The real cost of mortgage fraud

Many believe mortgage fraud is partly to blame for the wave of foreclosures that are swamping many housing markets. And a quick scan at national headlines speaks to the depth of the issue.

In early January alone, there were several high profile convictions:

• Six people in Boston were arraigned in a $2 million mortgage fraud scheme.
• A Naples, Fla. man was sentenced to seven years in prison and ordered to pay more than $11 million in restitution for setting up straw deals to obtain inflated mortgages.
• A Colorado man was sentenced to 31 years in prison after a mortgage fraud scheme.
• Two North Carolina men were sentenced for their part in a $6 million mortgage fraud scam.
• Two New Jersey men were convicted in a multimillion-dollar mortgage fraud and property flipping scheme.

Those are just a few of the many early January mortgage fraud headlines from coast to coast. Indeed, prosecution of mortgage fraud is on the rise as the U.S. Justice Department makes the issue a priority. U.S. Attorney A. Brian Albritton has publicly declared that “Mortgage fraud will not be tolerated.”

The Cost of Mortgage Fraud

When you examine the cost of mortgage fraud, it’s easy to see why the federal government is cracking down on the crime. Again, many believe mortgage fraud added to the financial crisis in the subprime mortgage industry and the fall of banks. Consider the latest statistics compiled by the Mortgage Asset Research Institute on the pervasiveness of mortgage fraud:

• As of March 2008, the Federal Bureau of Investigation (FBI) was investigating more than 1,200 mortgage fraud cases – that’s a 50 percent increase from 2006.
• The FBI also reports that about half of the mortgage fraud cases it is investigating report losses exceeding $1 million and some exceed $10 million.
• According to the Financial Crimes Enforcement Network, the number of suspicious activity reports (SARs) submitted relating to mortgage loan fraud increased 1,411 percent from 1996 to 2005.
• According to the TowerGroup, losses from mortgage fraud were about $2.5 billion in 2008 – and the firm expects comparable losses to continue for the next few years.

Although there is a level of fraud that exists where home buyers and/or their mortgage brokers falsify documents in order to get a loan approval, the FBI estimates fraud for profit accounts for up to 80 percent of the problem. That leaves 20 percent – or more – of the issue in the hands of consumers and mortgage brokers.

Keep Client Safe with the SAFE Act

As a real estate broker, you can help protect your clients. Relying on inflated appraisals, disguising purchase loans as refinances, or working with an exclusive appraiser are red flags and could be signs of potential fraud. The federal government has put measures in place, such as the Secure and Fair Enforcement of Mortgage Licensing, or SAFE Act, to discourage mortgage brokers from these practices. A key component of The Housing and Economic Recovery Act of 2008, the SAFE Act aims to better protect consumers and curb fraud by encouraging states to establish minimum standards for licensing and registration of state-licensed mortgage loan originators and has also established a nationwide mortgage licensing system and registry for the residential mortgage industry to increase the accountability and tracking of loan originators. If a broker is convicted, that conviction would be listed in the registry.

The bad news is the registry is not yet publicly available. The good news is systems are actively being put in place to protect homebuyers from dishonest mortgage brokers so the housing market will be less prone to negative impacts from mortgage fraud in the future.

Source: KW Blog

This month in real estate – january 2010

Each month, This Month in Real Estate provides expert opinion and analysis on real estate trends across the nation. The aim of the consumer-oriented segments is to provide real information on real estate.

Approved Short Sale in Gated Community!

Beautifully updated end unit in gated community!  This upscale neighborhood was built by Pulte Homes in 1995 and has a small-town Southern Charm in Central Boca Raton.  This two-story townhome features 3 bedrooms, 2.5 bathrooms, and a two-car garage with over 1,800 sq ft under air! 

The unit has been remodeled with gorgeous wood flooring throughout, stainless steel appliances, and crown molding.  The Master Suite has vaulted ceilings, a walk-in closet with built-in shelves, and a bathroom with a dual-sink vanity, glass enclosed shower with a separate jacuzzi tub.

The seller’s lender has accepted a price of $220,000 and can close quickly.  Prices in this neighborhood have not been this low in years, and were selling in the $400’s just a few years ago! 

