So you can get a refi by just claiming to have changed your house into a state of the art, marble clad, palace? This kind of crap never even occurs to me until I read about it in the police ledger. Gotta love that American spirit of innovation I guess.
I was reading something the other day--and now, of course, I can't remember where or what--on the subject of major documentation problems with loan sales. It might have been the U.S. BK Trustee's report on NEW. Anyway, whatever it was, it reported "missing completion certificate" in the top five or so problems with loan sale kick-outs or repurchase requests.
"Completion certificate" is now a slightly out-dated term, since the GSEs revised appraisal requirements in 2005. You now have to get an "appraisal update" for these things, instead of a separate "completion certificate." Whatever you call it, if you originally appraised the property "subject to" renovations or construction, you're supposed to get the original appraiser to "certify" completion per plans and specs before you close. Since approximately the invention of the Polaroid camera, the appraiser was supposed to attach actual photos of the completed work to the cert/updated appraisal.
The merely sloppy lenders apparently just let the appraiser get by with exterior only photos. The real sleazebags just never got a cert, or they had one completed "model unit" of which interior photos could be used for all the individual units, which looked like the ones pictured.
It's one thing to get taken advantage of by a skilled fraudster who provides you with doctored pictures on a plausible-looking completion cert; it's another thing entirely to not even make the fraudsters go to any trouble by not even requiring a cert before you close. Some lender, I suspect, made it very easy for this fraud to occur.
So you can get a refi by just claiming to have changed your house into a state of the art, marble clad, palace?
Back when Tanta was young and dinosaurs ruled the earth, if you wanted to refi based on "as improved" value of the property, you coughed up contractor invoices, materials receipts, etc., and you let the appraiser in to photograph all the claimed "improvements." It was, of course, a big "hassle." And we're so committed to fantastic customer service that we of course eliminated such unnecessary "hassle."
My post may not have made this clear: this condo was not "trashed" by the (ex)owner. It was apparently originally mortgaged in this condition, with the fraudster claiming that renovations had been completed and a corrupt appraiser saying as much on the appraisal.
I was simply observing that if you did not investigate the situation, you might see a trashed REO property and assume that the (ex)owner did that just before vacating as revenge on the lender. That does happen, but it's possible the place was trashed in the beginning.
Indeed, I fully expect at least someone to try this fraud on trashed REO purchases: buy it "as is," get a corrupt appraiser to fake repairs on the appraisal, and re-sell it to a straw borrower. If you're really an energetic fraudster, you can then let the straw buyer default, offer a low-ball price for the property, and get the lender to accept a short sale on it. Then you can flip it again.
This was going on in my area. A guy is looking at 35 years or so in prison. However, so far, no appraisers have been charged. Personally i think some appraisers need to join him in the lock up (full disclosure: I worked as an appraiser for a while)
Zip code 30310, sold $700,000 in August 2004, recently $51,000. I like the quote, "I had the toughest time trying to convince the bank the price was correct" .... uhhh, which one?
Insurance companies still require all the documentation (receipts, etc...) when you file a homeowners claim of damage. Maybe the lenders should have learned a lesson from that. However, fraud is fraud, and people inclined toward fraudulent behavior will go after the easy money and victims. Candy from babies.
well... ok... you could do a much better job of it.
Well, I do suck at photoshop. If you have any talents in that direction, then we could take care of the completion photo problem rather efficiently.
True story: a hundred thousand years ago someone brought me an appraisal of a supposedly occupied home in a relatively new subdivision--they wanted cash-out. The photo of the subject property actually still showed the banners and balloons and shit in the background, even though they had at least taken down the "MODEL" sign. Still, it was obviously the model unit and, on investigation, we determined that the subject property was a vacant lot.
Those were the good old days when there were no digital photos and no photoshop.
So am I. I know some newer construction intended to have the retro look uses glass brick, but I'd guess this thing was built in the 30s, probably an apartment conversion.
The "emerging scams" section in the FBI report is pretty interesting. Some of these I've heard before, but I haven't seen so many different mortgage scams described so succinctly.
I would agree that the place is old, but I'd base it on the exposed wooden lathe plaster in the photo on the left. The small tank, "low flow" toilet in the photo on the right would seem to indicate that the bathroom had been remodeled within the last 10-15 years. The glass block could have been installed at that time.
Freddie apparently isn't calibrating the amount of capital it is raising based on an assessment of its assets. It is doing what OFHEO said is necessary to get its excess capital ratio reduced to 15% and then to 10%. Raising $5.5 bln will free up tons of room for increased activity.
By the way, CPI is out, and everything about it suggests inflation is cooling, just like spencer said it would when he got a load of the Q1 results.
Another disturbing inflation report. I think the government risks losing all credibility and this sort of shameless lying could ultimately blow up on them...Good thing there's no food and energy in there, because food was up 0.9%. Prices of food consumed in the home up 1.5%. But I guess we are all supposed to be okay as long as we don't have to eat. Good thing those decelerating energy costs (yep, really) offset food.
