might resist modifying their loan terms. The current crisis, as noted, has been aggravated by past interference in the market such as the Community Reinvestment Act, a law pushed by so-called liberals used to pressure lenders to make loans to people who are poor financial risks, including many minorities. Now Senator Hillary Clinton (D-N.Y.) has the chutzpah to complain that "subprime loans are five times more likely in predominately black neighborhoods." Senator Barack Obama (D-Ill.), her presidential rival, thinks that is foolish, saying, "A blanket freeze like she's proposed will drive rates through the roof on people who are trying to get new mortgages to buy or refinance a home." Ironically, one reason we got into the current mess is that Washington spent the last few decades criticizing and fining mortgage lenders for not lending to low-income households with imperfect credit records - a practice called redlining. Now Obama plans to punish lenders in criminal and bankruptcy courts until they bring redlining back."

It has taken a long, perverse chain of events to bring about the housing bubble and subprime mortgage mess. In the Fed's expansionary period, much of this money went to home loans. Through a combination of federal government inducements to lend to risky borrowers, and the Fed's supply of easy money, the housing bubble took shape. Fannie Mae and Freddie Mac were asked to purchase and securitize mortgages, while investors, buoyed by implicit government backing, rushed to provide funding. Money that could have been invested in more productive, less risky sectors of the economy was thereby malinvested in subprime mortgage loans."

Wall Street made a killing during the housing bubble, reaping record profits. Unfortunately, the rash responses of the federal bailout artists are bound to lead to even more troubles. 

Neil

We also profile four home owners who have used real estate to begin building their own portfolios of wealth and power.

When you buy a home, you typically take out a mortgage loan to finance the purchase. Think of rent as the money you give landlords to pay their mortgage or to stop foreclosures. Company credit unions and many companies have credit unions that offer their employees discounts on everything from car loans to mortgages. If you belong to a credit union, check to see if it will lend you money for a down payment or closing costs.

In seller financing, often the owner of a property will "hold paper"-that is, finance a portion of the purchase for the buyer by not taking all the proceeds when the sale closes. These bank programs plans can help with down payments. For example, Wells Fargo features the National Homeownership Mortgage, which lets buyers obtain 100-percent financing if their FICO credit score is 620 or better. The Department of Housing and Urban Development (HUD) is also proposing a "zero down payment mortgage" next year for Federal Housing Administration (FHA)-backed mortgages.

You've found the house you want at a price you can afford. Your other debts Banks will also look at other installment bills you pay monthly, such as credit cards, school loans and a car note, when evaluating you for a loan. In this instance they don't want your mortgage debt and other installment debt to be more than 40 percent of your gross monthly income. If it does, this will affect how much of a house loan you actually qualify for.

Credit rating is just as critical as income in qualifying for a home loan, because your credit rating tells banks how good your record has been in making timely payments on other debts. Credit-reporting agencies now connect a score to your credit rating. Financing isn't impossible, but you'll probably have to pay a higher interest rate or other fees to obtain the loan."

Even in today's red- hot real-estate market, there are house deals to be found.  If foreclosed properties aren't bought privately, they're put up for auction to the public. Local newspapers will also advertise available properties and auction dates and times.

With community programs Increasingly, African-American organizations in predominantly Black neighborhoods are developing real estate or renovating housing and selling it on favorable terms to area residents.  Hit upon out which organizations in your neighborhood are financing housing ventures by calling churches, community-development corporations and civil-rights agencies. 

Real estate usually involves big money, which makes it ripe for scams. In Developer's glad-handing, many housing developers will offer to do everything for you from inspecting the property you're buying from them to financing the mortgage. Compare rates and your eligibility with banks or mortgage companies before going to a developer financing.

 Home-a-loan sharking "Hard money" or "shark" lenders prey on high-risk borrowers with ads that say things like, "Mortgage money guaranteed! Your income is critical, and so is the price of the house, but interest rates are the key to calculating how much you can afford: The higher the interest rate, the more it costs to pay for the loan. Say you want to take out a $100,000, 30-year, fixed-rate mortgage loan. At today's prevailing rate of 6 percent, the payment on that $100,000 mortgage would be $599.55 a month. Suppose property taxes and insurance add $250 (actual amounts will vary, depending on the property), equaling $849.55 a month. At 9 percent the rate a few years ago, your mortgage payment alone would have been $804.62, or $205.07 a month more than at 6 percent. At the lower interest rate you can afford the mortgage, taxes and insurance for about the same cost of just the mortgage at the higher rate. With mortgage interest rates the lowest they've been in 40 years, houses have never been more affordable, which makes this a good time to buy, even with higher house prices?