The luxury community is located on Verde Trail in one of the most desirable areas of Boca Raton, within walking distance to the Boca Town Center Mall, world-class dining, and more!  Excellent school district!  Don’t miss this incredible opportunity!  Hurry before the Home Buyer Tax Credit expires in a few months!  Call Brian for more information and to set up a private showing (561) 245-1541 / brian@brianpearlrealestate.com.  For more photos, visit my website www.brianpearlrealestate.com or click here.

Shadow inventory may slow housing recovery

The housing market has shown some signs of life recently. Existing home sales are up, prompting some optimism. But at the same time, an untold number of houses that have yet to hit the market are waiting in the wings.

And the bigger that so-called shadow inventory, the further off the housing recovery might be.

‘The Tip Of The Iceberg’

By the official count, about 3.5 million homes are on the market right now. Given the rate of home sales, that’s roughly twice the normal supply.

But “that could just be the tip of the iceberg,” says Stan Humphries, chief economist for the real estate Web site Zillow.

It’s not what is already for sale that worries economists like him; it’s the number of homes that might hit the market in the months to come.

“The portion of the iceberg below the waterline is inventory that’s waiting to come into the market at some point,” Humphries says. “And as it bleeds into the market over time, it continues to put downward pressure on prices.”

Shadow inventory comes in several forms. It includes homes in or close to foreclosure but not yet put up for sale — a number that’s increasing. It also includes homes that owners want to sell but are waiting to put on the market until it improves.

In a recent survey, Zillow found that nearly a third of homeowners would have considered putting their homes up for sale if the market were better. Nationally, that would mean between 11 million and 30 million homes that aren’t listed but are waiting on the sidelines.

Stuck With Unwanted Homes

The would-be sellers include people like Jennifer Dalzell. She and her husband bought a five-bedroom row house just four years ago in the shadow of the nation’s capital. Her husband is in the military, so they move around a lot.

Dalzell says she’s watched the appraised value of their home plummet along with their retirement savings and mutual funds. Her husband will be moving to his new gig in Africa without the family, in part because they don’t want to sell at what she believes is the bottom of the market.

“Because we can wait, we’ll wait until we feel that we can get a better price for the house,” Dalzell says. “I think the market will come back. It feels like there’s money out there, and people are just sort of waiting. And I guess we’re contributing to that waiting game.”

There are no records that quantify how many people like Dalzell there are. In fact, sizing up the shadow inventory is tough.

“Unfortunately, our data are very delayed, and we really don’t have a sense of exactly where we are,” Former Federal Reserve Chairman Alan Greenspan said at the National Association of Realtors conference in May.

The key question, Greenspan said, is quantifying how many single-family dwellings are available for sale.

Number Of Foreclosed Homes Unclear

But it’s not clear how many more homes will be heading into foreclosure. If prices keep falling, that number is bound to grow.

Government data released Tuesday showed the number of homes going through the foreclosure process jumped 22 percent during the first quarter. The number of homeowners who are seriously delinquent on their mortgages is also up. Delinquencies are growing the fastest among borrowers who had good credit scores.

And that’s only part of the challenge. As banks take possession of more foreclosed homes, not all of those are listed — sometimes because they are holding back inventory so they don’t flood the market.

“I do know that banks are holding onto inventory, and what they’re doing is they’re metering them out at an appropriate level to what the market will bear,” says Pat Lashinsky, chief executive of online brokerage site ZipRealty.

He says this strategy has paid off for banks — even if it also pushes a full housing recovery further out.

“By not flooding the market, they were getting better pricing on the homes that they owned,” Lashinsky says. “And instead of people coming in and offering less than what the prices were, they were ending up in multiple-offer situations and getting more for the homes.”

Lashinsky adds that a large shadow inventory is not all bad because it creates a kind of buffer. Having so many people hold back prevents a free-fall in home prices. And when the economy recovers, he says, there will be plenty of homes to buy.

Help Haiti

On January 12th, a series of massive earthquakes devastated the small country of Haiti. The amount of people killed, injured, and displaced by the disaster is staggering, and they need our help. With relief efforts underway, many displaced Haitians and their friends and families around the world are deeply concerned about the safety and whereabouts of loved ones.

In response to the Haitian earthquake, a team of Googlers worked with the U.S. Department of State to create an online People Finder gadget so that people can submit information about missing persons and to search the database.  Click here to view the database.