CPI tame in April -Headline up moderate 0.2%, core up slim 0.1% By Greg Robb, MarketWatch - U.S. consumer prices increased a moderate 0.2% in April with decelerating energy prices offsetting rising food prices, the Labor Department said Wednesday. Excluding volatile food and energy prices, the core consumer price index increased 0.1%, the government said. Inflation was just a bit weaker than expected. Economists were expecting both the CPI and the core rate to rise 0.2%. Consumer prices are up 3.9% in the past 12 months; core inflation is up 2.3%...
The key inflation report should cause a sigh of relief at the Federal Reserve, where officials were aware of the risks that their aggressive easing campaign to rescue the economy might engender inflationary pressures. With inflation moderating, Fed officials may be able to hold off from any quick rate hikes, giving the economy time to recover. Many Fed officials expressed concern recently that inflation is running faster than they'd like. For instance, on Tuesday, Kansas City Fed President Thomas Hoenig said inflation was at an "unacceptable level...
Details
Energy prices were flat in April after a strong 1.9% gain in March.
Gasoline prices fell 2.0%...natural gas prices rose 4.8%.
Food prices rose 0.9% in April, the largest increase since 1990. Prices of food consumed in the home also jumped 1.5%, the largest gain in 18 years.
...Income growth is slowing as well. Real weekly earnings fell 0.5 April, the government said in a separate report Wednesday. In the past year, real weekly earnings are down 1.0%.
The floor tiles (surrounding the toilet) appear to be the small hexagonal ones. You can still buy them, but very few people go to the bother. Those were very popular up into the 40s and 50s.
The door frame shows signs of having been repainted many times.
The area next to the door (when the wall is missing) looks like lap and plaster (instead of sheet rock). Again, that would place the house into the 40's.
If this was a condo, my guess is that it was an older apartment block that got converted somewhere along the way.
Do not believe the lies of wreckers, what you see is only tiny part of great American miracle! Biggest state secret? Where historic prosperity we are all experiencing is hidden.
Gas was 3.56 on Friday morning and 3.75 this morning. Here, let me show you this Excel spreadsheet that proves just how great America is doing. No no, that's not right, let me use the alternate data set and move this on the pivot table to here, and viola! The capitalist utopia!
Ignore the lies of Atlas and his parasites. Rapture is on the rise.
Elvis is right...insurers are funny about this thing called 'proof'.
Completely off topic, I'm currently working on a case where our attorney customer is claiming water damage to his home. One of the items he is claiming as damaged by the water are...water skis.
Er,what an utter load of bollocks - there was an 8-10% month-on-month rise in US gasoline prices, and compared to the previous year, they rose a good 15%.
This is serious fraud, somebody should go to jail for this one.
I'm curious if someone here who is an old salt can explain how someone could do this and ever expect to get away with it? Do you just have to find an appraiser in a downward spiral or are they normally forged reports or what? This seems like it would require collusion on the part of the bank or someone at the bank to take place.
We got a HEL to remodel our house, and they didn't even give us the money. The contractor got to take draws from the credit union as the work was done. We provided building permits, plans from the architect, pictures, receipts.
And there weren't that many dinosaurs roaming around - this was under ten years ago.
how do you find an appraiser to do it? how do you boil a frog? Back, not when dianosaurs ruled the earth, but 20 years ago, when Texas and the Oil Patch was going through regionally what the country is on the cusp of, as a lawyer I had some dealing with appraisers who, variously, cut deals, went to jail and skated by. Uniformly, they were astonished at the kind of trouble they had gotten into, because, as non-lawyers, they understandably failed to appreciate that the only real difference between civil and criminal fraud is the burden of proof and the level of prosecutorial interest.
Basically, they got there by sliding down the old slippery slope. In good times, you're real busy, you cut a few conrners, and, no harm, no foul, a rising tide (price) covers any sins of omission. You have good sources of business, youparty with them, exchange expensive gifs, go on fantastic trips, and, when somebody calls a favor, hey, it's an important business relationship. Of course, on the slippery slope, the favors get harder and harder to justify (shades of gray, getting darker). Then one of two things would happen. The appraiser is in a de facto partnership with his client--it's us against the world, buddy--or, that rising tide recedes, and to cover up past failures, further and generally aggravating conscious actions are taken. At that point, you are introduced to Special Agent Scully, who, depending on what he was doing previously, is happy to no longer be tailing Russian diplomats around Queens or is bored to have been pulled off the X Files.
Rarely is there a post I can contribute to specifically, but here is one. Unfortunately, I'm at work and will read the full report later.
An FBI agent lives on my street, one who is a few steps up in the hierarchy. I chatted with her at another neighbor's birthday party a few weeks back. Instead of say, counter-terrorism, her team has spent most of their time in the past two years investigating mortgage fraud. Apparently many of the crews are vertically integrated, meaning they have someone at every step of the way to make it all look legit (appraiser, broker, borrower, etc.). It is not rampant, but it is significant and they are good. She also noted that another reason it has persisted these last years is so much of the funding and manpower going towards counter-terrorism in the agency. She could use more agents.
