Los Angeles Personal Injury Lawyer - fraud

Salon: Why Loan Modification Scams are Booming

Paul Kiesel — Thu, 24 Sep 2009 18:28:42 GMT

FYI: Here's a link to a blog I wrote a year ago that portends what's being described in the article below.

During the go-go years of the real estate bubble, shady mortgage brokers thrived, thanks to the sluggish response of regulators and law enforcement agencies. Amid the ruins of the crash, there's a new boom attracting unscrupulous mortgage professionals: "Foreclosure rescue" companies promising -- in exchange for a large upfront fee -- to persuade lenders to modify desperate homeowners' mortgages. And authorities are again finding themselves ill-equipped to deal with the deluge.

In a giant game of whack-a-mole, law enforcement agencies at all levels across the country have filed suit against 150 such companies, but they continue to proliferate, and the number of consumer complaints continues to rise.

"This is a very big scam," says California Attorney General Jerry Brown. "They're all over the place, and as soon as you get one, they migrate to somewhere else."

The case of one particularly aggressive firm, 21st Century Legal Services, shows just how ineffective authorities' moves against the companies often are.

Four states have sued 21st Century, and at least three more have open investigations. Over 150 consumers from more than 30 states have filed complaints against 21st Century with the Better Business Bureau. No active firm has more complaints.

Yet the company forges on. Operating under a new name, Fidelity National Legal Services, it continues to solicit consumers nationwide, even in states where authorities have won court injunctions.

Homeowners do not have to pay a company to negotiate on their behalf: They can always contact their mortgage servicer directly for a loan modification, at no cost. But consumers often find the process frustrating. For those who want guidance, nonprofit housing counselors approved by the Department of Housing and Urban Development will help for free.

Consumers should especially be wary of companies charging upfront fees or touting guarantees. The Illinois attorney general says that her office has yet to see any such company operate within the boundaries of state law.

Click here for the rest of the article.

Originally posted at InjuryBoard by Paul Kiesel

Online Travel Companies (OTCs): Ready to Pay Some Taxes?

Paul Kiesel — Tue, 16 Jun 2009 14:47:44 GMT

*The law firm of Kiesel Boucher Larson is involved in multiple class-action cases against the online travel companies.

From the New York Times:

FOR years, online travel companies like Expedia, Orbitz, Travelocity and others have successfully defended one of their most profitable practices: capturing the sizable difference between what they charge customers for taxes on hotel rooms and taxes the companies actually pay.

But threats to this enviable income stream are mounting.

On May 28, for example, a Washington State court ruled in a consumer class-action case filed against Expedia that the company’s fee disclosures breached its contract with customers. Monica J. Benton, a judge in the Superior Court of King County, ordered Expedia to pay $184.5 million in damages for misleading customers about fees they paid for hotel rooms between February 2003 and December 2006.

While Expedia’s Web site said hotel booking fees simply covered room taxes and the company’s costs, the court said that the fees contained hidden charges that fell right to Expedia’s bottom line. An expert retained by the plaintiff in the case estimated that the total service fees charged to the consumers by Expedia were $184.5 million — hence the size of the damage award.

Expedia has appealed the decision, and Katie Deines, an Expedia spokeswoman, says the Washington court is wrong on the facts and the law.

“Expedia.com charged its customers a service fee for certain transactions during the period fully disclosing those fees to each customer before a booking was completed,” she said. “We are confident that we have fulfilled all applicable obligations to our customers.”

Meanwhile, a second claim in the same case is pending. It alleges that Expedia violated Washington’s consumer protection act by concealing the components of its bundled tax and service fees and the profits they generated. That matter is scheduled to go to trial in Judge Benton’s courtroom next month; plaintiffs estimate damages of $45 million, a figure that the court has the option to triple.

Expedia disputes the second claim, saying that consumers know its fees include a markup and can choose whether to pay the price. But Steve W. Berman, a lawyer at Hagens Berman Sobol Shapiro in Seattle who represents the plaintiffs in the case, says Expedia faces high hurdles in his state.

“Washington’s consumer protection law is very powerful, and our courts take it very seriously,” he said.

