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Rob Weber's Blog

By Rob Weber | Mortgage Broker
or Lender in Chicago, IL
  • What's with the rampant self-promotion guys?

    Posted Under: General Area, Home Buying, Agent2Agent  |  June 6, 2012 9:18 AM  |  550 views  |  12 comments

    I mean seriously guys, I see some posts where the content is 1 line (two on my other computer) with FIFTEEN lines that show how great you are, seriously?  I'm apalled at what I see on here.  I started using another site's advice forum also because that practice isn't allowed (they even add an insert to call you out and let others know self-promotional content was removed), I really like it and at the end of the day, consumers pay the price who come here since it's one advertisement after another.  I'm sure I'm not the only one who's opened a magazine and had to sift through 77 pages of ads before I got to any real content, that drives me crazy and I know I'm not the only one.

    Lets clean it up, we have a great forum to show consumers and other professionals that we're exactly that, PROFESSIONALS.  This practice isn't going to help us change the public's perception of what anyone in our industry does for a living.

    If you're the one-off poster who comes on here once a day to spam your information, go pay for advertising.  There's always going to be a way to skirt the rules or add perodic references but what really irks me (and even my clients who come on here to browse where I add content) is the non-stop spam I see.  I'm sure I'm not the only one who has a spam filter setup for their email or deletes spam, why should it be any different here?  

    My suggestion to other professionals, if you see your counterparts abusing the system, please give them a THUMBS DOWN to let them know what they're doing isn't cool.  Obviously if a question is soliciting information/contacts, spam away, that's what the poster wants. 

    Another suggestion, if you see someone giving GOOD advice, more than a one-liner some of you VIP-3's are notorious for (unless that sufficiently and completey answers the question), give that person a THUMBS UP.

    If we all work collectively to clean up the forum, we'll improve the experience for other readers and maybe put a small dent in the public's perception that all we are, are used-car salesmen.

    I would love to hear some feedback from others in the industry or anyone in that manner about whether they agree or disagree with what's being said, I'll happily add additional information to this depending on what comments are added.

    P.S.  I used a blog entry intentionally so I can add/edit as needed

  • Can I use a FHA construction loan to update my house?

    Posted Under: Home Buying, Financing, Remodel & Renovate  |  May 21, 2012 7:18 AM  |  661 views  |  No comments

    Someone recently asked this question and also wanted to know if they could claim rental income on a property they'd already vacated, here was my response (this person was from Pennsylvania, hence the county reference):

    The loan you referred to is actually called the "FHA 203k rehabilitation loan".

    As for the existing house, if you have tax returns to show you're receiving rental income on that property or you havea full executed lease with a proper paper trail, it'll be no problem to offset that mortgage with the rents you're receiving to help you qualify for the new loan.  Your score is sufficient as well to do a full 203k but not a HomeStyle loan, at this time.

    You can use the FHA 203(k) or the Fannie Mae HomeStyle Renovation loan to complete a large project like this. There are pros and cons of going with one over the other but both are essentially the same loan except one is a FHA loan and the other is a conventional loan. Your max loan amount for the 203k in Allegheny county is 327,500/419,250/506,800/629,800 for 1-4 units respectively and for the HomeStyle version, the max loan amount is $417,000/533,850/645,300/801,950 respectively.

    A rehab loan (203k streamline / 203k full / Fannie Mae HomeStyle) can be used on a purchase to rehabilitate your home as desired (needed and/or desired repairs, even if the house is already in habitable shape) or or a refinance to update your home as you see fit. The HomeStyle as mentioned earlier can also be used on second homes and investment properties. Both programs can lend on one to four flat properties. FHA's 203k is pretty strict on eligible condo rehabs whereas the HomeStyle option is superior for units in the city that need rehabbing (or any condo for that matter). For anyone unfamiliar with the program, please read this sentence carefully, REPAIR WORK DOESN'T NEED TO BE DONE BEFORE CLOSING, I say this in caps because there are so many consumers out there who assume all work must be done before closing and I wanted to address that rumor right away. All work is done AFTER closing by your contractor. Having said that, here's where anyone with knowledge on the topic will offer a retort saying FHA allows for borrowers to do their own work... The reality is that even though FHA allows it, there isn't a lender in the country that'll allow you to do your own rehab. The foreclosure rate on "self helf" transactions is a staggering percentage and any lender who's offering this program knows this as well. While it's true that on an exception basis, underwriters have been known to let a borrower paint or do some very minor things, it's the exception and not the rule. If you're looking to do all of your repair work yourself, financed rehabs like what we're talking about aren't for you.  To be fair, some local bank that uses their own money may do something like this but again, that's the exception, not the rule.

