Group Charged for Committing Reverse Mortgage Fraud
Three people from Atlanta were indicted by a federal grand jury on charges of conspiracy to commit financial institution fraud involving reverse mortgages.
The group included Jonathan Alfred Kimpson, 27, Gia Harris, 26, and Kelsey Torrey Hull, 38, of Lithonia and were charged on Feb. 25 on a charge of financial institution fraud and conspiracy.
“These defendants are charged with profiting from the corruption of an FHA-insured program designed to assist seniors with either cash for equity in their home or with funds toward the purchase of a home,” said Sally Quillian Yates, Acting United States Attorney. “These defendants allegedly altered real estate records, used fake documents, and posed as realtors. This abuse of the system took money away from qualified senior citizens who need these funds. With these charges, we have taken the first steps to stop this crime and to reverse the damage these crimes have caused.”
According to the indictment, Kimpson, Harris, and Hull allegedly faked the required down payments by senior citizens to establish the equity needed in the home to qualify for the FHA-insured reverse mortgage. The “gift” letters ranged from ,000 to 5,000 and also used fake HUD-1 statements reflecting the sale of non existent assets closed by fictitious law firms to show the source of the down payments said a statement.
In addition, Kimpson is being charged with aggravated identity theft and wire fraud which he allegedly used to steal identities of realtors to create fake Georgia MLS records to create property sales at inflated amounts to support many of the properties fraudulent appraisals.
The Kimpson indictment charges a conspiracy count which carries a maximum sentence of up to 30 years in prison and a fine of up to million, a wire fraud count with a maximum sentence of up to 30 years in prison and a fine of up to 0,000, and three aggravated identity theft counts which each carry a maximum sentence of up to two years in prison and a fine of 0,000 with at least two years required to be imposed consecutive to the sentence on the other counts.
The Harris indictment charges a conspiracy count which carries a maximum sentence of up to 30 years in prison and a fine of up to million. The Hull criminal information charges a bank fraud count which carries a maximum sentence of up to 30 years in prison and a fine of up to million, and a conspiracy count which carries a maximum sentence of up to 30 years in prison and a fine of up to million.
Inspector General Kenneth Donahue, U.S. Department of Housing and Urban Development (HUD) said, “HUD’s Home Equity Conversion Mortgages Program was created to help senior citizens find greater financial security through FHA-insured reverse mortgages loans. The HUD Office of Inspector General will aggressively investigate those who would prey on America’s senior citizens through reverse mortgage fraud, and encourages anyone having knowledge of such schemes to contact our HUD hotline.”
Landmark Assurance Program to Lower Upfront Appraisal Costs
Appraisal management company Landmark Reverse released a new way to help lower the upfront cost of ordering appraisals for reverse mortgage borrowers.
The appraisal assurance program allows borrowers to pay 0 upfront and the remaining 0 at closing in escrow. Borrowers can still pay the normal 0 fee for an appraisal but the assurance program is meant to help ease the burden for seniors who are hesitant to pay the full fee upfront for a reverse mortgage appraisal.
“Not all seniors have that kind of money, this gives them an an opportunity explore a reverse mortgage without the large upfront costs,” said Erik Richard, COO of Landmark Reverse.
Appraisers are still paid their normal fee by Landmark to ensure there is no incentive for to do anything different when conducting the appraisal said Richard. For brokers to be eligible for the assurance program, the fallout rate for appraisals can be no more than 35%.
Landmark is an approved AMC with Generation Mortgage, Urban Financial, Sun West, Security One, and Genworth. According to Richard, 90% of the companies business comes from the reverse mortgage industry.
Reverse Mortgage Default Costs Rise
Marc Helm, chief operating officer of reverse mortgage Solution told Broker Universe that reverse mortgage default costs are going up. “We are spending so much time on defaulted items and they are so much more expensive to deal with,” said Helm.
