Mortgage fraud happens when a borrower deceives the mortgage lender when applying for a mortgage so that they can get a mortgage they normally would not qualify for. In many cases, the borrower is working together with the seller, and they split the gains when the mortgage is obtained. Regardless, the lender ends up losing money. Below are some of the more common types of mortgage fraud.
Occupancy Fraud – Occupancy fraud is when a borrower intends to purchase property as an investment, but he or she states they will use it as a residence. This gives the borrower a lower interest rate and requires a smaller down payment, and the lender is usually willing to loan more than they do for investment property. Occupancy fraud also gives the borrower the opportunity to file false tax returns. Investment owners should pay capital gains on their profits, and the borrower can fraudulently claim false tax credits on the home.
Income Fraud – Income fraud occurs when the borrower falsely overstates his or her income. The borrower does this because they know the mortgage company will lend more money with more income. Most lenders make the borrower prove their income, so the borrower usually forges their tax returns, bank records and W-2 statements. Income fraud can backfire on the borrower because the borrower won’t have that much money to pay the mortgage and is likely to default on the loan.
Shotgunning – Shotgunning happens when a borrower takes out several loans on the same property simultaneously through multiple lenders. Each subsequent mortgage the borrower takes out is junior to the mortgage that preceded it. Because the total value of the mortgages is more than the value of the home, foreclosing on the home isn’t enough to recover financial losses. This makes it impossible for the lenders to recover any money given to the borrower when the borrower defaults.
Appraisal Fraud – Appraisal fraud happens when the appraiser overstates how much the property is worth. In some instances, the appraiser and seller work together to pull off this type of scam. When the value is overstated, the seller can get more money out of a buyer, giving them additional money to pay off the appraiser and have money leftover. Sometimes, the appraiser and borrower scheme together. When this happens, the borrower allows the lender to foreclose on the home by intentionally defaulting. The lender tries selling the property to recoup the money, but with the property inflated, this can’t happen. Consequently, the borrower keeps the money and gives the appraiser a pay-off for helping arrange the scam.
Contact Todd Abelson at Tucson Mortgages in Tucson, Arizona for all your mortgage needs! (520) 331-LEND (5363)
With the release of its latest version of “Desktop Underwriter” (their Automated Underwriting System), here are some of the Fannie Mae changes effective 11/16/2013. While some are in advance of the new “Qualified Mortgage” (aka QM) rules beginning January 2014, many will affect potential homebuyers as well as persons refinancing their present loans NOW.
Here’s a summary for your reference:
ELIMINATION of all 3% down programs (5% down or more REQUIRED)
Elimination of “Interest-Only” loans
Elimination of any loans over 30-years in terms
Tightened qualifying requirements on all ARMs
Elimination of the “Estimated Value” (used for HARP refi’s)
Elimination of all “Expanded Approval” programs (allowed less-than-perfect borrowers)
Limiting the Maximum Debt-to-income Ratio to 45% (50% if “strong compensating factors”)
Even though the Federal Government is not directly involved with the home loan process, there are several functions performed in conjunction with Federal Agencies that help close a loan. So not only could the shutdown cause a SLOWDOWN, but it may be impossible to acquire documents required in SUPPORT of the loan process which can effect FHA Loans, USDA Loans, VA Loans, and even Conventional Loans. So the answer is “yes, the Government shutdown can delay my loan”!
Delays/holdups that could generally effect ALL loan types:
A standard process for all mortgage companies and banks is to obtain an IRS verification of income (via a “4506-T” transcript) so that Underwriters and can verify that the income provided is correct and accurate. A shutdown or slowdown at IRS will delay processing of tax transcript requests. If income cannot be verified the loan may not close on time.
Next, to verify Social Security Numbers a bank or mortgage company may need to process a SSA-89 Form for Social Security Number (SSN) Verification. A shutdown or slowdown at the Operations Field Officer of the Social Security Administration will delay processing of SSN verifications. If SSNs cannot be verified the loan may not close on time.
Finally, for properties within flood zones flood insurance is required. A shutdown or slowdown at FEMA will delay the processing of flood zone certifications. If flood zone certs cannot be issued the loan may not close on time.
Will FHA Loans be delayed?
FHA Loans should not be significantly impacted as long as the government shutdown is brief. HUD has issued a memo to banks and lenders explaining that daily operations will be continued. However with reduced staff the process may take longer. The on-line “FHA connection” will still be open and available to request FHA case numbers and transfer requests. Overall, business should continue as usual for FHA loans. Don’t forget to consider the general third party verifications listed up front!