    You could use a 203k to gut your house and re-build it (a portion of the foundation must stay intact) though you may want to consider other homes if you're doing that major of a rehab unless you really know what you're doing.

    Whether you're doing a streamline 203k, full 203k or HomeStyle, the process is essentially the same, talk to a contractor (or multiple) to get an idea of what the cost will be and if you can afford it (you'll want to speak with a loan officer to make sure you can even get a large enough loan to cover your existing balance/purchase price + desired repairs). In cases where there is structural work (replacing a roof is NOT considered structural) which includes moving/modifying a load bearing wall or repairing the foundation would most certainly be a structural change and would require the guidance of an outside consultant tasked with overseeing the project and ensuring it's completed as expected by the investor (Fannie Mae or Ginnie Mae) as they have no other way to determine if the work was done properly or at all post-close, hence why the (HUD) consultant is so important to them and why they're required on larger jobs or complex/structural rehabs. This consultant will also ensure the contractor's bid isn't unreasonable and can if he chooses, use lower cost numbers for the job than the contractor used and the contrator MUST lower his prices to match the consultant's estimate to continue working in the program. You could look at your consultant as a sort of fairy god mother, they'll make sure you're not getting overcharged and the work they're telling you they'll do is feasible for what you want done to your house.

    I've seen blogs/posts here and elsewhere that say these are more for cosmetic work, that's what lenders who can only do the streamline 203k tell you so they don't have to admit they can't close your client's loan that want larger rehabs than the streamline will allow or structural changes. When I worked at a lender (name withheld) in the past as a specialist, I heard co-workers around me who could only do streamline 203k's use this speel all the time, it was almost comical to hear, please don't be fooled by the salesmanship, you've done your research if you're reading this, you're a step ahead of most others. Your loan officer should be intimately familiar with the program and be able to offer you the full gambit of renovation options. The most knowledgeable Renovation Specialists work for lenders who cater to these products.

    There's much, MUCH more to these loans but that's enough for now.  If you'd like additional information, feel free to add more comments here for responses or email me directly.  I'll add additional segments as time goes on.

    If hope you found this "article" helpful!! 

  • Federal Reserve members favor more easing if economy falters...

    Posted Under: General Area, Market Conditions, Home Buying  |  May 18, 2012 7:39 AM  |  537 views  |  No comments

    Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually toward levels that it judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily, and the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.

    To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

    The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014. 

    2012 Monetary Policy Releases

    Originally posted:  http://www.federalreserve.gov/newsevents/press/monetary/20120425a.htm

  • Fannie Mae opened door for 3 billion TBW fraud

    Posted Under: General Area, Home Buying, Financing  |  January 20, 2012 7:42 PM  |  775 views  |  No comments

    This is an old news story but I just came across it today.  It's a fascinating read and you'll be amazed at how messed up things got despite many people knowing about fraudulent activities that were going on.

    Fannie Mae Silence on Taylor Bean Opened Way to $3 Billion Fraud

    By Tom Schoenberg - Jun 30, 2011 3:34 PM CT

    The first sign of what would ultimately become a $3 billion fraud surfaced Jan. 11, 2000, when Fannie Mae executive Samuel Smith discovered Taylor, Bean & Whitaker Mortgage Corp. sold him a loan owned by someone else.

    Fannie Mae, the government-sponsored enterprise which issues almost half of all mortgage-backed securities, determined over the next two years that more than 200 loans acquired from Taylor Bean were bogus, non-performing or lacked critical components such as mortgage insurance.

    That might have been the end of Taylor Bean and its chairman and principal owner, Lee Farkas. He was sentenced today in federal court in Alexandria, Virginia, to 30 years in prison for orchestrating what prosecutors call one of the “largest bank fraud schemes in this country’s history.”

    Instead, it was just the beginning.

    Fannie Mae officials never reported the fraud to law enforcement or anyone outside the company. Internal memos, court papers, and public testimony show it sought only to rid itself of liabilities and cut ties with a mortgage firm selling loans “that had no value,” as Smith, the former vice president of Fannie Mae’s single family operations, said in a 2008 deposition.

    The trial of Farkas and his co-defendants resulted in the only major criminal conviction stemming from the financial crisis -- a crisis that followed the September 2008 collapse of Lehman Brothers Holdings Inc. and the U.S. government takeover of Fannie Mae and its rival Freddie Mac that same month.

    ‘Most Significant’

    Neil Barofsky, former special inspector general for the Troubled Asset Relief Program, described the Farkas case in a Feb. 14 letter to President Barack Obama as “the most significant criminal prosecution to date” that arose from the financial crisis.