Keller Williams Realty Voted #1 Most Recognizable Brand

A just released article by Real Estate Trends names Keller Williams Realty the number one franchise for brand recognition. Here’s some of the article highlights:

Real Estate Franchises: Most Recognizable Brands for 2009

The Top 10 real estate franchises, most recognized by the real estate industry as quality national brands are:

Keller Williams Realty

Coldwell Banker Real Estate

RE/MAX International

Century 21 Real Estate

Prudential Real Estate

Sotheby’s International Realty

EXIT Realty

ERA Real Estate

Weichert Real Estate Affiliates

Better Homes & Gardens Real Estate

Keller Williams Realty’s surprising #1 ranking was most likely due to the strong, above average online and social media presence of their agents and the fact that during 2009 KW surpassed RE/MAX in agent count according to a widely published REAL Trends survey…

Click here to read the full article on RETrends.com

 

Get the basics on the extended tax credit

As part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed new legislation that:

• Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.
• Expands the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home between November 7, 2009 and April 30, 2010.

Here is more information about how the Extended Home Buyer Tax Credit can help prospective home buyers become part of the American dream.

 

Who Qualifies for the Extended Credit?

• First-time home buyers who purchase homes between November 7, 2009 and April 30, 2010.
• Current home owners purchasing a home between November 7, 2009 and April 30, 2010, who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.

To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

If you or your client purchased a home between January 1, 2009 and November 6, 2009, please see: 2009 First-Time Home Buyer Tax Credit.

Which Properties Are Eligible?

The Extended Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.

How Much Is Available?

The maximum allowable credit for first-time home buyers is $8,000.

The maximum allowable credit for current homeowners is $6,500.

How is a Buyer’s Credit Amount Determined?

Each home buyer’s tax credit is determined by two additional factors:

1. The price of the home.
2. The buyer’s income.

Price
Under the Extended Home Buyer Tax Credit, credit may only be awarded on homes purchased for $800,000 or less.

Buyer Income
Under the Extended Home Buyer Tax Credit, which is effective on November 7, 2009,  single buyers with incomes up to $125,000 and married couples with incomes up to $225,000—may receive the maximum tax credit.

These income limits have changed from the 2009 First-Time Home Buyer Tax Credit limits. If you or your client purchased a home between January 1, 2009 and November 6, 2009, please see 2009 First-Time Home Buyer Tax Credit.

If the Buyer(s)’ Income Exceeds These Limits, Can He/She Still Get a Credit?

Yes, some buyers may still be eligible for the credit.

The credit decreases for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income—over $145,000 for singles and over $245,000 for couples are not eligible for the credit.

Can a Buyer Still Qualify If He/She Closes After April 30, 2010?

Under the Extended Home Buyer Tax Credit, as long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.

Will the Tax Credit Need to Be Repaid?

No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount credit will be recouped on the sale.

This Month In Real Estate – December 2009

Each month, This Month in Real Estate provides expert opinion and analysis on real estate trends across the nation. The aim of the consumer-oriented segments is to provide real information on real estate.

Where are the best waterviews in South Florida?

You can go to pretty much any city on South Florida’s coastline and find a beautiful view of the Atlantic Ocean, but where do you go to find that perfect mix of Ocean, Intracoastal, City, and Bay views? 

I recently took a poll and here were the results:

#5 – Fort Lauderdale

Building: Las Olas Grand
Price: $1,250,000
Location: Downtown Fort Lauderdale

 

#4- Boca Raton

Building: Reflections
Price: $1,150,000
Location: Lake Boca Raton

 

#3 – Fort Lauderdale

Building: Point of Americas
Price: $2,149,000
Location: Harbor Beach (Fort Lauderdale Inlet)
View: On a clear day, you can see from Lighthouse Point to Miami.  Located right on the inlet, cruise ships and yachts are daily sights from your balcony.  Beautiful ocean views as well.

 

#2 – Palm Beach

Building: One Watermark Place
Price: $2,995,000 – $12,000,000
Location: Singer Island
View: Palm Beach Ocean and Lake views, overlooking all of Palm Beach.