Mortgage a loan that is made against real estate, with the real estate serving as the collateral. For instance, if you put down $5,000 on a property that cost $100,000 but is now worth $125,000, you have $30,000 worth of equity in the property (the $5,000 you put in, plus the $25,000 rise in value). Fixed rate the amount of interest you disburse on a loan remains the same for the term of the loan.

Points another term for percent: a bank, for example, that's charging three points on a mortgage loan, is charging 3 percent. PITI Refers to the four components of a monthly mortgage payment: principal and interest, taxes and insurance. Escrow The amount of money a bank may collect from you and hold in reserve to pay the taxes and insurance on a property.

PMI If you put down less than 20 percent of the purchase price when buying property, banks may require you to take out private mortgage insurance, which indemnifies them from loss should you default on the mortgage.

Closing the last step in the home-buying process in which you receive the title to a property. Expect to pay closing costs that could run between 4 and 6 percent of the mortgage amount.

Tara Roberts, an Atlanta magazine publisher, lived in New York City. Now bitten by the real-estate bug, La-Nita, 35, a surgical technologist, and Keith, 39, an inspector at Boeing, bought a second property for rental income in 9 1999 for $112,000. The seller of the first house held a second mortgage on this property, which he agreed to sell to the Thomases for $7,000. Keith tapped his company pension to buy out the seller's position. Shortly after, the owner of the house, who owed the first mortgage and had retired to Montana, agreed to let La-Nita and Keith buy the house for what he owed the bank, $105,000. La-Nita and Keith assumed his loan, meaning they took over the payments and didn't have to come up with any more money than the $7,000 they originally paid.

The seller of their new property paid all closing costs. Today they own three properties with an estimated total market value of $579,000 that cost them $10,000 out-of-pocket to acquire. The income from the two rental properties more than covers both those mortgages. Offered through a first-time home-buyers program in Brooklyn's predominantly Black Bedford-Stuyvesant, it was a majestic farick-and-limestone ltalianate four-story, four-bedroom, two-family town house, gleaming like a polished jewel on a block of stately brownstones. "I never thought I could get a property like that-I figured it would go to a sister in the choir," says Benson, 40, a corrections officer at Rikers Island prison, who quickly got his money back from the Queens house and applied for the Bedford-Stuyvesant house anyway. 

Neil

According to Freddie Mac, in 1996 there were 44,665 cases of mortgage fraud reported by federal financial institutions. These cases led to more than $3 billion in losses.23 Mortgage fraud is a form of equity stripping, they could stop the foreclosure yet they are exploiting the owners in any how they could. According to the MBA members who report it, mortgage fraud increased from $60 billion-$70 billion between 1998-1999, a relatively good growth year. By 2000, it had grown to $90 billion, a 27% growth year. Whether it is a predatory lending scheme or flipping, mortgage fraud is definitely a growth industry. And, it requires the help, paid or unpaid, of the appraiser. The MBA members who do report their statistics do not represent all of their members. Additionally, the banks, savings and loans, and thrift figures are not included in the $90 billion. If they were to account for the other half of the activity, the total volume could be closer to $180 billion, as of 2000.

 The Certified Fraud Examiners reported some $400 billion in white-collar crimes in 2000, not including mortgage frauds. Mortgage fraud, a form of robbery using real estate to accomplish it, may account for more than any other type of white-collar crime. It requires the help of an appraiser, paid or unpaid, as a willing participant or an unwitting accomplice. If the appraiser is found to have knowingly provided a misleading or inflated report, there could be culpability. 

