‘Flopping’ scam enables fraudulent flipping in housing market

Although reports of mortgage fraud nationally fell 41 percent in 2010 from 2009, the continuing downturn in the housing market has fostered new ways of perpetrating it, experts say.

Consider “flopping” — the intentional misrepresentation of housing value for purposes of illegal flipping.

Here’s how it works: A real-estate agent or broker identifies properties with severely depressed values. These could be properties with mortgages that exceed the present values or they could be short sales or foreclosures.

A property is valued using a “broker price opinion.” The broker’s “opinion” is a lowball price, because his intention is to profit from a quick resale for a higher price.

A lender, believing the broker’s assessment is legitimate and unaware of any scheming, agrees to the lower sales price.

The broker buys it at the greatly reduced price, arranges for a “straw buyer” to purchase it, then flips it for a higher price than negotiated with the lender. The broker pockets the profits.

The broker pays off any of the participants that enabled the scheme, and then moves to the next target property.

Misrepresentation

“This is a misrepresentation of value,” said Denise James, co-author of an annual report on the topic by the LexisNexis Mortgage Asset Research Institute, during a recent teleconference.

She said such schemes could add to problems faced by regions with an abundance of distressed housing, since “lenders will grow concerned with false depreciation of values,” thus making the buying and selling of homes even more difficult in depressed housing markets.

“Flopping increases as desperation to get rid of rising inventory grows,” she said.

While reports of fraud by 600 lenders and other real-estate businesses to the LexisNexis mortgage institute declined year over year, “the decrease does not necessarily correlate to actual occurrences of (fraud), which are rising according to several industry sources,” James said.

Rising numbers

Suspected mortgage fraud submitted to the Federal Financial Crime Reporting Network rose 5 percent from 2009 to 2010, for example.

The list of crimes included short sales, bankruptcy abuse, debt-elimination scams, income and employment misrepresentation, Social Security number theft and loan-modification fraud.

Mortgage fraud has become more complex and is more difficult to verify, James said, because many lenders are trying to implement new procedures at the same time they are trying to recover huge financial losses.

Florida leads the list of states with high levels of fraud, with the institute’s index showing more than three times as many reports of fraud than legitimate mortgage originations.

One of the fastest-growing ways homeowners are being bilked is by people posing as the new servicers of their mortgages, she said.

“They (the homeowners) get letters saying, ‘I’m your new servicer. Send your payments to me,’ ” James said. “Homeowners who are not aware that there is a formal procedure involved in changing servicers” fall victim to this scam.

Source: By Alan Heavens, The Philadelphia Inquirer (6/10/2011)

Washington State Mortgage Rates This Week : May 31, 2011

Mortgage markets improved last week ahead of Memorial Day and a 3-day weekend. Bond pricing ending the week higher, pushing conforming mortgage rates in Washington down for the 5th week out of six.

Most economic news reported worse-than-expected. Initial Jobless Claims increased sharply, GDP was unchanged, and Durable Orders posted the largest one-month decline since October. Each of these stories reduced inflationary pressures on the economy, contributing to lower mortgage rates.

However, the main driver for U.S. mortgage rates last week was Europe.

One year ago, Greece pledged to lower its spending, cut its deficit, and reduce the number of public programs and benefits. In economic circles, this is known as austerity. For more than a month, however, despite the austerity measures, there has been concern that Greece will fail to meet its debt obligations.

Last week, that concern spiked. It triggered a flight-to-quality that helped U.S. mortgage bonds, and led mortgage rates lower.

Conforming and FHA mortgage rates are now at their lowest levels in more than 6 months.

This week, the biggest news is May’s Non-Farm Payrolls report. Although, expect for rates to carve out wide ranges from day-to-day. Until the Greece scenario reaches a resolution, Wall Street will be on edge.

• Tuesday : Consumer Confidence, Case-Shiller Index
• Wednesday : ADP Challenger Report
• Thursday : Initial Jobless Claims
• Friday : Non-Farm Payrolls Report

Plus, four members of the Fed have scheduled speeches.

If you’re still floating a mortgage rates, or have otherwise not locked in, luck is on your side. Mortgage rates look poised to fall over the next few days, however, markets have been known to reverse quickly. Therefore, if you’ve been quoted on a rate that looks acceptable to you, you may not want to gamble on mortgage rates falling further.

The safest decision may be to commit to what’s available to you today.

Foreclosures for sale: Big supply, low prices

NEW YORK (CNNMoney) — There’s a three-year inventory of homes in foreclosure for sale, and that’s devastating home prices.