 

#1: Miami

Building: Carbonell
Price: $1,500,000
Location: Downtown Brickell
View: Ocean, Miami River, Bay, Downtown Skyline, Key Biscayne, Miami Beach

If you don’t buy a house now, you’re either stupid or broke

Interest rates are at historic lows but cyclical trends suggest they will soon rise. Home buyers may never see such a chance again, writes Marc Roth By Marc Roth.

Well, you may not be stupid or broke. Maybe you already have a house and you don’t want to move. Or maybe you’re a Trappist monk and have forsworn all earthly possessions. Or whatever.  But if you want to buy a house, now is the time, and if you don’t act soon, you will regret it. Here’s why: historically low interest rates.

As of today, the average 30-year fixed-rate loan with no points or fees is around 5%. That, as the graph above—which you can find on Mortgage-X.com—shows, is the lowest the rate has been in nearly 40 years.

In fact, rates are so well below historic averages that it should make all current and prospective homeowners take notice of this once-in-a-lifetime opportunity. And it is exactly that, based on what the graph shows us. Let’s look at the point on the far left.

In 1970 the rate was approximately 7.25%. After hovering there for a couple of years, it began a trend upward, landing near 10% in late 1973. It settled at 8.5% to 9% from 1974 to the end of 1976. After the rise to 10%, that probably seemed O.K. to most home buyers.  But they weren’t happy soon thereafter.  From 1977 to 1981, a period of only 60 months, the 30-year fixed rate climbed to 18%. As I mentioned in one of my previous articles, my dad was one of those unluckily stuck needing a loan at that time.

Interest Rate Lessons

And when rates started to decline after that, they took a long time to recede to previous levels.  They hit 9% for a brief time in 1986 and bounced around 10% to 11% until 1990.  For the next 11 years through 2001, the rates slowly ebbed and flowed downward, ranging from 7% to 9%.  We’ve since spent the last nine years, until very recently, at 6% to 7%.  So you can see why 5% is so remarkable.  So, what can we learn from the historical trends and numbers?

First, rates have far further to move upward than downward; for more than 30 years, 7% was the low and 18% the high.  The norm was 9% in the 1970s, 10% in the mid-1980s through the early 1990s, 7% to 8% for much of the 1990s, and 6% only over the last handful of years. 

Second, the last time the long-term trends reversed from low to high, it took more than 20 years (1970 to 1992) for the rate to get back to where it was, and 30 years to actually start trending below the 1970 low. 

Finally, the most important lesson is to understand the actual financial impact the rate has on the cost of purchasing and paying off a home.  Every quarter-point change in interest rates is equivalent to approximately $6,000 for every $100,000 borrowed over the course of a 30-year fixed.  While different in each region, for the sake of simplicity, let’s assume that the average person is putting $40,000 down and borrowing $200,000 to pay the price of a typical home nationwide.  

Thus, over the course of the life of the loan, each quarter-point move up in interest rates will cost that buyer $12,000.  Loan Costs Stay with me now.  We are at 5%.   As you can see by the graph above, as the economy stabilizes, it is reasonable for us to see 30-year fixed rates climb to 6% within the foreseeable future and probably to a range of 7% to 8% when the economy is humming again.  If every quarter of a point is worth $12,000 per $200,000 borrowed, then each point is worth almost $50,000. 

Let’s put that into perspective.  You have a good stable job (yes, unemployment is at 10%, but another way of looking at that figure is that most of us have good stable jobs).  You would like to own a $240,000 home.  However, even though home prices have steadied, you may be thinking you can get another $5,000 or $10,000 discount if you wait (never mind the $8,500 or $6,500 tax credit due to run out next spring).  Or you may be waiting for the news to tell you the economy is “more stable” and it’s safe to get back in the pool.  In exchange for what you may think is prudence, you will risk paying $50,000 more per point in interest rate changes between now and the time you decide you are ready to buy.  And you are ignoring the fact that according to the Case-Shiller index, home prices in most regions have been trending back up for the last several months. 

If you are someone who is looking to buy or upgrade in the $350,000-to-$800,000 home price range, and many people out there are, then you’re borrowing $300,000 to $600,000.  At 7%, the $300,000 loan will cost just under $150,000 more over the lifetime, and the $600,000 loan an additional $300,000, if rates move up just 2% before you pull the trigger. 

What I’m trying to impress upon everyone is that if you are planning on being a homeowner now and/or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home.

If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime.

Source: Business Week