Florida mortgage home loan

Recent mortgage news has focused on the indictment of 400 “bad apples” accused of unscrupulous manipulation of the home mortgage financing institutions. These bad apples, which included loan officers, mortgage brokers and property appraisers, are accused of bilking mortgage lenders and banks out of over one billion dollars in fraudulent purchases and home mortgage refinance loans.

The basic premise of how these fraudulent transactions were committed involved first finding a home seller who was willing to accept an offer to sell their home for less than the properties true market value. Let’s say the properties true market value was $400,000 and the seller was willing to accept an offer of $375,000. The first part of the scheme was to write up a purchase contract for $450,000, with the seller agreeing to refund the difference to the buyer under the table after closing. The seller would write a personal check (or cash) to the buyer after the closing for the difference, which in this case is the $450,000 (on the purchase contract) less $375,000 (money to seller) which equals a $75,000 difference which is paid to the buyer! This nod and a wink agreement to pay the buyer was never disclosed on the home mortgage loan application. Using the services of the “bad apple property appraiser” who inflated the properties value to $450,000, the buyer would walk away from purchasing the property with $75,000 (and a new home).

But wait, it gets better. From there, the new owners would do one of two things. They would hold on to the property for three months, which was the minimum time required before the mortgage lenders would allow a “cash out” mortgage refinance loan. This type of home mortgage refinance is referred to as getting “cash out” through a new refinance mortgage loan based on the homes equity. The “bad apple appraiser” would then inflate the value of the property again, giving that same home an appraised value of say $575,000 and then apply to the mortgage lender for a “Cash Out” refinance home loan. If the purchase price three months ago was for $375,000 and the new home mortgage refinance was for $575,000, the “bad apples” would walk away from the property in three months time having made the original $75,000 on the purchase and another $125,000 on the new mortgage refinance. This would net the “bad apples” a three month total of $200,000 profit. At that point they would either walk away from the property, or sell the same property again to a new “straw buyer”.

The second method and most preferred method used to defraud mortgage lenders, was to find a “straw buyer” right from the start to facilitate their fraudulent plan. A “straw buyer” is a person with good credit, who was paid say $25,000 to use their name and good credit to apply for a home mortgage loan. Keep in mind that this was back in the days of 100% home mortgage financing, when mortgage lenders did not require someone with good or even average credit to have to verify their income. The banks and mortgage lenders called these types of home mortgage loans “stated loans” which did not require any verification of income, thereby bypassing the normally accepted lending practice of disclosing tax returns to the home mortgage finance companies. This method of using straw buyers would allow the loan officer or mortgage broker to also make a commission, which is customarily paid by the banks to the mortgage person submitting the loan application.

The premise of using a “straw buyers” to facilitate this form of mortgage fraud was to enable the “bad apples” to remain anonymous, other than simply working in the capacity of their chosen professions. On paper, they were simply the loan officer who submitted the loan and the appraiser that appraised the property. The “straw buyer”, who was now the home owner, was the person that would take the fall, usually in the form of applying for foreclosure help or foreclosure assistance, or simply being foreclosed on due to defaulting on the refinance mortgage loan repayment terms.

By setting up their mortgage fraud scheme this way, the “bad apples” were never the borrowers and could perpetually defraud the banks and mortgage lenders by using a new “straw buyer” each time. The scheme was repeated time and again. Find a property owner that needed to sell, set up a “straw buyer” to purchase the property, make money on the purchase and then make more money on the home mortgage refinance, then let the property go into foreclosure.

Fraud is not all that uncommon and occurs in almost every industry and profession where there are “bad apples” that always look to take advantage of the loop holes in the system.

The bigger picture, and what the banks and lending institutions would like us to believe, is that the so called “Subprime” mortgage borrowers, a catch phrase that everyone keeps hearing about, were the cause of the real estate markets downfall. In my humble opinion, these so called “Subprime” borrowers were not the reason for these historic home foreclosure numbers, but rather the banks and mortgage lenders “GREED” is as much to blame as anything or anyone for the banking industries demise. Blame should be placed squarely on the banks and mortgage lenders who tried to generate as much business as they could, by allowing their quality control departments to take a back seat to their profits.

As the principal broker and owner of Guaranteed Mortgage Funding Corporation and someone who specializes in Florida home loans, I have very strong convictions on this issue and the cause of our nationwide mortgage meltdown. In my opinion, the collapse of Florida’s home loans and property values were not caused by fraudulent mortgage schemes or the default rate of the so-called subprime borrowers. Our nationwide mortgage meltdown has been caused by the poor decisions and greed of the very same institutions that want to place blame on everyone and everything else, which are the home mortgage finance companies themselves.

More to follow on the home mortgage loan crisis in the coming weeks…

In the meantime, if you need help with a Florida loan problem or a new loan, please feel free to contact me.