If the lenders wanted to put a stop to it, they could. But lenders can profit by funding fraud deals, in terms of the points and fees, and then sue the appraiser for negligence, using their liability insurance as if it were mortgage insurance. Claudia Gaglione, a defense attorney for Liability Administrators, stated at a luncheon this past summer in Riverside that often their best defense for an appraiser is to subpoena the loan file and tear it apart, showing the loan should have not been made, regardless of the problems with the appraisal. More than 70% of the civil suits against appraisers come down the lender pipeline.24

 Many civil suits against appraisers, which could be turned in as fraud, are pursued as negligence, in order to keep the appraisers insurance in the case. This was exactly what happened in the Soderburg vs. McKinney25 case that I worked on in 1995. According to Thomas McCullough Jr., the lawyer for Soderburg, they dismissed the fraud charge without prejudice, obtained a $250,000 settlement from the loan broker and then pursued McKinney's insurance as a loss recovery vehicle. In our first Real Estate Fraud seminar in 1999, McCullough stated that he believes that "what McKinney did was fraud," but it did his client no good to pursue that issue and negate the liability insurance. Soderburg had not sent the appraisal before the loan was funded but prevailed in suing him, even though he was not the client of the appraiser.

 If the residential loan production appraiser understood that they were being used by the lending industry as a free form of insurance, fees would be higher to account for the known risk and delivery times prolonged to account for a higher level of due diligence.

 Additionally, if appraisers had any idea that they were being used as a mortgage insurer, there would be a lot more sobriety in the marketplace. The best appraisers operating under economic coercion find it hard to maintain market share and ethics. Like the classic conditioning we learned about in Psychology 101, as the twig is bent, so is the industry being inclined. Many lenders, or their authorized agents, are habitually pressuring appraisers. Absent any structure to withstand the coercion, the residential appraisal industry is caving in. An appraiser who caves in to client pressures and knowingly inflates appraisal values could end up facing criminal charges.

 Historically, it has not been the regulated lenders who put the greatest pressure on the appraiser. Rather, it has been the commissioned loan agent or loan broker. Mortgage frauds, whether flips, packed transactions or bogus sales require inflated appraisals. Lenders now have a new insurance available. They can buy portfolio insurance against fraud and negligent misrepresentation.26 Armed with this new product in the marketplace, some civil suits against appraisers may be turned into criminal cases by the lenders, who, after finding another loss recovery vehicle in the form of insurance, seek to save face by turning appraisers in for their criminal participation in mortgage fraud schemes. Lenders have been the largest source of civil and criminal liability for appraisers, because mortgage fraud cases are the greatest source for potential crime.

 At a fraud seminar in Cleveland last year, Tom Getz, a prosecutor with the USDOJ, stated, "The last thing you want as an appraiser is to be standing in a charging docket next to your loan broker client."27 He explained the Federal Sentencing Guideline, which, like USPAP and licensing, came out of the S&L Crisis. It is, to a prosecutor what USPAP is to of an appraiser. He gave the example that an appraiser who copped a plea to 10 charges from the 40 or so that they were facing in a mortgage fraud case could expect a sentence from between 43-51 months in federal prison.

 USPAP is being used against appraisers in criminal cases. Appraisers are being sued in predatory lending and housing fraud cases or wire fraud, mail fraud, computer fraud, bank fraud, and/or mortgage fraud.

All real estate appraisers must comply with USPAP regulations in accordance with the Financial Institutions Reform, Recovery and Enforcement Act of 1989 [FIRREA]. State Appraiser Certification and Licensing Boards; federal, state and local agencies; appraisal services; and appraisal trade associations require compliance with USPAP.28

 If the appraisal industry as a whole complied with USPAP, property flipping could be stopped. Maybe that is why USPAP was created. Maybe it had something to do with the S&L Crisis. Maybe it was mostly commercial appraisers last time and, just maybe; it is a residential phenomenon this time. That is my view after much research. Only time will tell if I am wrong.

 

Predatory lending will not go away. Too many are profiting from it. Stock prices of publicly traded companies can be enhanced with the huge amounts of high interest, points, and fees involved in the practice.

 Probably the best thing an appraiser could do to limit exposure to excessive risks would be to avoid high liability clients, and high-risk assignments. The high loan to value transactions would be the first thing to avoid, especially if they include excessive fees or the borrower has blemished credit.