Will VA Loans be delayed?
The Department of Veterans Affairs (VA) has issued a statement that business should continue as usual for VA Loans. Veteran’s Certificates of Eligibility (COE) will still be available online through their “webLGY” site. Additionally appraisals may still be ordered and processed through the Veterans Information Portal. Don’t forget to consider the general third party verifications listed up front!
Will USDA Rural Development Loans be delayed?
USDA Rural Development Loans will be delayed throughout the Government Shutdown since no “Conditional Commitments” will be issued. Additionally their on-line system (called “GUS”) has been turned off. Worse, since the USDA is closed through the shutdown there’s no one to contact for any updates. To make the outcome a bit more murky, many areas that were previously “eligible” were slated to become “ineligible” with the new Government Fiscal Year. So what WILL emerge from the ashes is yet to be seen.
Realtors and Buyers are cautioned that transactions based upon USDA financing should be handled carefully.
Will Conventional Loans be delayed?
As mentioned up front, Conventional Mortgage loans could be directly delayed through the government shutdown or slowdown due to delays in the aforementioned third party verifications (IRS transcripts, Social Security Number verifications, Flood certifications).
How long will the shutdown last?
OUR HOPE is that Congress will quickly pass a “Continuing Resolution” to fund the Federal Government; delays beyond a few days may cause serious delays in loan fundings regardless of the type of loan. THEREFORE it would be wise to plan for and expect delays. Realtors, homebuyers and sellers should be in close contact with the Mortgage Loan Originator to stay up to date to help determine status. The best advice is: be patient. Contingency plans by Lenders, third party companies and some governmental agencies are being put in place to reduce delays. Remember, you are not alone in waiting as there are tens-of-thousands of home loans closed monthly!
WHO DO I BLAME???
It is not the fault of your Realtor nor your Loan Originator so please DON’T SHOOT THE MESSENGER! We all agree this is a unique and crazy-making situation so call your Congressman and hope they do their jobs and get the Federal Government back in business!
Contact Todd Abelson at Sunstreet Mortgage in Tucson Arizona for all your mortgage needs! (520) 331-LEND (5363)
This update reminds readers about a bulletin that was updated on March 28, 2013 and provided guidance on eligible rural areas for RHS housing programs.
On March 26, 2013, the President signed “H.R.933 — Consolidated and Further Continuing Appropriations Act, 2013” which provided funding through September 30, 2013. The Bill also extended the eligible rural areas that were in effect as of September 30, 2012 until September 30, 2013 for Rural Housing Service (RHS) housing programs.
Barring any Congressional actions, implementation of the 2010 Census Data is on schedule for October 1, 2013, which will modify the eligible rural areas for the RHS housing programs. The future eligibility area maps can be viewed on the USDA Eligibility web site at: http://eligibility.sc.egov.usda.gov.
Since there are only 9 legislative days remaining this month, there is a reasonable expectation that Congress will enact a short-term Continuing Resolution (CR) until mid-December. As with previous CRs, this will allow USDA to extend the “rural” definition for all currently eligible rural areas through the term of the CR. The CR gives advocates more time to access USDA Rural Housing programs until Congress enacts its FY14 Appropriations bills or moves the Farm Bill through conference committee.
Bottom line: if you are planning on buying a home in a presently eligible area, or are a Realtor working with someone that is planning on buying a home in a presently eligible area, you should proceed with all due haste and plan on closing your purchase transaction in SEPTEMBER!
Stay tuned for further updates… call Todd Abelson at Sunstreet Mortgage in Tucson, Arizona for all your mortgage needs (520) 331-LEND (5363)
Over the past several years, I find myself being asked “how long do I need to wait after ______ (enter bad situation) occurred before I can qualify for a new home loan?” Given the loan type and derogatory financial event the answer varies… but here’s a simple cheat-sheet to try and make heads-and-tails out of the topic.
Please note that these time periods are suggested and typical but “your mileage may vary” based upon situation, extenuating circumstances, down payment amount, yada, yada.
Event Conventional FHA VA USDA
Foreclosure 3-7 years 3-years 2-years 3-years
Deed-in-Lieu of Foreclosure 2-7 years 3-years 2-years 3-years
Short Sale 2-7 years 3-years 2-years 3-years
Bankruptcy (Chapter 7) 2-4 years 2-years 2-years 3-years
Bankruptcy (Chapter 13) 2-4 years 1-year 1-year 1-year
Want more details about required Waitingtime after derogatory financial events? Call me! Todd Abelson at Sunstreet Mortgage (520) 331-LEND (5363)