THE Washington case isn’t the only legal battle for Expedia. Lawsuits have been filed by 46 cities and counties related to the way Expedia calculates and pays taxes on the rooms it sells to travelers. Expedia’s regulatory filings stated that 15 of these cases had been dismissed but that most can refile.

Tax authorities in 3 of those 46 places — Broward County, Fla., San Francisco, and Anaheim, Calif. — contend that Expedia owes them $55.3 million in unpaid taxes and are suing for it.

Those matters revolve around what happened when Expedia bought blocks of hotel rooms at a wholesale price struck with the property’s operator. When it resold those rooms to online customers, Expedia paid so-called bed taxes based on the wholesale price of the rooms. But it collected taxes from its customers on a higher retail price for the rooms that it did not pay.

Expedia then pocketed the difference as part of a single charge it called a “taxes and service fee.” The three municipalities suing Expedia believe that they are entitled to the profit the company makes on the tax difference — which they peg at $55.3 million.

All this scrutiny of online travel fees and practices couldn’t come at a worse time for the industry. With consumers pinching pennies, travel is down sharply; profits are under pressure as most of the big players have already eliminated booking fees for airline tickets and cut charges for other services.

Expedia is the world’s leading online travel company, with a stable of brands that includes hotels.com, Hotwire, TripAdvisor and Egencia, its corporate travel service. Formerly a unit of IAC/InteractiveCorp, the conglomerate overseen by Barry Diller, Expedia was spun out as a separate public company in 2005.

Mr. Diller, who controls Expedia, remains its chairman; its chief executive is Dara Khosrowshahi.

Reflecting the travel industry’s woes, Expedia’s revenue fell 7.5 percent in the first quarter of 2009 while profits fell by 20 percent. Revenue per ticket in its airline business dropped 14 percent from the same period in 2008, and average daily rates in Expedia’s hotel bookings declined 18 percent.

The company’s most recent regulatory filing states that it has set aside a $21 million reserve for potential settlement of cases relating to hotel taxes.

Nevertheless, Expedia’s shares have been on a tear this year, doubling in price.

Investors might consider the tax disputes to be background noise because they’ve been percolating for seven years. One argument the online travel companies have made in battling the tax collectors is this: since they are not hotel operators, they do not have to hand over the higher taxes that they collect.

Tax authorities have repeatedly rejected this view, but litigating with the companies and their enormous law firms has been a protracted process.

Steven D. Wolens, a Dallas lawyer representing the city of San Antonio in a case against hotels.com and others, said travel companies “have repeatedly and systematically ignored admonitions of tax authorities to remit the tax based on the retail price the consumers pay for the room.”

Adding to the difficulties that Expedia and its competitors may experience in their lawsuits is the fact that many states require companies that have been found to owe taxes through an administrative action to pay those assessments before being allowed to contest them in court.

Some states, like California, require that cash be put up while others allow a bond to be posted.

“The occupancy tax lawsuits pending against online travel companies are simply attempts by some local governments to tax our customers at a higher rate than we believe the law allows,” said Ms. Deines, the Expedia spokeswoman. “The company remains confident in its position that hotel occupancy tax is not due on the compensation that it receives for the services it provides.”

With so many cities and states in dire financial straits, they are likely to continue looking at companies like Expedia for money they believe belongs to them. And that means Expedia’s future income from its tax collection practices is no sure thing.

Originally posted at InjuryBoard by Paul Kiesel

FBI: Beware of Loan Modification Scams

Paul Kiesel — Tue, 28 Oct 2008 16:08:26 GMT

According to the Justice Department, San Joaquin Valley has been a hotbed for loan modification scams, as cities like Stockton, Modesto and Merced top the foreclosure rankings among cities nationwide.

Last week, Representative Dennis Cardoza (D-Modesto), urged Attorney General Michael Mukasey to investigate mortgage-reduction schemes that are being marketed to distressed homeowners throughout the Valley.

Most of these scams ask homeowners for an upfront fee in order to start a loan modification program. At best, the homeowners may end up paying for work that is completed by the group asking for the money, however, it's work that likely could have been done for free through other non-profit organizations or loan-modification assistance programs (i.e. Community Housing Council, a non-profit based in Fresno). At worst, the homeowners pay for work that isn't done at all.