 From a legislative standpoint, it is not likely that strong laws will protect the appraisers who operate in this arena. It is more likely that laws will protect the consumer and the regulated lender. The appraiser is likely to be on the wrong side of new laws that create stricter requirements, rules and penalties.

Appraisers involved exclusively in residential loan production work are at a greater risk of being caught up in a bogus transaction and more likely to have risk of involvement in a criminal transaction. Every predatory lending nd mortgage fraud transaction requires the help and services of an appraiser, or an altered appraisal.

Neil

Since families can not stop the foreclosure, they end up running away from it, leaving their new homes in the middle of the night, haunts the Franklin Township section of Indianapolis, a part of the city where home builders flourished during the boom. As you take a right path into the Woodland Trails development on Arbor Trails Drive in the Franklin Township section of Indianapolis, all seems well. The home is clearly abandoned, with waist-high weeds growing in the front yard. Across the street, further up Knobstone Lane there are two houses in a row with stickers indicating the properties are in foreclosure. The aluminum siding on one home's right side is flapping in the breeze. Two doors down from the playground there's another vacant house.

 Marking the transition is another foreclosed house, and three doors down is the home of Mike Pope, 24, who's emerged as the classic example of a young person on the economic margins who should never have qualified for a new-home loan in the first place. Pope opted for foreclosure this summer when the interest rate increased on his FHA-insured 2-1 buy-down loan and he was hit with local property tax increases.

 As of early June, Pope had fallen far behind on his payments. Currently, gas and food alone eat up whatever take-home pay he has left after paying the mortgage.

 Pope's situation is like that of many other families in Franklin Township, a section of Indianapolis south of the city's downtown that records the lion's share of new building permits in Marion County. The county encompasses the city of Indianapolis and all surrounding townships and operates as a combined city-county government. According to the RealtyTrac data, while 42 percent of the 6,572 cases of foreclosure activity in Marion County for the first four months of 2007 took place in inner-city neighborhoods with older housing stock, Franklin Township, where much of the area's new construction occurs, accounted for 6.1 percent of the county's total foreclosure activity. The township's total percentage of foreclosures is bound to grow this year as more new homeowners like Pope, living on tight margins, fall prey to rising interest rates and expensive local property taxes.

 To be sure, foreclosure was not in Pope's original plans.

 When the couple moved into the house in July 2004, they were confident they could handle the monthly mortgage payment of $750, which included homeowners insurance but not property taxes. To make matters worse, in early 2006, Pope received a property tax bill of about $3,000 that included a nominal fee for taxes on the lot in 2004 and back taxes for all of 2005. As with the property taxes added in, the monthly mortgage payment increased to $1,050, and by March 2006, Pope was falling behind on his payments. He says the payment would ultimately drop to about $1,000 a month by April 2008.

 For all practical purposes, it's too late for Pope. Pope has no complaints about the quality of the house, but he does fault his builder, Arbor Homes of Indianapolis, on two counts, and is upset with the original lender, Republic Bank, as well. He says the builder steered him into the 2-1 loan and that the lender counted his overtime as income to help him qualify for the mortgage. Pope also claims Arbor didn't fully explain how expensive local property taxes would be. Pope says the builder's salesperson told him property taxes would be about $80 a month, when in reality they were well more than double that amount.

 "If a homeowner says they were not told about property taxes, they did not hear," says Curtis Rector, president of Arbor Homes. "We offer the property tax information in writing in our homeowners' manual," he adds. "I wouldn't have access to the home buyer's loan information," says Rector. "Arbor Homes closed about 600 homes in 2006 and ... although we have choose lenders ... we worked with at least 30 different lenders." At least eight homes are up for sale on her block, and around the corner there are about four foreclosed homes.

Franklin Township is a builder's dream. While the township is home to only about 3 percent of Marion County's population of 860,454, it accounted for 28 percent of the new single-family building permit activity in 2006. Home builders have clearly capitalized on the township's willingness to accommodate such high levels of residential growth. There's little question that home builders profited heavily here during this decade's boom. National builders such as Beazer, CP. Morgan Communities, Centex, and Pulte do business in Franklin Township, as do locally based builders such as Arbor Homes and Davis Homes.