“Even though I’m in reverse mortgages, I have defaults and my default costs are just as high as anybody else’s. I’m experiencing that from the REO perspective because my REOs are taking longer to market just like everyone because the market is flooded. I’m trying to stay ahead of the curve on mine and start streamlining some of the areas of my business at a cheaper price so I can keep my level of service up and still be a profitable entity.”
When a borrower dies, if the estate tries to sell the property and they can’t get a decent price out of it they have to turn it back over to RMS, which has to foreclose when they take title.
“That drives another REO out to the market. The ancillary effect from what is happening in the forward world and the reverse world are hurting me on the default side, too. The REOs aren’t going to stop any time soon. There are only so many presales or short sales you can do. Even though the modifications programs are helping, many companies are having a hard time seeing them stick. Some of the numbers I have seen show less than 30% make it through the whole process.”
As we reported earlier, the US Department of Housing and Urban Development is expected to release a Mortgagee Letter addressing HECM’s loss mitigation tools and it could start a trend of lenders foreclosing on HECM loans which are in default due to taxes and insurance.
RMS COO’s Focus: Insurance Compliance
Nebraska Governor Signs Reverse Mortgage Bill
Nebraska Governor Dave Heineman signed Legislative Bill 892 into law on March 3, 2010. The bill makes revers mortgagee guidelines applicable to Nebraska Mortgage Bankers licensed under the Residential Mortgage Licensing Act said a statement from the National reverse mortgage lenders Association.
Introduced by Senator Rich Pahls in January, LB 892 states that:
Sec. 24. Section 45-1068, Reissue Revised Statutes of Nebraska, is amended to read:
(1) For purposes of this section, reverse-mortgage loan means a loan made by a licensee which (a) is secured by residential real property, estate, (b) is nonrecourse to the borrower except in the event of fraud by the borrower or waste to the property residential real estate given as security for the loan, (c) provides cash advances to the borrower based upon the equity in the borrower’s owner-occupied principal residence, (d) requires no payment of principal or interest until the entire loan becomes due and payable, and (e) otherwise complies with the terms of this section.
(2) Reverse-mortgage loans shall be governed by the following rules without regard to the requirements set out elsewhere for other types of mortgage transactions: (a) Payment in whole or in part is permitted without penalty at any time during the period of the loan; (b) an advance and interest on the advance have priority over a lien filed after the closing of a reverse-mortgage loan; (c) an interest rate may be fixed or adjustable and may also provide for interest that is contingent on appreciation in the value of the property; residential real estate; and (d) the advance shall not be reduced in amount or number based on an adjustment in the interest rate when a reverse-mortgage loan provides for periodic advances to a borrower.
(3) Reverse-mortgage loans may be made or acquired without regard to the following provisions for other types of mortgage transactions: (a) Limitations on the purpose and use of future advances or any other mortgage proceeds; (b) limitations on future advances to a term of years or limitations on the term of credit line advances; (c) limitations on the term during which future advances take priority over intervening advances; (d) requirements that a maximum mortgage amount be stated in the mortgage; (e) limitations on loan-to-value ratios; (f) prohibitions on balloon payments; (g) prohibitions on compounded interest and interest on interest; and (h) requirements that a percentage of the loan proceeds must be advanced prior to loan assignment.
(4) A licensee may, in connection with a reverse-mortgage loan, charge to the borrower (a) a nonrefundable loan origination fee which does not exceed two percent of the appraised value of the home owner-occupied principal residence at the time the loan is made, (b) a reasonable fee paid to third parties originating loans on behalf of the licensee, and (c) such other fees as are necessary and required, including fees for inspections, insurance, appraisals, and surveys.
(5) Licensees failing to make loan advances as required in the loan documents and failing to cure the default as required in the loan documents shall forfeit an amount equal to the greater of two hundred dollars or one percent of the amount of the loan advance the licensee failed to make.