Cardoza wrote to Mukasey that it was "imperative" that law enforcement authorities "crack down on these foreclosure scams quickly and comprehensively. Cardoza pointed out that San Joaquin Valley residents are particularly vulnerable because of the region's foreclosure crisis.

The scams are typically initiated over the phone or through the mail, however, the people running the scams sometimes show up at the homes they're targeting. The companies will then offer the distressed homeowner their services to renegotiate the mortgage in exchange for an up-front fee amounting to one month's mortgage payment or more.

Just last week, in Modesto, "some homeowners attended a workshop in which they were asked to pay $3,500 for getting their mortgage woes resolved," (San Jose Mercury News, 10/27/08).

The FBI is aware of this problem, as they report to having 1,569 pending mortgage fraud investigations open as of last month. However, it is clear that number will rise and more resources will need to be poured into combating mortgage fraud, as incidences of it has annually doubled between 2003 and 2007.

The FBI has also been taking some flack recently due to their late arrival to all of the rampant mortgage fraud that's been taking place over the last couple years, but part of that is due to the agency not having enough agents to cover the continuing spread of mortgage fraud, as the housing and foreclosure crisis gets worse. The bureau slashed its criminal investigative work force to expand its national security role after the Sept. 11 attacks, shifting more than 1,800 agents, or nearly one-third of all agents in criminal programs, to terrorism and intelligence duties. Current and former officials say the cutbacks have left the bureau seriously exposed in investigating areas like white-collar crime, which has taken on urgent importance in recent weeks because of the nation’s economic woes.

Originally posted at InjuryBoard by Paul Kiesel

NYT: FBI Joins the Mortgage Fraud Game Late and Now Doesn't Have Enough Players

Paul Kiesel — Tue, 21 Oct 2008 18:40:53 GMT

Here's an interesting New York Times article describing the problems the FBI has been having in handling mortgage fraud cases.

The FBI increased its efforts and resources over the spring to investigate cases of mortgage fraud, just before IndyMac failed and Fannie Mae and Freddie Mac needed to be bailed out, however, it appears that their pool of agents has been depleted (due to National Security risks/cases) and they're going to be moving forward with a greater caseload and limited task force.

From the New York Times:

The Federal Bureau of Investigation is struggling to find enough agents and resources to investigate criminal wrongdoing tied to the country’s economic crisis, The New York Times’s Eric Lichtblau, David Johnston and Ron Nixon reported, citing current and former bureau officials.

The bureau slashed its criminal investigative work force to expand its national security role after the Sept. 11 attacks, shifting more than 1,800 agents, or nearly one-third of all agents in criminal programs, to terrorism and intelligence duties. Current and former officials say the cutbacks have left the bureau seriously exposed in investigating areas like white-collar crime, which has taken on urgent importance in recent weeks because of the nation’s economic woes.

The pressure on the F.B.I. has recently increased with the disclosure of criminal investigations into some of the largest players in the financial collapse, including Fannie Mae and Freddie Mac. The F.B.I. is planning to double the number of agents working financial crimes by reassigning several hundred agents amid a mood of national alarm. But some people inside and out of the Justice Department wonder where the agents will come from and whether they will be enough.

So depleted are the ranks of the F.B.I.’s white-collar investigators that executives in the private sector say they have had difficulty attracting the bureau’s attention in cases involving possible frauds of millions of dollars.

Since 2004, F.B.I. officials have warned that mortgage fraud posed a looming threat, and the bureau has repeatedly asked the Bush administration for more money to replenish the ranks of agents handling nonterrorism investigations, according to records and interviews. But each year, the requests have been denied, with no new agents approved for financial crimes, as policy makers focused on counterterrorism.

According to previously undisclosed internal F.B.I. data, the cutbacks have been particularly severe in staffing for investigations into white-collar crimes like mortgage fraud, with a loss of 625 agents, or 36 percent of its 2001 levels.

Over all, the number of criminal cases that the F.B.I. has brought to federal prosecutors — including a wide range of crimes like drug trafficking and violent crime — dropped 26 percent in the last seven years, going from 11,029 cases to 8,187, Justice Department data showed.