Of course with all the effort to stop foreclosures and the high property taxes, attitudes have changed. Working in tandem with the county's Metropolitan Development Commission, the township revamped its comprehensive land-use plan last year to include zoning regulations that accommodate a better mix of residential, commercial, and industrial development.  "In the past, some people wanted to keep {Franklin] township residential, [while] others opposed [nonresidential] development because the projects weren't planned well," says Lincoln Plowman, a detective and councilman who lives in Lincoln Township. 

The township plans to attract businesses through tax increment financing (TIF), a state program in which the township issues a bond that can be used to help build commercial or industrial buildings or local roads and sewers. Property taxes are then used to pay off the bond. Murphy tried to aid his constituents by introducing a bill that would have required builders to calculate the local property tax and present that information to new home buyers. The homeowners we interviewed in the Franklin Township subdivisions were upset by all the foreclosure activity. There are many reasons for all the foreclosures in the Franklin Township area and throughout Indiana. Second, Indiana has more affordable housing than most states, which means that new homes are accessible to young people in entry-level jobs.

At press time, the locals in Franklin Township had just received their property tax bills. The reassessment, combined with double-digit budget increases on many line items, resulted in average property tax increases in Franklin of 35 percent or more. Tack on rising interest rates on subprime and 2-1 buydown loans and residents are concerned more people will face foreclosure. The issue is having statewide impact: By late July, Republican Gov. Mitch Daniels was looking at holding a special session on the property tax issue and having some counties redo the assessments.

"If property taxes go up, all the people will be gone," says the schoolteacher who lives near Pope. This news is plenty disturbing to home builders, and some builders think the lending community has a lot to answer for.

 Eggleston insists his company makes prospective home buyers aware of the risks of homeownership, including full disclosure about local property taxes. an informational Web site about homeownership it sponsors with Chase, Countrywide Home Loans, and Wells Fargo, among others.

 Rector of Arbor Homes says his company works hard to educate home buyers on the responsibilities of homeownership, as well, but adds that home builders can't legally make certain value judgments about prospective buyers.

Neil

Investors in foreclosures hold opposing views on what they deem an acceptable rate of return for the inherent risks. So if you think you can sell a property for $200,000, you'd better make sure that your bid, plus repairs and carrying costs, doesn't exceed $140,000. When a creditor files suit to reclaim a property, this becomes part of the public record. You can discover postings of pending foreclosure suits (or notices of delinquency in some states) at the local courthouse. Ward Hanigan of San Diego, who moderates a foreclosure discussion group at foreclosureforum.com, advises that you check a local legal newspaper, preferably a daily.

 The listings give the location of the property, along with the names of the defaulting party and the lender. Thomas and Tammy Plaster, foreclosure investors who own a construction business in Conroe, Tex., say it's best if you track foreclosures in an area that you know well, such as the area where you live. You'll want to visit the property to better assess its worth. ``It's a good idea to estimate worst-case scenarios of what's inside,'' such as crumbling walls and leaky plumbing, says Robert Bruss, a syndicated real estate columnist who has profited from buying and selling seized properties.

 To further vet the property, you'll have to perform or commission a title search that will show whether other mortgages or liens are due. Senior mortgages or deeds--loans taken out prior to the one in default--are your responsibility if you buy the property. Second mortgages which are Junior loans are wiped out upon foreclosure of any previously established loan. Overdue taxes always carry over.

 If you are planning not to stop the foreclosure and you should prepare on selling the property for quick profit, you'll need to calculate the carrying costs and sale expenses as well as actual property value and repair costs. You must pay title and transfer fees, and don't forget about interim property insurance. The Plasters add 5% to 10% for unexpected costs. Depending on state laws, borrowers have anywhere from 21 days to 12 months following the lender's initial legal action or notice of default to pay up and avoid losing the property in a foreclosure. Hanigan of Foreclosureforum.com prefers to bid at foreclosure  sales because he gets the property free and clear. The lender's attorney or trustee starts the bidding with the amount owed on the property, plus the legal and administrative costs associated with foreclosure. That's the only bid the lender will enter, because it isn't allowed to profit from a foreclosure sale. Top the asking price by as little as a penny, and the property is yours. If there's a bidding war, the defaulting borrower gets the amount above the lender's bid.