Las Vegas has so many foreclosures that 53% of all the homes sold in Nevada are in some stage of foreclosure, according to a report from RealtyTrac, the online marketer of foreclosed properties.

Foreclosures represent 45% of sales in California and Arizona, and 28% of all existing home sales during the first three months of 2011.

“This is very bad for the economy,” said Rick Sharga, a spokesman for RealtyTrac.

What’s more, the homes are selling at steep discounts, especially so-called REOs, bank-owned homes that have been taken in foreclosure procedures.

The average REO cost on average about 35% less than comparable properties, according to RealtyTrac.

But in some areas, the discounts were ever greater: In New York State, the discount for REOs was 53% during the first quarter. And it was nearly 50% in Illinois, Ohio, and Wisconsin.

10 dirt cheap housingmarkets

Also weighing on market prices are “short sales,” homes where the selling price is less than what is owed by the borrowers. These sales sold at an average 9% discount.

Including both REOs and short sales, Ohio had the biggest discount of any state, at 41%.

There were 158,000 deals involving distressed properties nationwide during the first quarter, less than half the nearly 350,000 during the same period two years earlier.

With the slowed sales pace, it will take three years to burn through the inventory of 1.9 million distressed properties, according to Sharga.

“Even if you look at REOs alone, it will take 24 months to clear them and that’s without any new foreclosures at all coming into the system,” said Sharga.

Banks to Pay $22 Mil for Military Foreclosure Errors

Bank of America and Morgan Stanley have agreed to pay more than $22 million combined to settle federal civil charges on improperly foreclosing on military personnel, The Associated Press reports.

Between 2006 and 2009, the mortgage lenders foreclosed on 178 military members in 22 states without getting court approval. The military members affected will each receive $125,562, on average. The banks will also continue to investigate whether improper foreclosures occurred in 2009 through 2010.

The settlement is “easily the largest amount recovered” in a case of improper military foreclosures, Thomas E. Perez, an assistant attorney general, told The Associated Press.

The Servicemembers’ Civil Relief Act offers protections to military personnel to prevent foreclosures. It bans evictions or creditors trying to repossess their property while on active duty.

JPMorgan Chase earlier this year admitted to overcharging about 4,000 military personnel on mortgages and wrongly foreclosing on 14. It paid $2 million in settlement charges originally and last month paid more than $60 million to settle a class-action lawsuit regarding the overcharges.

Source: “2 Firms to Pay for Improper Military Foreclosures,” Associated Press (May 26, 2011)

74.6 percent of homes affordable to median-income households, trade group finds

Housing affordability hit a new high in the first quarter, surpassing the previous high set in fourth-quarter 2010, according to the National Association of Home Builders and Wells Fargo.

The Housing Opportunity Index found that 74.6 percent of new and existing homes sold in the first quarter were affordable to families earning the national median income of $64,400. That’s up from 73.9 percent in the fourth quarter of 2010, and it’s the highest level in the more than 20 years the index has been measured.

“With interest rates remaining at historically low levels, today’s report indicates that homeownership is within reach of more households than it has been for more than two decades,” Bob Nielsen, chairman of the National Association of Home Builders (NAHB), said after the index was issued last week.

“While this is good news for consumers, homebuyers and builders continue to confront extremely tight credit conditions, and this remains a significant obstacle to many potential home sales.”

The Seattle metropolitan area also became more affordable with 67.5 percent of homes within reach of those earning the median income of $85,600. That number is the highest recorded since the index started in the first quarter of 1999.

Before 2009, the national index rarely topped 65 percent, the association said. Last quarter was the ninth straight quarter the index was above 70 percent.

Indiana, Ohio and Michigan dominated among the most affordable metro areas. Among metro areas with populations under 500,000, Kokomo, Ind., was the most affordable area, with 98.6 percent of homes affordable to households making a median income of $61,400. The median sales price in the area was $88,000 in the first quarter.

California dominated among the least affordable metro areas. San Luis Obispo-Paso Robles, Calif., was the least affordable among the smaller metro areas with 47.6 percent of homes affordable to households making the median income of $72,500. The median sales price in the area was $320,000 in the first quarter.

Among metro areas with populations of 500,000 or more, Syracuse, N.Y., was the most affordable to households making the median income of $64,300. The median sales price in the area was $80,000 in the first quarter.

Another New York market, New York-White Plains-Wayne, N.Y.-N.J, was the least affordable among both the larger metros.

Less than a quarter of homes, 24.1 percent, were affordable to families making the median income of $65,600 in the first quarter. The median sales price was $425,000.