I'm curious if someone here who is an old salt can explain how someone could do this and ever expect to get away with it?
Bear in mind that this obviously isn't an owner-occupant trying to get cash-out on a property by claiming improvements were made. This unit was clearly uninhabited and uninhabitable. It is most likely that most or all of the units in the building are in this shape. It could easily have been a decrepit old apartment building that somebody picked up on the cheap. There may even have been at some point a bona fide intention to rehab it and convert it to condos. It could have been already converted to condos when some flipper/fraudster acquired the unit, although that seems doubtful to me.
Whether the fraudster acquired this unit (or these units) for the purpose of fraudulently refinancing them, or just got stuck with them and fell to the temptation to cash them out and run with the money, or indeed these were "straw" sales, all it really takes is a corrupt appraiser and an inattentive lender. (With the legal issues on a conversion, it might well take an accomplice at the title company, too.) I would bet a lot that the mortgage(s) were originated by a broker, and the wholesaler didn't spend much time reviewing the loan files.
The safest way to do it is to actually rehab and sell one unit (possibly to a confederate who will eventually default on the purchase money loan). That gives you a recorded comp price, which makes subsequent unit appraisals more convincing, and lets you take a set of interior photos that can be used on the subsequent appraisals. If you're really ballsy you can even skip that part. Sometimes the appraisal is based on the "as complete" value--that is, on plans and specs--but the lender is manipulated into/stupid enough to/complicit enough to close before getting certification that those planned renovations got made. Or the appraiser fakes the cert, too. In this case, it's obvious that nobody even started recent renovations on this (the FBI uses the term "condos," so even though we just have pics of one unit, it looks like multiple units were involved). I do wonder if anyone checked the permits or the contractor's license, etc.
What can a lender do to protect itself? If the appraiser is a really good fraud artist and not on any shit lists, it can be hard. I might have started by wondering just how many square inches of granite countertop you could fit in a kitchen of that size, and therefore just how much "luxury materials" would raise the price of a tiny condo (we don't know where these were and what the total square footage is, so we don't know if this was a "gentrifying" area or not, but from the kitchen photo I'm having a hard time believing that you could fit more than two square feet of countertop of any sort into it.) Paying attention to the prior sales history would help (you look to see how long the seller has owned the unit). It is highly likely, if these were purchase transactions, that the buyer/borrower was dubious anyway--straw borrowers tend to be.
The biggest problem was that nobody said, "Wait. $275K for some tiny old apartment conversion? That just doesn't make any sense no matter how much "Brazilian hardwood" is in there."
If you basically had bought into the rags-to-riches flipper success stories to start with, you were much more easily fooled by a fraudulent appraisal. You wanted to believe that you add $175K in value to a condo by updating countertops and woodwork.
The $300 billion expansion of FHA lending now winding its way through Congress is silent on who will do the appraisals on these new taxpayer-financed loans. The potential for more fraud is enormous...
Bear in mind that this obviously isn't an owner-occupant trying to get cash-out on a property by claiming improvements were made. This unit was clearly uninhabited and uninhabitable. It is most likely that most or all of the units in the building are in this shape.
Thank you, auntie.
I'm just curious about the part where you seek to get away with the bags of riches. Do you just sit around the boiler room and manufacture to whatever degree you want the books of a failing condo redevelopment LLC, file it as a BK and hope the Eye of Sauron never settles directly on you?
It seems like this is the sort of thing that lets you drive around in a Mercedes for nine months and then you get tossed in the tank and they put a little note in the places where such notes are kept that you are a jerk who likes to play the system.
Does it automatically require the appraiser to not realize that in 18 months, there's gonna be some guys who want to interview him down at the local FBI office? Are people just so slack in pursuing this from the criminal side that barring political pressure you can just sorta go through the motions with real money?
I'm curious if this fraud is just the sort of goofy self-destructive "I'm gonna get caught oh yeah but hoo boy lookit mah car!" you see in a lot of financial crime, or if it's an ongoing enterprise of some sort?
Given what people say, it seems like it's really blown up recently, but I follow financial criminals like some people follow serial killers, and I'm just curious if there are long-time operators or if it's just the development equivalent of a "rogue trader" (insert obligatory "all of them"-type humor here).
So, I'm curious Tanta. Given that the most cursory glance by the least experienced member of the loan document review team would show fraud going on, how often did someone from the bank go out and look at the properties they were lending on? Or is there some federal law that says lending officers shall not leave their desk to double check on some document?
I'd tag it as late 1940s, early 1950s.
RayOnTheFarm | 05.14.08 - 9:24 am | #
Agreed. The door knob and the frame styling, too. And the layout with the bath side by side with the kitchen screams older apartment building.
Just a guess, but someone started the flip/renovation and someone else said,"Hey! Instead of your low cost flip, we'll say 'luxury' and make a ton o' money!" Because why go through the trouble of even starting if you're committing fraud?
Also, I'm guessing in New York City or San Francisco, even without the deluxe upgrades, just the space might qualify for the price, so it didn't seem so outlandish.