 As with any property, lenders will finance your purchase of a foreclosure if you can show it's a good deal, you have good credit, and can demonstrate your ability to repay the loan. If no one bids over the asking price, the property goes to the lender. Lenders also often offer favorable financing and may waive some closing costs. Most banks list foreclosures with real estate agents who post them on the Multiple Listing Service (MLS), a directory available to realtors. Fannie Mae and Freddie Mac use realtors, too, but also list properties on their Web sites.

 If the loan on a home was guaranteed by the Federal Housing Administration (FHA) or Veteran's Administration (VA), those agencies acquire and market the property after foreclosure. They usually sell it through a real estate agent ``as is,'' without warranty, whereas banks and secondary lenders usually fix up the place so they can ask a higher price.

 Neil

 

Hi everyone! This time I would like to share you some lead generation term which I made it simpler for better understanding. This is essential for those who want to engage in short sale, real estate investing. And, this can also be important for those who face problem on how to stop foreclosure.

Prospect—this pertains to any person who is referred to you. This can also be calls from your marketing or lead generation. Your have to remember that your prospect may or may not suitable candidate for you to work with since you have not yet run them through your filter system.

Lead—this pertains to prospects who said 'yes' and eager to sign a contract with you to dispose or sale their properties.

Cost Per Lead—the amount that you have allocated and spent to get that individual who is finding ways to stop foreclosure and say yes.

Now, we are about to check out my top techniques for establishing calls from sellers FAST! We will go through each detail. Data below is to show you it does not cost a huge amount of money to stimulate and generate deals.

Total Leads: 89 in one month

Cost Per Lead: $4.31

For that cost, you can have a great number of prospects to work with. You have to realize that your goals are as follow:

*You have to get them to say 'Yes' to your offered deal

*You have to get them under contract

*You need to start the short sale negotiations.

*And to get these properties on a number of listing service to be sold by the agent who has been working you and feeding you deals.

Lead Generation

In more than a decade of investing in pre-foreclosure properties, I have successfully developed more than 30 ways to find homeowners who are facing problem on how to stop foreclosure to call me. In this particular detailed report I made it a point to distill my top 4 methods which, if used properly, correctly will generate more than 40 inbound calls that will produce the needed foundation lead flow to create a $300,000 net annually in business. But for now, let us keep it simple. Incidentally, I have hundreds of students running $500,000 per year business with exactly what we will cover here.

For now let’s keep it simple. Incidentally, I have hundreds of students running $500,000 per year businesses with exactly what we will cover here.

Figure out what kind of business you could have with that numbers of leads. Try to imagine how many people could you help and how much money could you generate. Remember, it is just all about getting your phone to ring.--Roy Van

Foreclosure investing can provide reasonably priced property that can be turned over for profit. With some careful research and getting real estate or short sale resources, foreclosure investing can provide great investment opportunity for both the short and long term. Many are afraid of getting involved because they do not possess large sums of money to play around with. The truth is, you do not need to use your own money to make a profit in foreclosure investing, and many find investors to fund their projects.

The idea of playing with someone else’s money may be even more frightening then playing with your own. However, using investors could be a good way to get valuable information. Investment clubs are a great source of information and are recommended if you are new to foreclosure investing. They are made up of local investors who have experience in this kind of business. They can provide substantial answer to questions and tell you if your property is a good idea or not. If you’re actually looking to attract investors then there is no better place. If your idea is good then you should have no problem attracting investors and the money you need. If investors are not keen to jump on board then this could be a sign that your project isn’t such a great deal.

If there are no investment clubs in your area, but you still are keen to attract investors, look in the yellow pages for ads for all types of credit. These are usually money lenders who have investment cash available. Another trick you can try is to find ads with slogans like “We Buy Houses”. These are often cash investors and are a good source to generate your capital. If you’re really determined, look in the legal section of your newspaper for notices of sale. These are auctions featuring foreclosure properties. Go to the auction and speak to the investors. You may find someone faster than you think.

If you are determined to get into foreclosure investing but lack the cash, remember, where there is a will there is a way. Check your local investment clubs, yellow pages and news papers for investors. If your idea is good, someone will want to finance it.--Roy Van

Wall Street is solid on surviving that once eagerly packaged rising mortgages into securities and encouraged lax lending standards and 100% financing are pressing lenders to tighten up. In response, lenders now require larger down payments or more fairness, higher credit scores and closer scrutiny of appraisals.