“Clearly, we have felt the effects of moving resources from criminal investigations to national security,” John Miller, an assistant director at the F.B.I, told the newspaper. “In white-collar crime, while we initiated fewer cases over all, we targeted the areas where we could have the biggest impact. We focused on multimillion-dollar corporate fraud, where we could make arrests but also recover money for the fraud victims.”

But Justice Department data, which include cases from other agencies, like the Secret Service and Postal Service, illustrate the impact. Prosecutions of frauds against financial institutions dropped 48 percent from 2000 to 2007, insurance fraud cases plummeted 75 percent, and securities fraud cases dropped 17 percent.

Statistics from a research group at Syracuse University, the Transactional Records Access Clearinghouse, using somewhat different methodology and looking only at the F.B.I., show an even steeper decline of nearly 50 percent in overall white-collar crime prosecutions in the same period.

In addition to the investigations into Fannie Mae and Freddie Mac, the F.B.I. is carrying out investigations of American International Group and Lehman Brothers, and it has opened more than 1,500 other mortgage-related investigations. Some F.B.I. officials worry privately that the trillion-dollar federal bailout of the financial industry may itself become a problem because it contains inadequate controls to deter fraud.

No one has suggested that a quicker response would have averted the mortgage meltdown, but some officials said a faster reaction might have deterred more of the early schemes that seized on loose federal lending regulations.

“They were very late to the game,” Representative Zoe Lofgren, a California Democrat who has quarreled with the F.B.I. over its financing priorities, told The Times of the bureau’s response to the mortgage crisis. “They were not on top of this, and they’re just now starting to really do something.”

Republicans and Democrats in Congress are pushing for a more aggressive response by the F.B.I. Representatives Mark S. Kirk, an Illinois Republican who sits on the House appropriations committee, and Chris P. Carney, a Pennsylvania Democrat, called on Congress to triple the F.B.I.’s financing for financial crimes investigations.

“To fix our system and prevent a repeat of the events we now see,” they wrote in a letter this month to Robert S. Mueller III, the F.B.I. director, “we have got to set an example by bringing the full might of federal law enforcement against the people who illegally profited or destroyed companies at the expense of our country.”

In public, Mr. Mueller has said that the bureau is doing more with less, when it comes to criminal prosecutions. And Justice Department officials have repeatedly asserted the administration’s commitment to fight violent and white-collar crime even as they have not provided the bureau additional resources.

But current and former officials say Mr. Mueller has lost a behind-the-scenes battle with the Justice Department and the Office of Management and Budget to replenish the criminal ranks.

Interviews and internal records show that F.B.I. officials realized the growing danger posed by financial fraud in the housing market beginning in 2003 and 2004 but were rebuffed by the Justice Department and the budget office in their efforts to acquire more resources.

“The administration’s top priority since the 9/11 attacks has been counterterrorism,” Peter Carr, a Justice Department spokesman, told The Times. “In part, that’s reflected by a significant investment of resources at the F.B.I. to answer the call from Congress and the American public to become a domestic intelligence agency in addition to a law enforcement agency.”

Originally posted at InjuryBoard by Paul Kiesel

McCain-Palin Economic Plan Lacks Transparency in Wall Street Journal Op-Ed

Paul Kiesel — Wed, 10 Sep 2008 19:03:12 GMT

John McCain and Sarah Palin gave their opinions on the federal government's takeover of Fannie Mae and Freddie Mac, yesterday, in the Wall Street Journal. Here are a few of the pair's stances: "The bailout of Fannie Mae and Freddie Mac is another outrageous, but sadly necessary, step for these two institutions [. . .] Treasury has broadly followed the McCain plan, outlined months ago, and gets at the short-term heart of the problem [. . .] [The federal bailout] terminates future lobbying, which was one of the primary contributors to this great debacle [. . .] Reforms are necessary now to make mortgage lending and banking organizations more transparent," (online.wsj.com, 9/9/08).

First, the bailout was necessary and it is unfortunate that it had to occur. Could it have been prevented? Maybe years ago, before deregulation bills laxed lending industry rules, like the Commodity Futures Modernization Act of 2000, thus, allowing the lending industry to act like a teenager whose parents were out of town for the weekend... Or several years. Economists, conservative or liberal, will agree on that.