I'm just curious about the part where you seek to get away with the bags of riches. Do you just sit around the boiler room and manufacture to whatever degree you want the books of a failing condo redevelopment LLC, file it as a BK and hope the Eye of Sauron never settles directly on you?
A lot of these guys pick up in the middle of the night and move to a new state, starting a new LLC under new names, and since state licensing boards are so bad at noticing what other states are doing with revocations, etc., they get away with it. When they don't move to the Caymans.
Thing is, at the height of the boom, some of these lenders didn't even lose that much on this crap when they took the REO. In the year or so it took for the thing to unwind, vacant lots were selling for $275K. So some of these doodz got the idea that the endless boom would basically always make it not cost-effective for the lenders to prosecute.
Yeah, well, that's over.
how often did someone from the bank go out and look at the properties they were lending on?
When you're a national wholesaler who underwrites all loans in Orange County and this property is located in Chicago, where you do not have a satellite office? Never. It's a long trip in that case.
Thanks for this spotlight posting on the integration of fraud through a system originally based on documented trust.
Fraud watch fans, see also Rachel Dollar's Mortgage Fraud Blog for more thrilling crimetoppers facts.
My take is that the units shown were indeed the units financed, they just aren't the units represented in the appraisal(s) photos. Easy to do if no one checks, as noted.
If Ms. FBI Agent wants more help, there are honest, experienced appraisers who will help the FBI investigate and assist in prosecution for a relatively small amount of money, I suppose, with the primary joy being seeing their crooked competition cease operations for 5 to 15 years.
As for the golden handshake folks, I do believe their comeuppance is still in the works.
And byzantine, yes, the tendency is to think that they can get away with it forever, stupid huh, I'm sure there must be a few mortgage fraud scamsters sitting in tropical shade right now with facelifts and fake id's, tapping into the Grand Caymans or Swiss accounts. Some people do know when to quit ahead, others obviously don't. Sorta like the stock market or piling up Level 3 assets at the TAF window.
[I'm just curious if there are long-time operators or if it's just the development equivalent of a "rogue trader"]
I have read (yah, anecdotal) that it's been decided mortgage fraud is safer than drug running and organized crime is into it in a big way in some areas (ISTR Florida was mentioned, & NY would seem likely). In which case I imagine they are very 'professional' about it rather than a little guy here, a little gal there type-of-thing. Certainly there are rings involved, I read of one in N Texas but they were just ordinary criminals rather than bigger badder boyz
You know better than many of us here from your vast past experience.
Somebody's gotta put up the money to be stolen. If they are legit businesses, really they should wise up. Quit trying to save money on due diligence. If they care, it's OPM but it does quit coming in, eventually.
Or, it is entirely probable this fraud is also used for money laundering. In which case the money to be laundered is washed from the bank account of a phony type lender into an escrow account at a phony type escrow and into the pockets of phony type sellers and so on.
Tanta writes: "Thing is, at the height of the boom, some of these lenders didn't even lose that much on this crap when they took the REO. In the year or so it took for the thing to unwind, vacant lots were selling for $275K. So some of these doodz got the idea that the endless boom would basically always make it not cost-effective for the lenders to prosecute."
I think is the main reason fraud exploded in the last few years. Basically, some lenders didn't really care all that much if loans defaulted, since they could re-sell the REO at a similar price in the worst case. And once lenders don't care, that's a sure-fire recipe for the complete meltdown we're seeing now.
I've been inside a couple dozen vacant homes in my neighborhood, some of which looked much like these condos, some actually worse. One notable one had a water meter stolen from the basement, which let water leak for about a week in the wintertime, resulting in a two-foot deep block of ice. One side benefit to this is that we didn't have to worry about the furnace being stolen since it was frozen in place.
Much of my spare time these days is spent trying to keep my neighborhood from completely crumbling...
Two interesting things. 1) The report failed to note that lenders really should be the first line of defense against fraud and they were pretty much failing to do that. 2) If read that right they are seeing much higher levels of fraud in Alt-A than in sub-prime.
Good catch on #2, quartz, I had skimmed over that. Here's the relevant quote from the article:
"BasePoint Analytics, a fraud analysis and consulting service, analyzed loans that were originated between 2002 and 2006; nearly 1 million Alt-A loans and 3 million nonprime loans were evaluated. The relative fraud-loss rate of Alt-A loans was more than three times higher than nonprime loans. Losses within Alt-A loans were caused by income misrepresentations, employment frauds, straw buyers, investor-related frauds, and occupancy frauds."
Yeah, I think you read that right... "nonprime" must mean "subprime" in this context, if you assume there are only three types of loans: Prime, Alt-A and Subprime.
I've long suspected that some of the pure for-profit mortgage fraud was Alt-A, since the documentation standards for Alt-A were even lower than Subprime (supposedly "compensated" for by a higher FICO). But this seems to indicate that most of it was Alt-A, not Subprime.
Makes sense, bigger loans for Alt-A's, more used to white collar crimes, more access to OPM. After all Alt-A were safer than subprime! Going out on a limb, I'd guess the majority will be linked to mortgage broker scammers.