    “If there had been a criminal referral, Farkas would have gone to jail in 2002,” William Black, who served as deputy director of the Federal Savings and Loan Insurance Corp. during the S&L crisis of the 1980s, said in an interview.

    Seven more years passed before federal regulators shut down Ocala, Florida-based Taylor Bean and prosecutors charged Farkas with orchestrating the $3 billion scam. He had duped some of the country’s largest financial institutions, sought federal bank bailout funds and contributed to the failures of Montgomery, Alabama-based Colonial Bank and its parent, Colonial BancGroup, once among the nation’s 25 biggest depository banks.

    ‘Fraud Scheme’

    Taylor Bean would have collapsed in 2002 “but for the fraud scheme,” according to prosecutors. It also survived because Freddie Mac began picking up the company’s business within a week of Fannie Mae’s cutoff, Jason Moore, Taylor Bean’s former chief operating officer, said in an interview.

    Freddie Mac soon became Taylor Bean’s biggest customer, and the mortgage company grew to be one of its biggest revenue producers, accounting for about 2 percent of single-family home mortgages by volume in 2009, according to a company filing.

    Once the 12th-largest U.S. mortgage lender, Taylor Bean’s business was originating, selling and servicing residential mortgage loans that came from a network of small mortgage brokers and banks.

    It had about 2,400 employees and was servicing more than 500,000 mortgages, including $51 billion of Freddie Mac loans and $26 billion of Ginnie Mae loans, before it collapsed into bankruptcy in August 2009, according to court papers.

    Loan Guarantees

    Ginnie Mae, a government-owned insurer of mortgage-backed securities, primarily guarantees loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs.

    Fannie Mae and Freddie Mac, which own or guarantee more than half of all U.S. home loans, were created by the U.S. government to inject capital into the housing market. Fannie Mae was established in 1938, and Freddie Mac in 1970.

    Beginning in 2006, the companies began making big investments in subprime loans, many of which eventually defaulted. In the face of their imminent collapse, the U.S. Treasury Department took the government-sponsored entities into conservatorship in September 2008, promising to make good on an implicit government guarantee of the companies’ bonds.

    The deal gave the Treasury almost 80 percent of the companies in exchange for a line of credit. Since then, the entities have required more than $160 billion in taxpayer aid.

    Freddie Mac, based in McLean, Virginia, filed a claim on Taylor Bean in U.S. bankruptcy court for $1.8 billion. Washington-based Fannie Mae had about $1.7 billion in loans serviced by Taylor Bean when their relationship ended in 2002.

    Officials’ Decision

    The decision to keep Farkas in business was made by top Fannie Mae officials such as Smith and Zach Oppenheimer, then senior vice president for single family mortgage business, according to Smith’s deposition and a Fannie Mae memorandum.

    A confidential agreement between Fannie Mae and Taylor Bean’s Farkas unwinding their relationship was negotiated by lawyers from the general counsel’s office, overseen at the time by Thomas Donilon, now Obama’s national security adviser, according to the documents. Donilon’s spokesman, Tommy Vietor, declined to comment.

    Fannie Mae officials feared that seizing the loan portfolio would signal poor loan quality to the mortgage industry, according to deposition testimony and an internal Fannie Mae memo. As a result, the value of the servicing rights to those loans would drop.

    Fannie Mae officials were also concerned that an immediate termination of the relationship would have “a devastating effect on TBW’s ability to continue as a viable company,” according to an undated Fannie Mae memo filed as part of a related lawsuit.

    Confidential Agreement

    The confidential agreement allowed Farkas to seek a buyer for the servicing rights of his Fannie Mae loans. The reasons for the termination by Fannie Mae were to remain a secret, according to court filings.

    “We hold people accountable in the judicial system when they don’t report a crime,” said Ken Donohue, former inspector general of the U.S. Department of Housing and Urban Development, who investigated another mortgage fraud matter involving First Beneficial Co. In that case, he said, Fannie Mae “literally knew about a crime” and didn’t report it.

    “In my estimation, it happened again,” said Donohue, now a principal at the Reznick Group PC in Bethesda, Maryland.

    Amy Bonitatibus, a spokeswoman for Fannie Mae, said in an e-mail that its current practice is to “take action and inform law enforcement” if it discovers “inappropriate activity.” Brad German, a spokesman for Freddie Mac, declined to comment.

    Focus of Case

    Franklin Raines, who was chairman and CEO at Fannie Mae from 1999 through 2004, said in an interview that he has “no memory” of the Taylor Bean matter.