However, when McCain and Palin suggest that the Treasury has "broadly followed the McCain plan, outlined months ago," is that the same McCain plan that the senator discussed with reporters back in March: "Some Americans bought homes they couldn’t afford, betting that rising prices would make it easier to refinance later at more affordable rates [. . .] Of those 80 million homeowners, only 55 million have a mortgage at all, and 51 million homeowners are doing what is necessary — working a second job, skipping a vacation and managing their budgets to make their payments on time [. . .] it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers," (New York Times, 3/25/08).

I guess March would qualify as months ago. And it does seem like McCain is expressing his economic policies (or laying out "McCain's plan") and how he'd react to the mortgage/housing crisis as Commander-in-chief: that a bailout is a non-option, which is made clear when McCain said, "[. . .] what is not necessary is a multibillion dollar bailout for big banks and speculators, as Sens. Clinton and Obama have proposed. There is a tendency for liberals to seek big government programs that sock it to American taxpayers while failing to solve the very real problems we face." But, it doesn't appear that the Treasury department is using "the McCain plan," as Palin and he suggest. The plan the Treasury is following, not to a tee, but more closely than McCain's, is the plan that both senators Hillary Clinton and Barack Obama called for the same week that McCain was criticizing homeowners, many of who were suffering from mortgages littered with TILA violations.

As to the lobbyists that McCain attributes as being "one of the primary contributors to this great debacle," why is it that one of those lobbysists, former Texas senator Phil Gramm (a former lobbyist for UBS), was McCain's former economic adviser and co-chair, until he was forced to leave McCain's campaign in July after making some careless remarks? Why would McCain surround himself with Gramm, a long time political ally and personal friend, along with seven other lobbyists, and at least 20 other major McCain fundraisers who have lobbied on behalf of Fannie and Freddie in recent years?

Those seven lobbyists working on the McCain-Palin campaign, courtesy of CNN.com:

• One: Campaign manager Rick Davis is a major telecommunications lobbyist.

• Two: Senior foreign policy adviser Randy Scheunemann recently faced scrutiny over his foreign lobbying on behalf of the Republic of Georgia, which has been embroiled in a military conflict with Russia.

• Three: Senior adviser Charlie Black was a foreign lobbyist for dictators in Zaire and Angola in the 1980s, fodder for the liberal group MoveOn.org.

One of the group's recent ads charged, "Charlie Black said he didn't do anything wrong. John McCain should tell Black he did. Call John McCain and tell him to fire Charlie Black."

• Four: Frank Donatelli, the Republican National Committee's liaison to the McCain campaign, has had clients including Exxon Mobil.

• Five: Economic adviser Nancy Pfotenhauer has lobbied for corporate giants like Koch Industries.

"Both John McCain and Sarah Palin have challenged special interests, challenged their own party. That's the test of courage," Pfotenhauer has said.

• The final two lobbyists are McCain's congressional liaison, John Green, and national finance Co-chairman Wayne Berman. They both lobbied for Fannie Mae, the troubled mortgage giant.

So it's more than likely that the "lobbyists" McCain refers to as enablers in this mortgage crisis aren't leaving the political landscape anytime soon, especially if McCain becomes president.

Finally, in regards to McCain's and Palin's call for reforming the two mortgage giants and providing better oversight to the lending industry as a whole, why is it that Phil Gramm's name continues to be mentioned as a possible Treasury Secretary in a McCain-Palin administration? Gramm is the author of the Commodity Futures Modernization Act passed in 2000. There is no coincidence that his energy and lending deregulation bill, among several other deregulation bills like Newt Gingrich's Home Ownership and Equity Protection Act of 1994 (which was written to protect consumers against predatory loans, but it instead helped spark the subprime boom), opened the door for a lot of the problems seen throughout the subprime crisis (i.e. see what happened or is happening at Bear Stearns, Countrywide, IndyMac, WaMu, etc.).

