‘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)

Advertisements

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.

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

Mortgages, foreclosures top agenda at BofA meeting

Foreclosures and home-mortgage modifications took center stage at Bank of America annual meeting last week.

Outside the headquarters of the nation’s largest bank, protesters held signs and gave testimonials about their own foreclosure experiences.

At the meeting, which was held inside the bank’s new 32-story building adjacent to its headquarters, shareholders confronted CEO Brian Moynihan about mortgage woes in their communities.

The Rev. Clyde Ellis, a pastor from Virginia, said Bank of America should take responsibility for its role in the foreclosure crisis.

“Come to Prince William County and I will show you disaster,” Ellis said.

Losses and litigation related to foreclosures and poorly written mortgages have haunted Bank of America for several quarters. In its latest quarter, the bank’s income dropped 39 percent on higher costs related to mortgages and legal expenses.

At the end of the first quarter, the bank had $2 billion of foreclosed properties on its book, and its customers were late by 90 days or more on $24 billion of its total loans, which included commercial and residential properties.

Moynihan tried to separate the rest of the bank’s business from its mortgage woes. He described the company as being made up of two stories, with the mortgage business on one side and all its other business units on the other.

“The power of the franchise is held back by the mortgage challenges we face,” he said.

The bank’s stock is one of the worst performers of the S&P 500 index this year. Recently, the stock slid after the Federal Reserve rejected the bank’s capital plan and its request for a dividend increase.

BofA was the only bank among the country’s four largest that didn’t pass a stress test from the Fed. The central bank examined the 19 largest banks in the country to see if they were strong enough to withstand another economic downturn. BofA will submit a revised plan later this year.

Moynihan said the bank will pay dividends once it resolves more of its mortgage issues and submits a plan that is acceptable to regulators.

Some shareholders want the bank to scrutinize itself more closely. Michael Garland, who was representing several large public pension funds at the meeting, said he had written to BofA’s audit committee asking that it conduct an independent review of mortgages and foreclosures to show they conform with the laws.

Garland said that audit committees of other banks responded soon after he sent them a similar letter in January.

He said was disappointed that there had been no response from BofA’s audit committee until just five days before the annual meeting.

The plan didn’t get enough votes to pass on Wednesday.

“If this is your response to shareholders with a $1.3 billion stake in the company, I can only imagine how you treat your residential-mortgage customers,” said Garland, who was also representing the New York City Comptroller’s Office, which oversees the public pension funds of New York.

Source: By Pallavi Gogoi, Associated Press

Gov’t Looks to Reduce Real Estate Inventory

The Obama administration is looking to get rid of 14,000 surplus properties that the federal government owns around the country and is costing taxpayers money to maintain.

The surplus properties include everything from unused roads and empty lots to warehouses and office buildings.

“The government can no longer foot the bill for vacant buildings,” says Rep. Jason Chaffetz, R-Utah, who also has authored a bill to quickly dispose of the government’s surplus property, but without using a special commission as the Obama administration has proposed.

The federal government spent about $134 million to maintain surplus buildings in 2009. The Obama administration says that improving the government’s management of surplus properties stands to save taxpayers $15 billion over several years.

The Obama administration is proposing a special commission be used to handle the surplus property in order to try to sidestep problems that have hindered the sale of these properties in the past. The presidentially-appointed, seven-member Civilian Property Realignment Board would evaluate surplus federal properties and make recommendations to “significantly reduce” the government’s real estate inventory, which ultimately would be voted upon by Congress.

The government believes there are some 12,000 surplus federal properties within the U.S. and about 2,000 overseas. The commission would not deal with military, national security sites, national parks, or wildlife refuges.

Source: “Obama Seeks Special Panel to Unload Federal Real Estate,” McClatchy Newspapers (May 4, 2011)

Bailing on Mortgage Not a Good Idea

An estimated 11 million home owners owe more on their mortgage than their property is currently worth. That’s made more home owners consider walking away from their mortgage and home ownership, even those who can still comfortably afford to make their payments (known as “strategic default”).

Walking away from a mortgage usually results in either a short sale or foreclosure. So what are the consequences of walking away? There may be far more consequences than what most home owners ever considered.

The consequences include everything from badly affected credit to potential tax consequences and deficiency risks. There are even possible professional implications, Justin McHood with Academy Mortgage in Chandler, Ariz., warns in an article at Zillow.com.

Home owners’ credit scores will be badly hit regardless of whether they attempt a short sale or have their property foreclosed on. (See How Missed Mortgage Payments Hurt Credit Scores)

There also could be the potential for deficiency risks when walking away from a home, which largely varies from state to state. (View anti-deficiency laws by state.) In some states, lenders may sue you for the difference between what you owe and what your short-sale or foreclosure proceeds are, McHood notes.

Home owners considering walking away also should weigh the potential difficulty they may face from moving too. For example, if moving into a rental property, they’ll have to convince a landlord to rent to them after they have the red flag of missed mortgage payments on their credit record. And paying for moving expenses — which many walkaways fail to consider — can quickly add up too.

Plus, home owners may find professional consequences from walking away from a mortgage, as the number of employers eyeing employees’ credit profiles continues to grow.

Source: “The Consequence of Walking Away,”Zillow.com (April 27, 2011)

Contracts for home sales rose 5.1% in March; mortgage rates drop

WASHINGTON — More Americans signed contracts to buy homes in March, but sales were uneven across the country and were not strong enough to signal a rebound in housing.

Sales agreements for homes rose 5.1% last month to a reading of 94.1, according to the National Association of Realtors’ pending home sales index, released Thursday.

Signings are more than 20% above June, the low point of the housing bust. But the index is below 100, which is considered a healthy level.

Sales rose in every region but the Northeast.

Source: By AP, USA Today (April 29th, 2010)