    Fannie Mae either picks up the documents or negotiates an agreement when a termination occurs, Raines said. Fannie Mae’s regional offices manage terminations to get the largest recovery, and such an event wouldn’t be publicly disclosed, he said.

    Fannie Mae was owned at the time by its shareholders, and unless there’s a legal obligation to disclose, silence is typical in business arrangements, Raines said.

    The termination alone should have been enough warning to Freddie Mac and others businesses to “move with caution,” Raines said.

    The government’s case against Farkas and six convicted co- conspirators focused on conduct after Fannie Mae terminated their relationship. Those crimes began because Farkas needed cash to meet operating expenses, such as payroll and loan- servicing payments to Freddie Mac and Ginnie Mae, according to his indictment.

    Fake Mortgages

    From 2002 through August 2009, he directed the sale of more than $1.5 billion in fake mortgage assets to Colonial Bank and misappropriated more than $1.5 billion from Ocala Funding LLC, a financing vehicle used and controlled by Taylor Bean, prosecutors said in a sentencing document.

    Farkas, 58, oversaw the “triple-selling” of $900 million worth of mortgage loans to Colonial, Ocala Funding and Freddie Mac, and led an effort to obtain $553 million from TARP, according to the filing.

    At his trial in April, Farkas and three other witnesses were asked about the Fannie Mae termination. The relationship ended, each said, because Fannie Mae discovered that from six to eight delinquent loans it had bought from Taylor Bean were in Farkas’s name. Fannie Mae officials weren’t called to the stand by either the government or the defense.

    GMAC Lawsuit

    Documents filed in a 2006 countersuit against Taylor Bean by GMAC Mortgage Corp. showed the number of bogus or bad loans sold to Fannie Mae was much larger.

    Fannie Mae, which had worked with Taylor Bean since 1995, first had concerns about possible fraud in January 2000 after the mortgage financier received a telephone call from Catherine Kissick, the manager of Taylor Bean’s accounts at Colonial Bank, according to documents filed in the GMAC litigation. Kissick was sentenced to eight years in prison on June 17 after pleading guilty to conspiracy in the Farkas case.

    Kissick called to say the loan in question, which Fannie Mae had paid for, had in fact been sold a few months earlier to Freddie Mac, according to Smith’s deposition.

    “The duplicate loan being sold to Fannie Mae could have been an indication of fraud, or it could have had an innocent explanation,” Smith said in the lawsuit deposition. “But, nevertheless, it’s an indication that if they are truly selling duplicate loans to us, they have either got really bad, weak controls, or they’re doing fraud.”

    ‘Especially Cautious’

    Smith summarized the incident in an internal e-mail, urging colleagues “to be especially cautious in their dealings with” Taylor Bean and “to let me and others know ASAP if you find evidence of such problems.”

    Smith, who left Fannie Mae at the end of 2006, declined to comment.

    Fannie Mae continued buying loans from Taylor Bean and helped it build a website called Community Banks Online that allowed smaller banks to process mortgage loan applications faster through Taylor Bean. Taylor Bean would then sell those loans to Fannie Mae.

    Moore, the former Taylor Bean chief operating officer, ran Community Banks Online. He said in an interview that Fannie Mae was involved in the project and there were plans to market it nationwide with Fannie’s blessing and funding.

    ‘Manipulate Data’

    The program also afforded Taylor Bean “the ability to go in and manipulate data to a degree it had never been able to do before,” Moore said.

    Fannie Mae continued to have concerns about a “lack of attention to underwriting and quality control” at Taylor Bean, and on March 6, 2002, Fannie Mae officials had a face-to-face meeting with Taylor Bean managers, according to an undated Fannie Mae chronology of the termination entitled “Summary of Events” that was filed as part of the lawsuit.

    Fifteen days later, Fannie Mae’s loss mitigation team in Atlanta discovered several delinquent Fannie Mae-owned loans in the name of Farkas and other members of Taylor Bean’s senior management. A public records check revealed that the named borrowers didn’t hold title to the real estate and that the mortgages sold to Fannie Mae had never been recorded, according to the Fannie Mae document.

    “Our conclusion was that fraud, if I can use that word, had been perpetrated on Fannie Mae, and we considered that to be a very, very serious matter,” Smith said in the 2008 deposition.

    ‘Fraudulent Loans’

    On April 1, 2002, Fannie Mae management decided to terminate its contract with Taylor Bean because of “fraudulent loans” and “other serious concerns,” according to the summary document. In addition to the $1.7 billion servicing portfolio, Taylor Bean had an outstanding balance on Fannie Mae’s advance payment line of about $189 million, according to the document.