HUD Extends Deadline for Audited Financials of FHA Loan Correspondents
The US Department of Housing and Urban Development sent out a notice stating that the Federal Housing Administration (FHA) is extending the deadline for the submission of audited financial statements for loan correspondents seeking renewal of their FHA lender approval for 2010.
According to the statement, HUD is seeking to eliminate FHA approval for loan correspondents through a proposed rule issued on November 30, 2009. Because this rulemaking is still in process and a final rule has not yet been issued, FHA is extending the deadline for the submission of audited financials.
For loan correspondents with a fiscal year end of December 31, and that would ordinarily be required to renew their FHA approval by March 31, 2010, HUD is providing these lenders with an additional 30 days in which to submit their audited financial statements.
These loan correspondents must continue to comply with existing requirements for the submission of their Annual Certifications and renewal fees, but will be given until April 30, 2010, to submit audited financial statements.
HUD stressed in the notice that the deadline for the submission of the Annual Certification and renewal fee has not been changed. Loan correspondents that do not complete their renewal in accordance with the deadlines as specified above will no longer be FHA-approved as of the effective date of the final rule that follows the November 30, 2009, proposed rule.
During the National reverse mortgage lenders Association Road Show in Atlanta, Daniel Rogers, Director, Atlanta Home Ownership Center of HUD told attendees the department received over 8,000 comments in response to the proposed rule. He stressed that HUD is analyzing all of the comments and expects the final rule to be published in March.
Seattle Mortgage Brings Hulbert Back to Run Reverse Business
Seattle Mortgage Company announced it named Sarah Hulbert as Senior Vice President of reverse mortgages. In her new role, Hulbert will oversee the company’s reverse mortgage business.
“We are very pleased to have Sarah’s leadership and extensive knowledge of this business back at Seattle Mortgage Company,” said Les Bedford, the mortgage company’s executive vice president. “Consumers are growing in their understanding of reverse mortgages, which are fast coming into the mainstream of mortgage products and are essential offering for financial institutions in this marketplace.”
Hulbert was previously with Seattle Mortgage Company from 2000 to 2006, serving as senior vice president and national director as the company’s reverse mortgage operation grew to become the third largest originator in the nation before it was sold to Bank of America in 2007.
Most recently, Hulbert was owner and CEO of Senior Financial Corp., a reverse mortgage broker licensed in six states. All of the employees from Senior Financial Corp will be joining Hulbert at Seattle Mortgage Company along with 13 other reverse mortgage originators said a company spokesperson.
Currently the company is originating in WA, OR, ID, CA, and NV but plans to expand into additional states as it develops its retail channel. The company endorsed 94 HECMs in 2009. You can see their listing for additional data and other companies at Reverse Base.
HUD Mortgagee Letter Updates HECM Loan Application
The US Department of Housing and Urban Development issued Mortgagee Letter 2010-07 to update loan documents for the Federal Housing Administration’s reverse mortgage product. In addition, FHA will no longer permit the use Freddie Mac Form 65/Fannie Mae Form 1003, Uniform Residential Loan Application, for HECM loan transactions.
ML 10-07 updates the following documents
- Home Equity Conversion Mortgage (HECM) Loan Agreement
- Revisions to the model HECM Loan Agreement Exhibits
- Fannie Mae Form 1009
The new HECM Loan agreement now defines the maximum claim amount as the lesser of the appraised value, sales price of the property, or national maximum loan limit established under section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act for a 1-family residence.
The guidance is effective August 1, 2010 for all HECM case numbers assigned on or after this date. However, lenders may use the revised forms immediately said HUD.
Data Shows Older American Home Values Stopped Falling in 4Q
Golden Gateway Financial released new usage data from its online reverse mortgage calculator showing that average home values for older Americans have halted their slide after remaining flat or declining for seven consecutive quarters.
The national average self-reported home value of older Americans rose from 9,762 in the third quarter of 2009 to 1,895 in the fourth quarter of 2009 said Golden Gateway.