It was through Gramm’s deregulation (as a senator) that helped set the stage for an explosion of banks slicing up subprime mortgages, bundling them with other mortgage slices, to hide the credit risks (and not being transparent about how the mortgages were written as millions of option ARM mortgages violated the Truth in Lending Act), and selling mortgage stew to other investment firms. And as a lobbyist, just as recently as December 31, 2007, Gramm was lobbying for Swiss bankers to help kill the Helping Families Save Their Home and Bankruptcy Act, a bill that would have let bankruptcy judges adjust mortgage terms so American families facing foreclosure could repay their loans and keep their homes.

Is this the reform that McCain potentially plans to bring with him to the White House, if he's elected? Is this the "promise [to] the American people that our administration will be different?"

People change their minds all the time. Both Democrats and Republicans do this constantly in Congress (McCain was initially against the Bush tax cuts and then favored them; Palin was for the "Bridge to Nowhere" and then, after becoming Governor of Alaska, she wasn't for it). President Bush has done this, too, as he signed a housing bill in late-July that he adamantly stated a week earlier he would veto. But on the issues brought up in the Wall Street Journal Op-Ed by the two self-proclaimed mavericks, with McCain and Palin calling for reform to the lending industry, more transparency amongst lenders and less future risk of a taxpayer bailout (issues that McCain has said he's not too sharp on and relies on his economic advisers opinions to make up for his lack of experience, "The issue of economics is not something I’ve understood as well as I should [. . .] I would rely on the circle that I have developed over many years of people like Jack Kemp, Phil Gramm [. . .]”), it seems like there's just too much old "Washington" and lobbyist baggage to fit on the "Straight Talk Express" plane.

People change all the time, however, as the old adage goes: You can't teach an old dog new tricks. An old maverick is likely the same.

Originally posted at InjuryBoard by Paul Kiesel

Combating Subprime Mortgage Fraud

Paul Kiesel — Thu, 31 Jul 2008 18:37:32 GMT

The New York State Commission of Investigations reported that the state's mortgage borrowers need more regulatory protection from predatory lenders, according to CNNMoney.com. Predatory mortgage brokers were able to take advantage of loopholes in New York State lending laws, a state that has fairly adequate lending laws, and defraud several thousand homeowners who should not have been given a loan or placed in the subprime loan they borrowed. States like California and Florida were hit even harder by mortgage fraud and both states have two of the highest foreclosure rates in the country.

The commission gave many examples as to the rampant problem of predatory lending, but one story in particular seems to be the most egregious of predatory lending practices.

A woman, Suzette Francis, who was working a $10/hr. job and living in a homeless shelter, along with her two kids, obtained a $470,000 mortgage that, according to the Commission's report, "exhibited [. . .] every characteristic and feature associated with dangerous subprime loans."

The subprime loan she was issued was an ARM loan, its interest rate starting at 10.8% and capped at 16.5%. Her monthly mortgage payment was over $4,400, which would have required her to work a 100 hours a week, just to pay the mortgage payment alone.

The Commission's report also warns of minorities being heavily targeted. In the State of New York, African-American and Hispanic borrowers were twice as likely to have subprime loans as whites, the Commission found. The report said that, "Customers in minority communities eligible for prime loans have been pushed into taking out high-risk subprime loans by shady mortgage brokers."

This problem was not represented or addressed in the Housing Bill that President Bush signed yesterday. There are many minority borrowers whom lenders targeted that will be left to deal with their troubled mortgage situation alone, and what's even more unfortunate is that if a responsible lender inspected their financial situation -- not being able to afford the loan they were taking out in thousands of instances -- many families would have been able to avoid the financial distresses they've been feeling for the last year in regards to their housing situations.

The Commission issued several recommendations to avoid future problems, however, federal regulations take precedence over state laws, nullifying any attempt to protect consumers by the State of New York. The State will have to work with federal regulators to protect its consumers and curb mortgage scams.

-Instituting standardized regulations governing the industry which apply to all the professionals -- real estate agents, mortgage brokers and loan officers, attorneys and appraisers. All must be licensed and fulfill educational requirements.

-Banning the practice of brokers taking on dual rolls. The report stated, "The potential for conflict of interest and outright criminality is so great [when one] individual acts as both real estate/agent and mortgage broker [. . .] in a single [. . .] transaction [it] should be prohibited.