    At that point, the chronology stated, Fannie Mae could have refused to buy any more loans from Taylor Bean, blocked the company’s access to its online loan processing programs, and seized the servicing rights, shifting those contracts to another company without compensating Taylor Bean.

    It did none of those things. Fannie Mae wanted to preserve the value of the servicing portfolio, which would plummet if it reported that Taylor Bean was selling bogus loans, according to the summary document and Smith’s deposition.

    Smith traveled to Ocala the next day to talk to Farkas about how to end the relationship, according to the deposition. Smith said that he was joined the following day by his boss, Oppenheimer, and Fannie Mae lawyers.

    Third Party Move

    The negotiation resulted in an agreement that Smith said outlined what Fannie Mae, Farkas and Taylor Bean would do “over the next month or two to get the servicing moved to a third party.” A telephone and e-mail message left for Oppenheimer was returned by Fannie Mae spokeswoman Bonitatibus, who declined to comment.

    “Companies that have servicing pulled by Fannie Mae with cause generally do not survive,” said Barry Bier, former executive vice president and chief investment officer at GMAC Mortgage Corp., a unit of Detroit-based Ally Financial Inc., according to a transcript of deposition testimony. “In this case I think Taylor Bean was extremely -- was well benefited by motivated lenders who provided assurances to GMAC to allow them to go forward.”

    GMAC bought the Fannie Mae servicing rights from Taylor Bean for $27.6 million on May 31, 2002. While GMAC was vetting the value of the servicing deal, Smith and Oppenheimer declined to say why Fannie Mae cut ties with Taylor Bean, Bier said.

    No Specifics

    “I tried to get whatever information I could,” he said in the deposition. “Each of those gentlemen would not provide any specifics with respect to the reason for the termination.”

    Bier didn’t respond to an e-mail and telephone message seeking comment.

    During the termination, Fannie Mae discovered that about 200 loans Taylor Bean sold as insured by the Federal Housing Administration didn’t have valid FHA coverage, according to the “Summary of Events” document.

    “Evidence suggests that TBW management knew at the time of sale of these loans to Fannie Mae that the loans were not insured,” according to the document. The loans involved mortgages given to U.S. military veterans, Smith said in his deposition.

    “These are high loan-to-value loans without any insurance sold to Fannie Mae as government insured when, in fact, they weren’t,” he said. Taylor Bean was forced to repurchase the loans. The document doesn’t say how much money the loans involved.

    Delinquent Loans

    GMAC also found that 16 loans in the servicing group it bought from Taylor Bean were delinquent at the time they were sold to Fannie Mae, according to the document. Taylor Bean management knew the loans were bad when they sold them and management falsified a date on the delivery schedule, according to the Fannie Mae document.

    Taylor Bean was forced to repurchase those loans as well, according to the filing. By November 2002, all of Fannie Mae’s outstanding claims with Taylor Bean were settled.

    The deal with Farkas resembled Fannie Mae’s reaction to an earlier fraud by one of its authorized lenders, said Chris Swecker, who investigated mortgage fraud as head of the Federal Bureau of Investigation’s office in Charlotte, North Carolina.

    In 1998, an investigator from North Carolina’s State Banking Commission warned a Fannie Mae employee that Charlotte- based First Beneficial Co. was selling bad loans, according to congressional testimony by Donohue, then HUD’s inspector general. Fannie Mae found many of the First Beneficial loans to be “fictitious,” Donohue said.

    Buy Backs

    Fannie Mae allowed First Beneficial to buy back the fake loans, according to court records. To raise the money, First Beneficial sold some of the loans to Ginnie Mae, which lost about $38 million as a result, according to court documents.

    Fannie Mae never notified law enforcement or regulators about the fraud, Swecker said, adding he “pushed hard to indict” Fannie Mae as a corporation for failing to do so. The Justice Department, declining to bring a criminal case, settled a lawsuit in which Fannie Mae agreed to pay the government $7.5 million and admit no wrongdoing, according to court records.

    “We felt like we were on the front end of a big problem and the last thing we expected to see was a quasi-government agency sweeping it under the rug,” Swecker said in an interview. In 2004, in a plea for more resources, he testified to Congress that the U.S. was on the brink of a mortgage fraud epidemic.

    No Fraud Policy

    In a January 2005 letter to lawmakers about the First Beneficial incident, Fannie Mae’s interim CEO Daniel Mudd said the company had no formal policy on reporting possible fraud. Fannie Mae doesn’t usually issue public notice when it suspends or terminates a lender or loan servicer, he said in the letter.

