SVB Failure Starts Aggressive Regulation Talk in Washington, IMBs Take NoteRecent Tales of Mortgage Fraud: The dumb, the bad, and the Ugly Truth!

February 23, 2018
It did not take long after the Silicon Valley Bank failure for politicians in Washington to rush to the next available microphone and lament the “loosening of bank regulations”. Instinctively the finger pointing began, and in many quarters ended up in the direction of the prior administration’s policy to generally roll back stringent business regulations and allow free market decisions to govern various industries. Chief among the complainants (no pun intended) was Sen Elizabeth Warren, who emerged out of the 2008 crisis as an architect and advocate for the Wall Street Reform Act and the creation of the vaunted Consumer Financial Protection Bureau ( CFPB), which she briefly directed. Just yesterday in DC’s The Hill publication, Sen Warren was reported as blaming the the collapse of Silicon Valley Bank on Republicans in Congress, which in 2018 helped pass a law to ease bank regulations put in place following the 2008 financial crisis. “No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules,” Warren is quoted as saying. According to The Hill piece, Warren, who voted against the 2018 bank deregulation bill, said that the crises would have been avoided if the banks were required to hold more liquid assets because the bill exempted banks with less than $250 billion in assets from rigorous Fed stress tests. Warren and other Democrats say the old rules could have caught the issues at SVB sooner. Given that politicians generally “never let a crisis go to waste,” many now suspect that the banking industry is about to be slammed with heightened regulatory scrutiny, tighter operational rules, more audits and exams, and larger and very public fines, penalties and consent orders. What does this mean for independent mortgage bankers (IMBs)? It means that they have to get back to the compliance mindset they were frightened into adopting between 2008 and 2018, and before the bottoming out of interest rates led everyone to believe that easy money was here to stay and that self-regulation meant hiring more loan officers. Keep those risk management officers and compliance directors close by folks, we are all in for a bumpy ride on the regulatory

You Can’t Make This Stuff Up!  This month like every month we feature some of the latest news about mortgage and closing fraud affecting our industry.  These are real cases from around the country, only the names have been redacted to avoid threats of frivolous legal action…

  • In Washington State, a vice-president, loan officer and loan processor at PC Bank Home were indicted by a grand jury in the U.S. District Court and charged with conspiracy to make false statements on loan applications and to commit bank fraud and bank fraud
  • A Maryland accountant was sentenced to two years in prison, followed by three years of supervised release, for a mortgage fraud scheme involving the fraudulent purchase of seven properties in Baltimore using fraudulent loan documentation and straw buyers causing losses of more than $1.4 million dollars.
  • A politician, a former state Senate and Assembly candidate in New Jersey and two of his family members were arraigned on a 27-count indictment for their alleged role in a sophisticated mortgage fraud scheme in Newark. They are charged with conspiring to file a false document with the county stating the mortgage held on a property had been paid off, even though an amount in excess of $75,000 was still owed on the mortgage.
  • A sophisticated mortgage fraud scheme in New York resulted in an attorney and a group of his conspirators facing indictment in December 2016. The group told potential clients they could eliminate their mortgage debt in exchange for a fee. In reality, the lawyer drafted and filed fake discharges of mortgages at local county clerk’s offices in Westchester and Putnam Counties and in Connecticut.  To profit from their scheme, the group charged monthly fees that they said covered, among other things, audits of the clients’ properties that they often failed to perform.  They also encouraged their clients to take out second or reverse mortgages on the properties and they then retained substantial portions of these proceeds.  Losses exceeded $33 Million dollars.
  • The publisher of a Spanish language newspaper in Florida who was also a licensed real estate sales associate and mortgage broker was sentenced to 18 months in federal prison for embezzlement and misapplication of funds. According to court records he was responsible for marketing and selling bank-owned properties to investors in order to remove these troubled assets from his bank’s balance sheet, and in connection with the fraud signed false HUD-1 settlement statements and other closing documents causing $10 Million in losses.
  • A Chicago real estate lawyer recently pled guilty to bank fraud in Illinois federal court admitting his role in a $22.9 million mortgage fraud scheme centered on selling condos in a downtown high-rise to straw buyers. The attorney represented LLC sellers at closings while knowing the condo prices were inflated and signed off on sales documents sent to lenders that contained false information about the amount of money the purported buyers were putting into the deal. He faced up to 30 years in prison but was sentenced to 11 months in prison, two years of supervised release, and ordered to pay a fine of $10,000 and restitution of $83,000.

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