‘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

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