In other cities in Washington state, Spokane was the most affordable with 82.2 percent of homes within reach of those earning the median income of $60,300. Olympia recorded 81.8 percent; Tacoma, 78.5 percent; Bremerton-Silverdale, 70.1 percent; Bellingham, 69.7 percent; and Mount Vernon-Anacortes, 60.5 percent.

Source: By Inman News

REALTOR® Magazine-Daily News-New-Home Sales Get a Boost

REALTOR® Magazine-Daily News-New-Home Sales Get a Boost.

REALTOR® Magazine-Daily News-Will REOs Hamper a Housing Recovery?

REALTOR® Magazine-Daily News-Will REOs Hamper a Housing Recovery?.

Home sales fall even as mortgage rates touch lows for 2011 – USATODAY.com

Home sales fall even as mortgage rates touch lows for 2011 http://usat.me/47330148

Rebuilding scores — if you ask

Some credit experts call it the best-kept secret in home-mortgage finance. Others say, so what?

Millions of Americans whose credit scores have declined in recent years because of economic stresses could start rebuilding their scores if their rent, utilities, cellphone, insurance and other monthly accounts were reported to the national credit bureaus.

But typically they are not, and as a consequence fail to show up as positive factors on credit-scoring systems such as FICO or VantageScore. These on-time payments essentially go to waste for consumers, even though monthly rents often can be as large as mortgage bills, and years of utilities and other payments are widely recognized as strong indicators of creditworthiness.

Now for the best-kept secret: Under federal law, these unreported accounts need not go to waste. You as a mortgage applicant are guaranteed the right to bring evidence of your unreported on-time payments to lenders, and they in turn are required to consider those records in making a decision on granting you a home loan — provided you request it. If a loan officer refuses, he or she could be open to legal penalties.

Though federal financial regulators generally acknowledge the right to present supplementary data that consumers enjoy under the Equal Credit Opportunity Act, only one — the National Credit Union Administration — has published guidance informing lenders they are required to comply.

Factoring in so-called nontraditional credit accounts not only could provide important help to buyers and owners with recession-scarred scores but could also aid the estimated 35 million to 54 million consumers who don’t show up — or barely show up — in the files of Equifax, Experian and TransUnion, the three national credit bureaus. Many of these are young people with so-called “thin” files with just a couple of credit accounts, and many are minorities.

So where’s the disconnect here? Why aren’t more consumers documenting their otherwise unreported monthly payments? And why are loan officers likely to stare at account records and say: Are you kidding? We only look at credit files.

The problem is complex. Almost no one in the consumer-finance field has paid much attention to the Federal Reserve’s “Regulation B” that interprets the rules on treatment of alternative credit. Lenders who know about it don’t want the hassles of sorting through “shoe box” records that may or may not be accurate. Major players in the mortgage market such as the Federal Housing Administration, Fannie Mae and Freddie Mac all say they’ll accept alternative credit data but have restrictions on what they will consider. FHA, for example, does not permit applicants with low credit scores to boost them by adding positive, nontraditional data.

The credit industry is eager to incorporate accurate, nontraditional information but is ill-equipped to deal with sources that cannot provide large and regular amounts of verified reports.

“The [national] bureaus know that alternative data is highly predictive,” says Barrett Burns, CEO of VantageScore, a joint venture created by Equifax, Experian and TransUnion. “We think millions of people could benefit” if it were collected and loaded into scoreable files. Experian already collects positive rent-payment data on approximately 8 million units in large apartment complexes and incorporates the information into its scores, he said.

But Burns noted that the industry has had difficulty accessing information on utilities payments in some states, and collection of cellphone-account records has raised privacy issues. Without accurate information being available in large quantities, he said, it is difficult to assist large numbers of consumers.

Nonetheless, efforts are under way to mine unreported credit data — potentially the untapped shale gas of the mortgage market — and transform it into something useful. A private firm, Trycera Credit Services, has announced an agreement with the National Credit Reporting Association — a trade group representing companies that provide the merged credit-bureau reports and scores used by mortgage originators — to independently verify the accuracy of consumer-supplied payment records. Those records can then be provided to lenders as part of the standard credit reporting and scoring information used in mortgage underwriting.

Michael G. Nathans, president of Trycera Credit Services, says the project is just getting off the ground but that preliminary information is available at the company’s website, www.trycera.com. The service will cost $20 to verify rental and mortgage payments, $15 for other verifications. Trycera also offers Visa debit cards that can help consumers document their nontraditional credit payments in a scoreable format.

Of course there are no guarantees that lenders will accept your alternative credit data. But federal law requires them to at least “consider” it — if you ask.