    Last year, Mudd, in an interview with the Financial Crisis Inquiry Commission, cited the termination of Taylor Bean as an example of Fannie Mae’s willingness to cut ties with problematic mortgage companies.

    A House of Representatives subcommittee held a hearing on First Beneficial in March 2005. As a result, rules were put in place by Fannie Mae’s regulator, the Office of Federal Housing Enterprise Oversight, requiring Fannie Mae, Freddie Mac and other government-sponsored enterprises to report fraud to law enforcement and regulators.

    The rule took effect in August 2005, three years after Fannie Mae terminated Taylor Bean.

    Fraud Department

    Fannie Mae’s fraud department looked at $1 billion in suspect loans in 2009 and found $650 million to be fraudulent, according to William H. Brewster, director of Fannie Mae’s mortgage fraud program. Brewster told the Financial Crisis Inquiry Commission that the loans were bought from lenders such as Bank of America Corp. (BAC), Countrywide Financial Corp., Citigroup Inc. and JPMorgan Chase & Co.

    Brewster said his office now reports fraudulent loans to the Federal Housing Finance Agency, or FHFA, which replaced the Office of Federal Housing Enterprise Oversight, or OFHEO, as regulator of Fannie Mae and Freddie Mac in 2008.

    A June 21 FHFA inspector general’s report found that FHFA and its predecessor agency ignored or mishandled complaints from consumers about fraud and botched foreclosures because it had no system for dealing with them.

    The report said OFHEO failed to pursue a tip from a journalist in June 2008 alleging Taylor Bean was selling loans to Freddie Mac that the company hadn’t yet purchased. The unidentified investigative reporter, in an e-mail, claimed to be in contact with a former Taylor Bean employee who made the allegations, according to the report.

    The inspector general found “no standard procedures were in place to assure prompt follow-up” and the matter was never referred to law enforcement for investigation, the report said.

    Broke Off

    As Fannie Mae broke off its relationship with Taylor Bean in April 2002, Farkas asked Raymond Bowman, then Taylor Bean’s vice president of secondary marketing, to call a friend at Freddie Mac, which at the time was buying from 5 percent to 10 percent of the loans generated by Taylor Bean, Moore said.

    In less than a week, Freddie Mac had agreed to purchase any conventional loans originated by Taylor Bean, he said. Within weeks, Bowman was promoted to president.

    At Freddie Mac, the decision to boost purchases from Taylor Bean was made by David H. Stevens, then a senior vice president of mortgage sourcing, Donald Bisenius, senior vice president for credit risk management, and Tracy Hagen Mooney, a regional vice president of sales, according to a former Freddie Mac official who spoke on condition of anonymity because he didn’t have permission from his current employer to speak to the media.

    Ocala Audit

    Auditors and underwriters were sent to Taylor Bean’s offices in Ocala to look over the loans about a month after the Fannie Mae termination, the ex-official said.

    “Freddie Mac came down, we explained what happened, and they decided to keep us,” Bowman said during the Farkas trial.

    Bowman, who pleaded guilty to the fraud conspiracy and lying to investigators, was sentenced to 2 1/2 years in prison on June 10.

    Farkas told Freddie Mac officials that eight bogus loans sold to Fannie Mae were the result of a clerical mistake and that the company’s termination was due to a personality clash between Farkas and Fannie Mae’s Oppenheimer, the former official said. Farkas, while testifying in his own defense at trial, said the sale of the loans was accidental.

    Freddie Mac assumed that because Fannie Mae allowed Taylor Bean to sell the servicing rights, Farkas’s explanation had merit, the former official said.

    Doesn’t Remember

    Bisenius said in an interview he doesn’t remember Freddie Mac’s specific actions regarding Taylor Bean after the Fannie Mae termination, although he said he doesn’t recall anyone alleging fraud within the company before its collapse.

    “I don’t think anyone thought that was going on,” Bisenius said.

    Bisenius resigned from his last Freddie Mac job, executive vice president for single-family credit guarantee, in April, two months after receiving a so-called Wells notice from the U.S. Securities and Exchange Commission noting he may be the subject of a civil enforcement case.

    Hagen Mooney, now senior vice president of single-family servicing and real estate-owned at Freddie Mac, declined to comment.

    Stevens, who left Freddie Mac in 2005 for Wells Fargo & Co. and Long & Foster Real Estate, said in an interview that antitrust concerns kept Freddie Mac from asking about the Fannie Mae termination. Their review of the loans showed Taylor Bean was selling “high quality stuff,” he said.