Even though the vast preponderance of borrowers still make their payments on time, mortgage bankers report record rates of delinquency and foreclosure. A few high-profile subprime lenders--firms that awarded loans to people with blemished credit or undocumented earnings--have declared bankruptcy. Even homeowners with the best credit feel the clutch from falling home prices and rising rates. Toward the end of the boom, the amount of adjustable-rate mortgages with cheap initial rates surged as home buyers struggled to get a foot in the door of houses selling for bloated prices, thus having hard time stopping foreclosures.

Kevin Kempskie is not your typical investor. In Boston, investors had previously driven up prices and condo conversions were extensive, but Attleboro had escaped the rush and price run-up.

Following his mortgage broker's advice, he traded in his fixed-rate mortgage for an ARM with a rate of 5.97% for the initial year. The loan, known as an option ARM, offered four payment choices, including a minimum payment that didn't include all the interest due.

Like many other dangerous mortgages, the loan carried a prepayment penalty that would apply if he refinanced within three years. Often, to boost their commissions, brokers would push for the prepayment penalty because it increased a loan's appeal to investment firms issuing packages of mortgage-backed securities.

The couple bought a single-family residential property and began making two mortgage payments.

The $2,650 that Kevin collects in monthly rents is just enough to cover the loan's minimum payment of $2,370 and the building's operating expenses.

As investors and homeowners were overcome with speculators' fever, the mortgage industry fed Wall Street's hunger for high- yield securities by reselling packages of subprime loans. Says Charles Pope, one of the executive of Mortgage Authority, in Florida: "Mortgage companies were having such an easy time selling bad paper, they said, Let's get crazier. If you can fog a mirror, we've got a loan for you." Persuaded by the easeness of selling questionable loans to investors, lenders unwind their underwriting standards.

In that agitation of building and buying, Linda Steele and her spouse bought their first home in Port Saint Lucie which is the county seat. They paid $187,000 for a brand new built four-bedroom, three-bath single- family home on a quarter-acre. At $1,500, the mortgage payment was manageable with two incomes--although, as the family's primary breadwinner, Steele worked 14- to 16-hour days as a regional manager for a drugstore chain.

Because of the decline in household revenue, she had to refinance into a subprime mortgage. In middle of 2006, when the fixed-rate period on her mortgage ended, Steele refinanced into another 2/28 mortgage, this time with an interest rate of 9% because her credit score had fallen. Property taxes rose with home prices to give for new municipal infrastructure as new- home development mushroomed, and insurance costs soared in the wake of multiple hurricanes. Steele's mortgage payment rose to $2,800 a month.

Steele move toward her mortgage lender hoping for a forbearance—in short, she would be able to skip a few months' payments, which would be tacked on to the end of her loan. Instead, the lender told her that if she could pay her mortgage on time for three months it would deem adjusting the interest rate downward.

Steele still has equity in her home, but she isn't confident that she can sell it fast enough to stop foreclosure. Since the county's market peak, the number of homes for sale has more than doubled, time on the market has increased, and the median home price has fallen.

Even if you're a fiscally conservative homeowner, you may be feeling the pressure of high housing costs, particularly if you have an adjustable-rate mortgage with a rate that's headed up or if your income has taken a hit.

Rates on 30-year fixed-rate mortgages are still good-looking and are generally lower than fully indexed rates on adjustable-rate loans. If you can't refinance because your financial prospects are poor, you have no equity in the home or you're looking at a large prepayment penalty, you may want to try selling your home yourself.

Take lead of a mortgage relief, if it is available. In California, legislators have suggested creating a mortgage pool to assist first-time homeowners in trouble. Head off foreclosure. As soon as you think you will forget a mortgage payment, call your lender to discuss your options. Besides refinancing, those may include a self-control (you temporarily pay nothing or only a minimum amount, making up the payments either over time or at the end of the loan), or a loan modification (the lender temporarily adjusts the interest rate). In that case, the lender agrees to call off your debt in exchange for the proceeds from the sale of your home and to stop foreclosure.

Neil