I didn't see the granite..., but maybe the owner used it to smash everything else.
The barzilian hardwood is of the invisiable kind
So you can get a refi by just claiming to have changed your house into a state of the art, marble clad, palace? This kind of crap never even occurs to me until I read about it in the police ledger. Gotta love that American spirit of innovation I guess.
I was reading something the other day--and now, of course, I can't remember where or what--on the subject of major documentation problems with loan sales. It might have been the U.S. BK Trustee's report on NEW. Anyway, whatever it was, it reported "missing completion certificate" in the top five or so problems with loan sale kick-outs or repurchase requests.
"Completion certificate" is now a slightly out-dated term, since the GSEs revised appraisal requirements in 2005. You now have to get an "appraisal update" for these things, instead of a separate "completion certificate." Whatever you call it, if you originally appraised the property "subject to" renovations or construction, you're supposed to get the original appraiser to "certify" completion per plans and specs before you close. Since approximately the invention of the Polaroid camera, the appraiser was supposed to attach actual photos of the completed work to the cert/updated appraisal.
The merely sloppy lenders apparently just let the appraiser get by with exterior only photos. The real sleazebags just never got a cert, or they had one completed "model unit" of which interior photos could be used for all the individual units, which looked like the ones pictured.
It's one thing to get taken advantage of by a skilled fraudster who provides you with doctored pictures on a plausible-looking completion cert; it's another thing entirely to not even make the fraudsters go to any trouble by not even requiring a cert before you close. Some lender, I suspect, made it very easy for this fraud to occur.
So you can get a refi by just claiming to have changed your house into a state of the art, marble clad, palace?
Back when Tanta was young and dinosaurs ruled the earth, if you wanted to refi based on "as improved" value of the property, you coughed up contractor invoices, materials receipts, etc., and you let the appraiser in to photograph all the claimed "improvements." It was, of course, a big "hassle." And we're so committed to fantastic customer service that we of course eliminated such unnecessary "hassle."
Better buy this lovely "fixer-upper" now before the prices goes up!
After all, they aren't making any more trashed condos!
My post may not have made this clear: this condo was not "trashed" by the (ex)owner. It was apparently originally mortgaged in this condition, with the fraudster claiming that renovations had been completed and a corrupt appraiser saying as much on the appraisal.
I was simply observing that if you did not investigate the situation, you might see a trashed REO property and assume that the (ex)owner did that just before vacating as revenge on the lender. That does happen, but it's possible the place was trashed in the beginning.
Indeed, I fully expect at least someone to try this fraud on trashed REO purchases: buy it "as is," get a corrupt appraiser to fake repairs on the appraisal, and re-sell it to a straw borrower. If you're really an energetic fraudster, you can then let the straw buyer default, offer a low-ball price for the property, and get the lender to accept a short sale on it. Then you can flip it again.
stupid fraudsters.
why only call it "renovated"?
they should have labelled it as a "luxury" condo.
then they could have gotten a $850,000 loan on it.
Honestly Tanta...
I feel like you and I could do a much better job of defrauding the lenders than these hacks.
well... ok... you could do a much better job of it. And I could tag along. I have a great SS# don't ya know.
I'm curious just how old this fixer upper is...
This was going on in my area. A guy is looking at 35 years or so in prison. However, so far, no appraisers have been charged. Personally i think some appraisers need to join him in the lock up (full disclosure: I worked as an appraiser for a while)
Zip code 30310, sold $700,000 in August 2004, recently $51,000. I like the quote, "I had the toughest time trying to convince the bank the price was correct" .... uhhh, which one?
Atlanta Metro News | ajc.com
Insurance companies still require all the documentation (receipts, etc...) when you file a homeowners claim of damage. Maybe the lenders should have learned a lesson from that. However, fraud is fraud, and people inclined toward fraudulent behavior will go after the easy money and victims. Candy from babies.
well... ok... you could do a much better job of it.
Well, I do suck at photoshop. If you have any talents in that direction, then we could take care of the completion photo problem rather efficiently.
True story: a hundred thousand years ago someone brought me an appraisal of a supposedly occupied home in a relatively new subdivision--they wanted cash-out. The photo of the subject property actually still showed the banners and balloons and shit in the background, even though they had at least taken down the "MODEL" sign. Still, it was obviously the model unit and, on investigation, we determined that the subject property was a vacant lot.
Those were the good old days when there were no digital photos and no photoshop.
Those were the good old days when there were no digital photos and no photoshop.
Tanta
And no Countrywide?
I'm curious just how old this fixer upper is...
So am I. I know some newer construction intended to have the retro look uses glass brick, but I'd guess this thing was built in the 30s, probably an apartment conversion.
The "emerging scams" section in the FBI report is pretty interesting. Some of these I've heard before, but I haven't seen so many different mortgage scams described so succinctly.
Freddie reports having doubled the pace at which it is sending loans back to originators in Q1 vs Q4.