    He was named FHA commissioner in 2009 and is now the president and CEO of the Mortgage Bankers Association in Washington.

    After Taylor Bean was raided by the FBI, Stevens, in an FHA press release, accused the company of “irresponsible lending practices,” saying Taylor Bean “failed to provide FHA with financial records that help us to protect the integrity of our insurance fund and our ability to continue a 75-year track record of promoting, preserving and protecting the American Dream.”

    Fannie Mae fell as much as 1.8 percent to 32.7 cents before closing at 33.1 cents in over the counter trading.

    The case is U.S. v. Farkas, 10-cr-00200, U.S. District Court for the Eastern District of Virginia (Alexandria).

    To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net.

    To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

    Original article:  http://www.bloomberg.com/news/2011-06-30/fannie-mae-silence-on-taylor-bean-mortgages-opened-way-to-3-billion-fraud.html

  • Key tax deductions left hanging

    Posted Under: General Area, Home Buying, Financing  |  January 12, 2012 10:00 AM  |  971 views  |  1 comment

    Key tax deductions left hanging

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    By Jeanne Sahadi @CNNMoney January 9, 2012: 5:25 AM ET

    A slew of tax breaks expired at the end of last year. But lawmakers may choose to renew them for 2012 - or not.

    A slew of tax breaks expired at the end of last year. But lawmakers may choose to renew them for 2012 - or not.

    NEW YORK (CNNMoney) -- It may be a new year, but when Congress returns from its winter break it will be all old business that lawmakers failed to finish before Christmas.

    The fight over a temporary extension of the payroll tax cut and long-term federal unemployment benefits sucked up all the oxygen on Capitol Hill. And it will suck up more between now and the end of February, when the two-month extension Congress managed to pass expires.

    In the meantime, lawmakers left more than 50 expiring business and individual tax breaks hanging in the balance, along with an expanded mass transit break for workers.

    Officially, of course, they expired on Dec. 31. But like Lazarus, they may be risen from the dead by Congress, which could choose to extend them and make the breaks retroactive to the start of this year. That way they'll be in effect before taxpayers have to fill out their federal returns for this tax year in early 2013.

    The value of keeping the so-called tax extenders on the books is debatable. Tax experts argue that many should be ditched.

    But the everlasting question mark punctuating these and other tax breaks is a source of frustration for anyone who takes tax and financial planning seriously.

    "Taxpayers are very unhappy because they don't know what's going to happen; they can't plan," said David Mellem, who is certified to represent taxpayers before the IRS.

    Expanded mass transit break: For three years, workers whose employers subsidized their commuting costs were entitled to receive the same amount of money whether they took mass transit or drove to work and paid for parking.

    The parity in the benefits, which are tax-free to workers, meant mass transit commuters got more than they had in previous years.

    Congress = Uncertainty, Inc.

    But now Congress has let the mass transit expansion expire. As a result, those who take mass transit may only receive up to $125 a month tax-free, whereas those who drive to work can receive $240 a month.

    State and local sales tax deductions: Taxpayers are allowed to deduct their state and local income tax on their federal return. But in recent years, lawmakers gave them a choice: They either could deduct their income tax or the state and local sales taxes they paid in a given year.

    The choice benefits residents of the nine states that don't actually have an income tax.

    As of now, those residents won't have that choice for this tax year.

    What the payroll tax cut deal will do

    Mortgage insurance deduction: In addition to deducting the interest they pay on their mortgage, taxpayers whose adjusted gross income doesn't exceed $110,000 have been allowed to treat the premiums they pay for mortgage insurance as deductible interest too.

    But that may not be an option for tax year 2012.

    School teacher tax deduction: Many K-12 teachers pony up their own money to buy supplies and equipment for their classrooms. Unless Congress acts, they will no longer be able to deduct up to $250 a year for those expenses.

    Higher education tuition deduction: For tax year 2011, taxpayers are allowed to deduct qualified tuition and related expenses paid on behalf of anyone in their household to a college or university. The deduction is available regardless of whether one chooses to itemize or not.

    The deduction is worth up to $4,000 for someone whose adjusted gross income doesn't exceed $65,000 if single ($130,000 if married filing jointly). Those making between $60,000 and $80,000 ($130,000 to $160,000 if married), however, may only claim up to $2,000.

    Tax year 2012 may be a different story. But look on the bright side. While the tax break hasn't been renewed, it means one less complicated deduction for taxpayers to figure out.

    Larger AMT exemption amounts: To protect more than 20 million middle class households from having to pay the Alternative Minimum Tax, Congress typically passes an AMT "patch" every year.

