Housing Giants - November 24, 2008 - (Page 23)

partners with the same willing title company over and over again, particularly as it relates to lenders who were attempting to pressure appraisers to inflate a home’s value, says Dallas-area certified real-estate appraiser Steve Nichols, who has been a whistle-blower on scrupulous activities in his market. Nichols, who is also running for governor of Texas for the 2010 election, says a few years ago many of the lenders, which were branches of the builders or in joint ventures with the builders, were looking to inflate the value of the properties so that they could roll in commissions or could allow buyers to fold in credit card debt or car loans into their mortgage. The inflated appraisal would allow the seller to recoup the cost of any incentive he may have offered, from down payment assistance to upgrades to cash back at closing to help a buyer pay off credit card debt. “You’re not legally supposed to have equity in something you don’t own yet,” says Nichols. “If the builder is giving cash incentives of any kind, they are giving you equity in something you don’t own yet. If simultaneously as you are closing you are given a gift — a house of furniture, the How is builder mortgage fraud committed? Builder mortgage schemes are complex with lots of gray areas. The following scenarios from Freddie Mac offer some examples: n Convincing buyers to purchase a property by offering to pay excessive incentives that are undisclosed to the lender. This could include down payment or closing cost assistance, or no money-down promotions. Creating false corporations that purchase inventory at inflated market values. Financing, by the builder, 100 percent of the closing costs, and in some cases gets cash out. Additionally, this inflates property values throughout the subdivision or project and falsely promotes the builder’s ability to sell inventory. Offering secondary purchase financing to create a position of “equity” for the borrower (i.e., 80/20 or 80/10/10 loans). Forming a mortgage loan origination affiliate that originates fraudulent loans. The loans can contain credit misrepresentation; falsified appraisals; and false certificates of completion and occupancy. Offering property management services, including an agreement to absorb any negative cash flow for an agreed period of time. n n n n n www.Housinggiants.com 11.24.08.Housing giants 23 http://www.housinggiants.com

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Housing Giants - November 24, 2008

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