I would agree that the place is old, but I'd base it on the exposed wooden lathe plaster in the photo on the left. The small tank, "low flow" toilet in the photo on the right would seem to indicate that the bathroom had been remodeled within the last 10-15 years. The glass block could have been installed at that time.
Freddie's raising capital from some freed up source of capital. opening round only 5 billion.
things are so great , it will be 9 billion by friday!
Wow. Amazing CPI print. Sebastian must have contributed to the report and data collection. Gas prices DOWN 2% in Apr?
Ponzi,
Freddie apparently isn't calibrating the amount of capital it is raising based on an assessment of its assets. It is doing what OFHEO said is necessary to get its excess capital ratio reduced to 15% and then to 10%. Raising $5.5 bln will free up tons of room for increased activity.
By the way, CPI is out, and everything about it suggests inflation is cooling, just like spencer said it would when he got a load of the Q1 results.
Another disturbing inflation report. I think the government risks losing all credibility and this sort of shameless lying could ultimately blow up on them...Good thing there's no food and energy in there, because food was up 0.9%. Prices of food consumed in the home up 1.5%. But I guess we are all supposed to be okay as long as we don't have to eat. Good thing those decelerating energy costs (yep, really) offset food.
CPI tame in April -Headline up moderate 0.2%, core up slim 0.1% By Greg Robb, MarketWatch - U.S. consumer prices increased a moderate 0.2% in April with decelerating energy prices offsetting rising food prices, the Labor Department said Wednesday. Excluding volatile food and energy prices, the core consumer price index increased 0.1%, the government said. Inflation was just a bit weaker than expected. Economists were expecting both the CPI and the core rate to rise 0.2%. Consumer prices are up 3.9% in the past 12 months; core inflation is up 2.3%...
The key inflation report should cause a sigh of relief at the Federal Reserve, where officials were aware of the risks that their aggressive easing campaign to rescue the economy might engender inflationary pressures. With inflation moderating, Fed officials may be able to hold off from any quick rate hikes, giving the economy time to recover. Many Fed officials expressed concern recently that inflation is running faster than they'd like. For instance, on Tuesday, Kansas City Fed President Thomas Hoenig said inflation was at an "unacceptable level...
Details
Energy prices were flat in April after a strong 1.9% gain in March.
Gasoline prices fell 2.0%...natural gas prices rose 4.8%.
Food prices rose 0.9% in April, the largest increase since 1990. Prices of food consumed in the home also jumped 1.5%, the largest gain in 18 years.
...Income growth is slowing as well. Real weekly earnings fell 0.5 April, the government said in a separate report Wednesday. In the past year, real weekly earnings are down 1.0%.
Transportation costs fell 0.7% in April...
Housing prices rose 0.3%...
Gas prices DOWN 2% in Apr?
In my best Jackie Gleason voice ...
Hardy, har, har, har ... Har!
RE: CPI
When in doubt, just lie. Energy 0% for April.
reflecting cheaper furniture and lodging costs
roflmao
the furniture is on the street, and the community shelter is free for the first 30 days.
implied cost?= 0
Obviously a terrorist plot. Feebie is looking for DNA as we speak.
And I lived through the 80's S&L fraud. That was child's play.
Cheers,
Ross
"The increase in prices at the pump was smaller than usual during April, causing the adjustment process to show a drop. "
Wow. I would have never guessed. Maybe gas prices only went up where I live and went down in the rest of the country. That explains it.
Who should go to jail?
a) Lender
b) Property Appraiser
c) Both?
Is incompetence justification enough to get away with this?
I'm curious just how old this fixer upper is...
The one in the pictures ?
There are a few clues...
The floor tiles (surrounding the toilet) appear to be the small hexagonal ones. You can still buy them, but very few people go to the bother. Those were very popular up into the 40s and 50s.
The door frame shows signs of having been repainted many times.
The area next to the door (when the wall is missing) looks like lap and plaster (instead of sheet rock). Again, that would place the house into the 40's.
If this was a condo, my guess is that it was an older apartment block that got converted somewhere along the way.
I'd tag it as late 1940s, early 1950s.
This is serious fraud, somebody should go to jail for this one.
. . . or just be forced to live in the condo, which would be roughly the same thing and would save taxpayers a few bucks.
When in doubt, just lie. Energy 0% for April.
Do not believe the lies of wreckers, what you see is only tiny part of great American miracle! Biggest state secret? Where historic prosperity we are all experiencing is hidden.
Gas was 3.56 on Friday morning and 3.75 this morning. Here, let me show you this Excel spreadsheet that proves just how great America is doing. No no, that's not right, let me use the alternate data set and move this on the pivot table to here, and viola! The capitalist utopia!
Ignore the lies of Atlas and his parasites. Rapture is on the rise.
OT-- former hoops star Latrell Sprewell foreclosure:
Latrell Sprewell's home foreclosed - Proof and Hearsay
Elvis is right...insurers are funny about this thing called 'proof'.
Completely off topic, I'm currently working on a case where our attorney customer is claiming water damage to his home. One of the items he is claiming as damaged by the water are...water skis.
Gas prices down in April?