-Improving borrower education and outreach efforts to draw more borrowers into financial literacy programs. The state should consider mandating pre-purchase financial counseling for all subprime borrowers.

Originally posted at InjuryBoard by Paul Kiesel

Fed Misses Major Lending Abuse Issue: Mortgage Brokers Steering Borrowers into Bad Loans for Fat Fees

Paul Kiesel — Thu, 24 Jul 2008 21:00:27 GMT

In 2007, mortgage brokers and loan officers received huge payouts by lenders like Countrywide, Bear Stearns and IndyMac to put unsuspecting borrowers into expensive loans (supbrime, ALT-A., etc.), according to the Department of Housing and Urban Development (HUD).

Howell Jackson, a professor at Harvard Law School, testified before Congress recently and said that he thinks the Fed has overlooked the problem and that it remains a "serious problem." Ultimately, Mr. Jackson believes that that cost of borrowing for everybody goes up, because of the losses that stem from subprime loans that were issued and continue to be issued due to incentive-laced compensation for the mortgage broker and the high default rate of the loans.

The HUB estimates that this type of lending practice cost borrowers $16 billion in 2007 alone.

The Yield Spread Premium (YSP)

The YSP is the difference between the lowest interest rate that a borrower qualifies and the actual rate that a lender charges. The greater the YSP, the more a loan originator, like Countrywide, earns and that pushes the mortgage broker, based on avarice and compensation, to steer the borrower into a bad loan.

CNNMoney.com provides an excellent example of this YSP problem:

Say a couple buys a new house and qualifies for a 6.5% rate on a 30-year fixed mortgage. A greedy broker or loan officer might put the couple in a 7% loan so that he earns a bigger payday, or even a 7.25% loan. Loan originators usually earn about 1% of the loan value for every extra quarter point of interest they charge borrowers. So if they put naive home buyers into high-cost loans, such as hybrid adjustable rate mortgages or option arms, they could make 5% or more on a loan.

Due to the clever packaging of junk loans, like option-ARM loans and other teaser rate payment loans, and selling them off to investors (CDOs), the above situation occurred more often than it should have over the last few years, as mortgage brokers and loan originators were able to deceive borrowers into negative amortization loans via a mutlifarious of TILA violations.

The Fed says it plans to address this problem. However, a spokesman for the Fed has only said that it will focus its efforts on improving fee disclosures, which is a start, but still leaves the borrower at a disadvantage in determining the YSP.

A spokesman for the HUD, Brian Sullivan, said that "mortgage rules are 30 years old and don't reflect the way people refinance their homes today." This is true. Teaser rate payment options weren't an option that long ago.

Even though the Fed announced new rules last week to help curb mortgage fraud, if further legislation isn't introduced TILA violations and other mortgage fraud, through deceptively written loans, could emerge again.

Originally posted at InjuryBoard by Paul Kiesel

FBI Investigating IndyMac for Fraud, TILA Violations

Paul Kiesel — Wed, 16 Jul 2008 18:41:42 GMT

CNN reports that the FBI is currently investigating IndyMac Bancorp for fraud. The federal government is likely looking into whether IndyMac committed fraud when it made home loans to subprime and/or Alt-A borrowers throughout the subprime boom.

Currently, the FBI is only focused on the company and not any individuals. The question becomes: Is the FBI looking into any potential TILA fraud by IndyMac? The reason this becomes a key question is because several banks not only allowed loans to go out to the market with TILA violations, but they also promoted the issuing of loans with vague and fraudulent terms within TILA disclosure pages by providing greater financial compensation to mortgage brokers who sold those types of loans.

TILA fraud was very prevalent during the subprime boom. Many banks failed to disclose details of teaser rate and option-ARM loans, therefore, banks were able to issue loans that should have never hit the market (they violated the Truth in Lending Act); IndyMac is one of several banks that committed these TILA violations.

According to CNN, "In a written statement, the FBI didn't specifically comment on IndyMac but noted that it is investigating 21 corporations in the subprime lending market for possible mortgage fraud," (CNN.com, 7/16/08).

This news comes just two days after the FDIC reopened the doors of California-based IndyMac. IndyMac was once one of the nation's largest home lenders.