    They have yet to do so for 2012, but because most Americans don't have to file their returns until early 2013, lawmakers could pass a patch at any point this year and have it apply in time for the 2013 filing season.

    The AMT was intended primarily for high-income taxpayers. But in recent years, it has threatened to engulf the less affluent because the income thresholds determining who must pay the tax were never adjusted for inflation.

    The patch increases the amount of income tax filers may exempt from consideration when calculating whether they need to pay the AMT.

    Without the AMT patch, tax filers would only be able to exempt $33,750 in income if single or $45,000 if married filing a jointly, according to CCH, a tax information publisher. That is considerably less than the $48,450 that single filers and $74,450 joint filers may claim on their 2011 returns.

    Original posting: http://money.cnn.com/2012/01/09/news/economy/congress_tax_deductions/index.htm

  • Interesting housing article, ligh at the end of the tunnel?

    Posted Under: Home Buying, Home Selling, Foreclosure  |  January 6, 2012 4:40 PM  |  687 views  |  No comments
    A quick post before I leave today, the excerpt along with the link to the full article.

    Have a great weekend all!

    ... Is 2012 the year the housing market turns around? Of course, no one can say for sure, but plenty of economists say signals are pointing in the right direction.

    "It has become increasingly apparent that the pieces for a housing rebound next year are beginning to fall into place," wrote Barclays Capital analyst Stephen Kim in a recent report. ...

  • Britain proposes stricter mortgage market rules

    Posted Under: General Area, Home Buying, Financing  |  December 19, 2011 2:05 PM  |  750 views  |  No comments

    Sun Dec 18, 2011 7:01pm EST

    * To launch consultation with industry until March 2012

    * Lenders should check income declarations thoroughly -FSA

    * Borrowers should not rely on rising house prices

    * Borrowers should not assume low rates will "last forever"

    * Council of Mortgage Lenders: rules "strike right balance"

    By Sudip Kar-Gupta

    LONDON, Dec 19 (Reuters) - Britain is to propose stricter rules for mortgage lending that aim to prevent a recurrence of irresponsible practices -- such as "liar loans" -- that led to the global financial crisis.

    The UK financial watchdog -- the Financial Services Authority -- will discuss these proposals with banks and other lenders in a consultation that follows on from initial plans the FSA put forward in July to tighten up mortgage regulation.

    The FSA's move also follows draft guidelines set out in October by the Financial Stability Board (FSB) -- a global regulatory task force for the world's 20 leading economies -- to ensure customers do not take on loans they cannot afford.

    The FSA said lenders should verify income declarations in every mortgage application, and that mortgages and loans should only be advanced where there is a reasonable expectation that the customer can repay the loan without relying on a rise in the value of their property.

    The FSA said lenders must also scrutinise more thoroughly whether or not a customer can afford the terms of a mortgage, and that borrowers should not enter into contracts which they can only afford on the assumption that current low interest rates "last forever."


    The global credit crisis highlighted how the mortgage industry had been blighted by so-called "liar loans" - self-certified mortgages whereby the borrower was able to obtain a mortgage without giving any proof of income.

    The crisis began in 2007 when lower-income home owners in the United States began defaulting on mortgages. The impact rippled through banks globally as these "subprime" loans had been bundled together and sold off to other banks in Europe.

    "While the excesses of the pre-crisis period have largely disappeared from the current market, it is important to ensure that better practice endures in future when memories of the crisis recede and the dangers of poor practice return," said FSA Chairman Adair Turner.

    Turner said the FSA estimated that the new rules would only have a "marginal effect" on the mortgage sector in current market conditions . The government is keen to ensure that any new rules do not cause a slowdown in the overall housing market.

    The FSA estimated that the new rules would impact 2.5 percent of Britain's mortgage customers. These people would find that they would either have to take on a smaller mortgage or would be better off by avoiding a mortgage altogether, under the proposed stricter lending criteria.

    "Whilst there is much detail to be pored over, the FSA's proposals seem to strike broadly the right balance," Britain's Council of Mortgage Lenders said in a statement.

    The credit crisis led to Britain having to part-nationalise Royal Bank of Scotland and Lloyds, and aggressive lending practices nearly caused the collapse in 2007 of Northern Rock, which had offered mortgages of up to 125 percent of their property value.

    Britain's mortgage industry is dominated by the "Big Four" banks of RBS, Lloyds, Barclays and HSBC , as well as mutually-owned savings and loans firms such as Nationwide Building Society.

    Original article on Reuters:  http://www.reuters.com/article/2011/12/19/britain-mortgages-idUSL6E7NG1XE20111219

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