Er,what an utter load of bollocks - there was an 8-10% month-on-month rise in US gasoline prices, and compared to the previous year, they rose a good 15%.
For diesel, the rises are even higher.
Peripheral Visionary writes:
This is serious fraud, somebody should go to jail for this one.
Was that an on topic comment or are you referring to the BLS?
I'm curious just how old this fixer upper is...
Thanks RayOnTheFarm and Tanta.
I know they're just things, but I do feel sad about the way those houses were treated. May karma bite those scammers butts off!
This is serious fraud, somebody should go to jail for this one.
I'm curious if someone here who is an old salt can explain how someone could do this and ever expect to get away with it? Do you just have to find an appraiser in a downward spiral or are they normally forged reports or what? This seems like it would require collusion on the part of the bank or someone at the bank to take place.
Looks like the Good Old S&L days to me. I saw a lot of this when the market was going down and builders and S&L just left.
jo6pac
We got a HEL to remodel our house, and they didn't even give us the money. The contractor got to take draws from the credit union as the work was done. We provided building permits, plans from the architect, pictures, receipts.
And there weren't that many dinosaurs roaming around - this was under ten years ago.
great blog. I love the quality of info provided.
I love this blog!
how do you find an appraiser to do it? how do you boil a frog? Back, not when dianosaurs ruled the earth, but 20 years ago, when Texas and the Oil Patch was going through regionally what the country is on the cusp of, as a lawyer I had some dealing with appraisers who, variously, cut deals, went to jail and skated by. Uniformly, they were astonished at the kind of trouble they had gotten into, because, as non-lawyers, they understandably failed to appreciate that the only real difference between civil and criminal fraud is the burden of proof and the level of prosecutorial interest.
Basically, they got there by sliding down the old slippery slope. In good times, you're real busy, you cut a few conrners, and, no harm, no foul, a rising tide (price) covers any sins of omission. You have good sources of business, youparty with them, exchange expensive gifs, go on fantastic trips, and, when somebody calls a favor, hey, it's an important business relationship. Of course, on the slippery slope, the favors get harder and harder to justify (shades of gray, getting darker). Then one of two things would happen. The appraiser is in a de facto partnership with his client--it's us against the world, buddy--or, that rising tide recedes, and to cover up past failures, further and generally aggravating conscious actions are taken. At that point, you are introduced to Special Agent Scully, who, depending on what he was doing previously, is happy to no longer be tailing Russian diplomats around Queens or is bored to have been pulled off the X Files.
Rarely is there a post I can contribute to specifically, but here is one. Unfortunately, I'm at work and will read the full report later.
An FBI agent lives on my street, one who is a few steps up in the hierarchy. I chatted with her at another neighbor's birthday party a few weeks back. Instead of say, counter-terrorism, her team has spent most of their time in the past two years investigating mortgage fraud. Apparently many of the crews are vertically integrated, meaning they have someone at every step of the way to make it all look legit (appraiser, broker, borrower, etc.). It is not rampant, but it is significant and they are good. She also noted that another reason it has persisted these last years is so much of the funding and manpower going towards counter-terrorism in the agency. She could use more agents.
Thanks for the heads-up on the report.
A blog so nice Marsha had to post twice!
I'm curious if someone here who is an old salt can explain how someone could do this and ever expect to get away with it?
Bear in mind that this obviously isn't an owner-occupant trying to get cash-out on a property by claiming improvements were made. This unit was clearly uninhabited and uninhabitable. It is most likely that most or all of the units in the building are in this shape. It could easily have been a decrepit old apartment building that somebody picked up on the cheap. There may even have been at some point a bona fide intention to rehab it and convert it to condos. It could have been already converted to condos when some flipper/fraudster acquired the unit, although that seems doubtful to me.
Whether the fraudster acquired this unit (or these units) for the purpose of fraudulently refinancing them, or just got stuck with them and fell to the temptation to cash them out and run with the money, or indeed these were "straw" sales, all it really takes is a corrupt appraiser and an inattentive lender. (With the legal issues on a conversion, it might well take an accomplice at the title company, too.) I would bet a lot that the mortgage(s) were originated by a broker, and the wholesaler didn't spend much time reviewing the loan files.
The safest way to do it is to actually rehab and sell one unit (possibly to a confederate who will eventually default on the purchase money loan). That gives you a recorded comp price, which makes subsequent unit appraisals more convincing, and lets you take a set of interior photos that can be used on the subsequent appraisals. If you're really ballsy you can even skip that part. Sometimes the appraisal is based on the "as complete" value--that is, on plans and specs--but the lender is manipulated into/stupid enough to/complicit enough to close before getting certification that those planned renovations got made. Or the appraiser fakes the cert, too. In this case, it's obvious that nobody even started recent renovations on this (the FBI uses the term "condos," so even though we just have pics of one unit, it looks like multiple units were involved). I do wonder if anyone checked the permits or the contractor's license, etc.