Originally posted at InjuryBoard by Paul Kiesel

Crooked Mortgage Brokers and Operation Malicious Mortgage

Paul Kiesel — Fri, 20 Jun 2008 20:37:08 GMT

On the same day that two Bear Stearns executives were arrested, the FBI announced that 400 people have been charged with mortgage fraud. The FBI has drastically increased its efforts, since March 1, to combat mortgage fraud, devoting 180 agents to 42 task forces.

This is only the beginning of the avalanche of information we'll receive regarding mortgage fraud. Since Bear Stearns collapsed in March, many thought that FBI inquiries would yield evidence of criminal activity contributing to all of this financial tumult. It has, and it's certain that the FBI will be arresting hundreds more and revealing many fraudulent practices that have contributed to the subprime meltdown.

Currently, the FBI is investigating about 1,400 more cases of potential fraud. Most of the arrests from yesterday revolved around small-scale schemes, and, other than the two crooked executives at Bear Stearns, it remains to be seen which other major lenders will be publicly outed and guilty of "malicious mortgage" activity. But just like the propensity of TILA disclosure fraud that has taken place over the last few years, I'm sure other lenders like Bear Stearns were as ignoble in their lending practices, particularly in regards to securitized-mortgage fraud, so it's almost certain that a few other major mortgage lenders will be taking a hard, pride and greed driven fall, much like a Shakespearean king.

We'll just have to wait and see how many more crooked mortgage brokers, real estate agents and other industry officials the FBI is able to target and arrest. Hopefully, this will prompt Congress to pass laws that allow for more oversight and transparent rules when it comes to mortgage lending.

Originally posted at InjuryBoard by Paul Kiesel

Obama and McCain: The Presidential Candidates on the Mortgage Crisis

Paul Kiesel — Tue, 17 Jun 2008 13:50:12 GMT

Here are Barack Obama's and John McCain's plans for dealing with the mortgage crisis (according to each candidate's respective website):

Barack Obama wants to create a fund to help people refinance their mortgages and provide comprehensive support to innocent homeowners. The fund will be partially paid for by Sen. Obama's increased penalties on lenders who act irresponsibly and commit fraud.

On top of this, Sen. Obama will create a 10 percent universal mortgage credit to provide homeowners who do not itemize tax relief. This credit will provide an average of $500 to 10 million homeowners, the majority of whom earn less than $50,000 per year.

After seeing what took place in the subprime mortgage industry, Sen. Obama introduced comprehensive legislation over a year ago to fight mortgage fraud and protect consumers against abusive lending practices. Sen. Obama's STOP FRAUD Act provides the first federal definition of mortgage fraud, increases funding for federal and state law enforcement programs, creates new criminal penalties for mortgage professionals found guilty of fraud, and requires industry insiders to report suspicious activity.

Sen. Obama will also create a Homeowner Obligation Made Explicit (HOME) score, which will provide potential borrowers with a simplified, standardized borrower metric (similar to APR) for home mortgages. The HOME score will allow individuals to easily compare various mortgage products and understand the full cost of the loan.

John McCain, after saying for months that he didn't want the government to intervene in the housing crisis, has recently come up with a housing relief plan called HOME Plan. Under his HOME Plan, every deserving American family or homeowner will be afforded the opportunity to trade a burdensome mortgage for a manageable loan that reflects their home's market value.

In order to be eligible, holders of a non-conventional mortgage taken after 2005 who live in their home (primary residence only); can prove creditworthiness at the time of the original loan; are either delinquent, in arrears on payments, facing a reset or otherwise demonstrate that they will be unable to continue to meet their mortgage obligations; and can meet the terms of a new 30-year fixed-rate mortgage on the existing home.

John McCain has also recently called for the formation of a task force within the Justice Department to combat mortgage fraud, but this has already been in the works for sometime. Sen. McCain's proposal suggests that the task force's primary duty will be to aggressively investigate potential criminal wrongdoing in the mortgage industry and bring to justice any who violated the law. The DOJ Task Force will offer assistance to State Attorneys General who are investigating abusive lending practices. (The FBI has also increased their efforts two, if not, three fold over the last 90 days.)

Originally posted at InjuryBoard by Paul Kiesel