Source: By Kenneth R. Harney, Syndicated Columnist

Renters finding landlords have upper hand in this market

Angi Ramos and her former college roommate Laura Waltner have been looking for months for a place to call “home.”

They’ve been trawling websites and have inspected a half-dozen units.

They’d prefer a newer building in Capitol Hill or Queen Anne — vibrant neighborhoods with lots of young people, restaurants and nightlife. Their search so far for a two-bedroom apartment under $1,500 a month has yielded only slim pickings.

“One unit had a great common area,” says Ramos, “but the washing machine was in the kitchen and the dryer was in one of the bedrooms.”

New, attractive buildings, such as the Illumina Lake Union Apartments, are full and expensive, says Ramos. Still, she says, the landlord suggests they check back every month to see when there might be an opening.

Similarly, when Hoa Do set out to find an apartment earlier this year, she says she did not expect to pay as much as $850 per month to rent a vintage studio near Seattle University. What’s more, the college senior regrets that her landlord would not relent on a nine-month lease.

“As a student, I prefer to pay month-to-month, because I never know if I will be studying abroad, or going home to visit family,” says Do, who is from Vietnam.

It’s a story being repeated all over Seattle. As vacancy rates dip below 5 percent, landlords are raising rents and offering fewer concessions or perks.

According to Apartment Insights, a web-based information service, the vacancy rate in the Seattle metro area hasn’t been this low since the latter part of 2007, and rental incentives are drying up in downtown Seattle, Capitol Hill and downtown Bellevue.

“The rental market is changing quickly from a renter’s market to a landlord’s market,” says Cassie Walker Johnson of Windermere Property Management, Lori Gill & Associates. Vacancy rates in highly desirable neighborhoods, such as Capitol Hill, Queen Anne and Fremont, are about 3 percent, the lowest in Seattle, she notes.

In contrast, rental markets with vacancy rates above 6 percent include SeaTac, Federal Way and Kirkland, according to Apartment Insights.

Landlord Christopher T. Benis, who is also a partner in the law firm Harrsion, Benis & Spence and represents tenants and landlords alike, calls the market “balanced.”

“We are raising rents now that we can, but all we are doing is trying to get them [rents] back to 2007 levels,” says Benis, who owns rental properties in Seattle.

Tenants ought to shift their attitudes to reflect the changes, he says. “If they [tenants] think they can look at 20 properties and then come back to the ‘best one,’ that best one will probably be long gone.”

Little in the way of new development and declining home values contribute to a tight rental market.

Tom Cain, president of Apartment Insights, says fewer than 1,870 units are scheduled for completion this year, about 60 percent of last year’s level, and less than one-third of the 6,349 units built in 2009.

Walker Johnson, who specializes in leasing single-family dwellings, condos and small apartment buildings, says population growth is also driving down vacancy rates.

“About 75 percent of my new tenants are moving here from all over the nation to work at larger corporations who are hiring in our area,” she says.

Telltale signs of just how far the pendulum has swung include tenants plunking down more than the list price on rental homes and signing longer leases to qualify for a desired property.

“We are starting to see multiple applications in some situations,” says Walker Johnson, who expects to see hikes of up to 10 percent for rental homes from May through September.

For a Queen Anne family, the possibility of a rent increase on a four-bedroom Craftsman, where they’ve been living for nearly a year, weighs heavy.

“We feel the renewal negotiations are a huge strategy game, and we are fearful we will have to leave ‘our home’ or accept an increase that we simply don’t feel comfortable with economically,” say the husband and wife, who are not being identified due to ongoing negotiations with their landlord.

“This year, you have to jump when you find the right home, unlike a few years ago when properties languished on the market, for months, in some cases.”

Lawyer Lauren Sancken, who signed a one-year lease in April for a Capitol Hill flat with a patio garden and a spectacular view of the Space Needle, says she wishes she had signed a lease extension to lock in her rate.

“It is far more competitive than I expected, especially when several people are willing to submit applications and deposits right away. I found myself offering cookies, muffins, just to try to get a bit of an advantage on places that I really liked,” says Sancken.

Not surprisingly, tenants with limited means are being hit the hardest, says Jonathan Grant, executive director of the Tenants Union of Washington State.

“Many low-income tenants displaced by the foreclosure crisis, sometimes evicted by no fault of their own due to a landlord’s default on their mortgage, are now finding an even tighter market, while many former homeowners are returning to renting after losing their homes,” says Grant.

Adding insult to injury, many of those low-income tenants will have an eviction on their record from the foreclosure, further complicating their ability to secure housing, he says.

Ramos says she is not daunted. “We are willing to wait for a good one,” she says.

 Source: By Elizabeth M. Economou, Seattle Times