Older Americans were one of the last segments of the population to see home prices rebound, but overall home values for seniors remain significantly lower than 2008 levels. Despite this rise in the national average, the report also showed significant decline in many large states, including Florida, Texas and New York.
This mixed recovery in terms of senior home values will likely continue as individual markets reduce inventory and regain their footing. Data from the most recent S&P/Case-Shiller Home Price Indices shows that many markets within these states continue to show improvement, and this should eventually contribute to an increase in home values for older Americans as well.
“Even a minimal gain in home value is a reassuring sign for older Americans because many of these individuals live on a fixed income and rely on their home to support their retirement lifestyle,” said Eric Bachman, founder and CEO of Golden Gateway Financial. “This is especially true for those considering a reverse mortgage because as their home increases in value, so does their potential for greater reverse mortgage proceeds.”
Additional observations from the data include:
- The average age of users remained roughly consistent
- Self-reported senior home values rose by a little more than three percent between the third and fourth quarter of 2009
- The average existing forward mortgage debt dropped slightly to 3,360
- reverse mortgage average max up front proceeds available rose by roughly three percent while the average max monthly proceeds available dropped by 13 percent
Reverse Originations Continue to Fall, Top Lenders in February
reverse mortgage endorsement volume for February came in at 7,024 units, down 7.9% from January according to data from Reverse Market Insight. Through the first two months of 2010, endorsement units totaled 14,653, 22.7% lower than last year’s volume.
Below is a list of the top reverse mortgage lenders through February 2010. Be sure to take a look at the commentary and report which goes into more detail below.
Other highlights from the month:
- The number of lenders with an endorsement during the year has hit 1,311, a 19.1% decrease from 2009
- The all-important “Endorsements/Lender” metric picked up a bit after dropping significantly in August. Given the shakeout of smaller brokers and marginal volume contributors, the continuing low volume of new lenders entering the industry is leading to healthier volume for the remaining companies.
- Top 10 lenders share of volume for 2010 stands at 43.8%, up from the prior year and in keeping with fewer active lenders in the market
“Market statistics and report sample provided by Reverse Market Insight, the leading source of market intelligence in the reverse mortgage industry. For more information about RMI and to purchase the full MIC report with additional key performance indicators and market statistics, please visit our website at www.rminsight.net“
Reverse Mortgage Legislation Update: March 4, 2010
Yesterday the House of Representatives passed H.R. 2554, the National Association of Registered Agents and Brokers Reform Act of 2009. It amends the Gramm-Leach-Bliley Act to reestablish the National Association of Registered Agents and Brokers (NARAB) as a nonprofit organization “to prescribe, on a multi-state basis, licensing and insurance producer qualification requirements and conditions.” It establishes a central clearinghouse and requires a mandatory criminal background check for all state-licensed insurance producers.
The Financial Services Bill is back in the news this week. House Financial Services Committee Chairman Barney Frank (D-MA) said that he is willing to put the Consumer Financial Protection Agency (CFPA) under the authority of the Treasury Department, rather than as a standalone office. Senate Banking Committee Chairman Chris Dodd (D-CT) and Sen. Bob Corker (R-TN) meanwhile, have proposed placing the CFPA in the Federal Reserve, which Frank has opposed.
Meanwhile, the Obama administration released more details of the “Volcker Rule” on Wednesday. According to the rule, banks would not be permitted to engage in proprietary trading. Banks would face restrictions on their size, and non-financial firms would also face new capital restrictions. Financial firms would be prohibited from controlling more than 10% of the liabilities of the system, up from the current 10% cap on deposits. The rule has yet to be debated by Congress.
In Florida, the Senate passed SB 1352 by 40-0 and the bill now moves to the House.
Finally, James H. Freis Jr., director of the Financial Crimes Enforcement Network (FinCEN), the arm of the Treasury that generally tracks drug money and terrorist funding, is investigating reverse mortgage fraud.
Written by Reva Minkoff
