California a leader in mortgage fraud

March 8, 2012

California continues to lead the nation in questionable home loans, with Santa Clara, Orange and San Bernardino counties among the areas with the highest number of suspected mortgage fraud cases, federal financial officials reported this week. [CaliforniaWatch]

San Luis Obispo Counties was ranked in the second to the top of five ratings  of counties with higher levels of mortgage fraud.

Three California cities were among the top five metro areas ranked by reported mortgage fraud. San Jose was the top-ranked metropolitan area per capita, followed by Riverside and Los Angeles, according to the U.S. Treasury Department.

The rankings are based on mortgage fraud suspicious activity reports filed by banks and other financial institutions from July to September 2011 [PDF].

“As housing markets look to recover, criminals persist in their efforts to prey on struggling homeowners, while financial institutions continue to uncover apparent fraud as they work through their portfolios of earlier mortgages now in default,” said James H. Freis Jr.,  director of the Treasury Department’s Financial Crimes Enforcement Network. “FinCEN will continue to monitor these reports and work closely with law enforcement to help them track illicit actors,” Freis added.

Since 2002, California has consistently ranked near the top among states with suspected mortgage fraud. As a result, state and federal officials are sharpening their focus on mortgage fraud in the face of growing criticism by homeowners, activists and banking experts about the lack of fraud prosecutions since the 2008 housing crash, California Watch said.

In 2010, California Attorney General Kamala Harris created a statewide Mortgage Fraud Strike Force slated to focus on all aspects of unscrupulous lending.

“We are looking at a situation of up to $640 billion in wealth having been lost because of this wave of foreclosures that has hit the state,” Harris said to the Los Angeles Times, referring to the decline in homeowner equity. “There is a direct connection” between mortgage fraud “and the issue that we are challenged with in terms of our state budget crisis.”

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Mark my words: The next debacle with be this administration’s Making Home Affordable loan modifications (HAMP).

The mortgage companies and their servicers string along homeowners who are in imminent default. Sure, many people bought over their heads. No argument there. But in a prolonged recession, I would contend that just as many are financially suffering and depleting what’s left of their 401(k)s through job loss, divorce, health issues, etc. People with sketchy credit in subprime loans and those with high FICO’s and conventional loans have been experiencing mortgage defaults.

Not only do mortgage companies convince homeowners that there’s an excellent chance their programs can help them (by lowering interest rates, etc), they delay processing paperwork to accomplish this. Very typically, they insist that homeowners resubmit supposedly “lost” paperwork…sometimes over and over. In the meantime, months pass. Already struggling homeowners accrue late payment penalties as the loans go deeply into default and applications are “under review.”

After months or even a year of inquiries with these companies, applications are finally denied for reasons that could have been determined from the start of the process (i.e. “The investor doesn’t do modifications” or “your finances don’t qualify”). Having lost all equity, the homeowner tries to short sale or, more often, the lender forecloses.

The HAMP loan modification program and others like it are the best racket in town at the irreparable expense of the homeowners and the communities they live in. Meanwhile, when the homeowner gets back on their feet (that’s if they even can in this economy), any future possibility of owning another home is delayed by years or altogether impossible. And besides, who needs the heartache?

The real estate market may pick up in spring and summer, is as cyclical, but overall, I foresee more supply than demand inventory – and rental investments picking up some of the slack – for years if not decades to come.

Dear thinkaboutit,

We, thank God have just about paid off our house and I was wondering about these mortgages that hold the paper on your house give you a shit load of money and you never have to pay a payment. You die the loan gets paid off kids get the rest after the house sells. I was just wondering who wins on this.

We will most likely pay the house off but just thought I’d ask. Thanks

Don’t know about that, Spirit, other than coverage via required mortgage insurance. Every situation is unique and the kids don’t always receive much when probate issues are involved.

I’m going to go out on a limb here and suspect that the majority of homeowners who are not in default, or even some who are living hand-to-mouth, might assume that those experiencing foreclosure are underwater in their mortgages. While this is common due to a number of factors, such as heavy borrowing against equity or the sheer recessionary devaluation of properties, it’s not always the case.

Some homes that are bought back by the bank have tens of thousands of dollars in equity left in them when they foreclose. Isn’t *that* interesting? And why wouldn’t a bank foreclose instead of reduce a proven, long-term owner’s interest rate. Instead, they can resell the property pretty much as-is and still be in the black on account of all that equity invested by the previous owner.

So just maybe, that adage is true after all: “The house always wins,” or more specifically, the bank who owns it. How so? No one really “owns’ anything; we all just agree to borrow it for 30 or so years…with interest…and at inflated monthly costs.

But since you’re almost paid off on your abode, Spirit, you’ve earned the sweet end of the deal, despite the cares of this world, through hard work and timing. Many people reading this would be honored to be in your shoes under a blessed roof.

thinkaboutit: That is EXACTLY what happened with a good friend of mine. They didn’t over-buy, either (home in Atascadero); but B of A strung them along, requesting, re-requesting, giving out bad fax numbers, claiming certain agents were not authorized for whatever (even though said agent was given by B of A to handle their case).

In the end, it was a simple denial that was known from the start. Really, really pathetic. They regard B of A as crooks, liars and thieves – and I’m prone to agree. They lost every ounce of nest egg, retirement and childrens’ college funds (they have more than 3 kids)…

Who slaps B of A for this? No one. In fact, they got a “get out of jail for $18B” card in the end…

That’s absolutely true, r0y. I’ve seen it over and over. BofA is the biggest offender. It’s diabolical, really. But things have a way of coming back around. They’re already doing principal reduction remediation in the amount of $25 billion for 200,000 borrowers, and another $335 million for minorities who were overcharged. Countrywide mortgages that were bought up by BofA are involved in these suits. (Call 877-488-7814.)

Still, someone needs to open up a can and serve them a multi-billion-dollar class action suit for the rest of America who got ripped off of their equity throughout the HAMP loan modification application “process.”


Last, but not least, wronged homeowners will see some restitution (from $1,500 to $2,000 per affected housed). Of course, this is but a drop in the bucket when compared to the tens of thousands (if not hundreds of thousands) of dollars in lost equity, ruined credit/FICOs, jobs lost via failed background checks, inability to purchase subsequent properties, plundered 401(ks) or losses of life savings, and the list goes on:

How about a county by county comparison? Wouldn’t be surprised if SLO is king of the hill with the likes of Gearheart and the other who screwed over unsuspecting folks…