What can a lender do to protect itself? If the appraiser is a really good fraud artist and not on any shit lists, it can be hard. I might have started by wondering just how many square inches of granite countertop you could fit in a kitchen of that size, and therefore just how much "luxury materials" would raise the price of a tiny condo (we don't know where these were and what the total square footage is, so we don't know if this was a "gentrifying" area or not, but from the kitchen photo I'm having a hard time believing that you could fit more than two square feet of countertop of any sort into it.) Paying attention to the prior sales history would help (you look to see how long the seller has owned the unit). It is highly likely, if these were purchase transactions, that the buyer/borrower was dubious anyway--straw borrowers tend to be.
The biggest problem was that nobody said, "Wait. $275K for some tiny old apartment conversion? That just doesn't make any sense no matter how much "Brazilian hardwood" is in there."
If you basically had bought into the rags-to-riches flipper success stories to start with, you were much more easily fooled by a fraudulent appraisal. You wanted to believe that you add $175K in value to a condo by updating countertops and woodwork.
Thanks to Linear and Todd for sharing.
The $300 billion expansion of FHA lending now winding its way through Congress is silent on who will do the appraisals on these new taxpayer-financed loans. The potential for more fraud is enormous...
Bear in mind that this obviously isn't an owner-occupant trying to get cash-out on a property by claiming improvements were made. This unit was clearly uninhabited and uninhabitable. It is most likely that most or all of the units in the building are in this shape.
Thank you, auntie.
I'm just curious about the part where you seek to get away with the bags of riches. Do you just sit around the boiler room and manufacture to whatever degree you want the books of a failing condo redevelopment LLC, file it as a BK and hope the Eye of Sauron never settles directly on you?
It seems like this is the sort of thing that lets you drive around in a Mercedes for nine months and then you get tossed in the tank and they put a little note in the places where such notes are kept that you are a jerk who likes to play the system.
Does it automatically require the appraiser to not realize that in 18 months, there's gonna be some guys who want to interview him down at the local FBI office? Are people just so slack in pursuing this from the criminal side that barring political pressure you can just sorta go through the motions with real money?
I'm curious if this fraud is just the sort of goofy self-destructive "I'm gonna get caught oh yeah but hoo boy lookit mah car!" you see in a lot of financial crime, or if it's an ongoing enterprise of some sort?
Given what people say, it seems like it's really blown up recently, but I follow financial criminals like some people follow serial killers, and I'm just curious if there are long-time operators or if it's just the development equivalent of a "rogue trader" (insert obligatory "all of them"-type humor here).
Mortgage fraud is a great business to be in. Easy money, no down side.
So, I'm curious Tanta. Given that the most cursory glance by the least experienced member of the loan document review team would show fraud going on, how often did someone from the bank go out and look at the properties they were lending on? Or is there some federal law that says lending officers shall not leave their desk to double check on some document?
I'd tag it as late 1940s, early 1950s.
RayOnTheFarm | 05.14.08 - 9:24 am | #
Agreed. The door knob and the frame styling, too. And the layout with the bath side by side with the kitchen screams older apartment building.
Just a guess, but someone started the flip/renovation and someone else said,"Hey! Instead of your low cost flip, we'll say 'luxury' and make a ton o' money!" Because why go through the trouble of even starting if you're committing fraud?
Also, I'm guessing in New York City or San Francisco, even without the deluxe upgrades, just the space might qualify for the price, so it didn't seem so outlandish.
Guys who do this eventually do time.
Guys who perpetrated the institutionalized fraud that we've called "the mortgage industry" for the last few years get a golden handshake.
There's always the requisite "how much this kind of fraud costs us all," but it pales in comparison.
I'm just curious about the part where you seek to get away with the bags of riches. Do you just sit around the boiler room and manufacture to whatever degree you want the books of a failing condo redevelopment LLC, file it as a BK and hope the Eye of Sauron never settles directly on you?
A lot of these guys pick up in the middle of the night and move to a new state, starting a new LLC under new names, and since state licensing boards are so bad at noticing what other states are doing with revocations, etc., they get away with it. When they don't move to the Caymans.
Thing is, at the height of the boom, some of these lenders didn't even lose that much on this crap when they took the REO. In the year or so it took for the thing to unwind, vacant lots were selling for $275K. So some of these doodz got the idea that the endless boom would basically always make it not cost-effective for the lenders to prosecute.
Yeah, well, that's over.
how often did someone from the bank go out and look at the properties they were lending on?
When you're a national wholesaler who underwrites all loans in Orange County and this property is located in Chicago, where you do not have a satellite office? Never. It's a long trip in that case.
test
Great picture. Sort of looks like the Fed's balance sheet?
Tanta,
Thanks for this spotlight posting on the integration of fraud through a system originally based on documented trust.
Fraud watch fans, see also Rachel Dollar's Mortgage Fraud Blog for more thrilling crimetoppers facts.
My take is that the units shown were indeed the units financed, they just aren't the units represented in the appraisal(s) photos. Easy to do if no one checks, as noted.
If Ms. FBI Agent wants more help, there are honest, experienced appraisers who will help the FBI investigate and assist in prosecution for a relatively small amount of money, I suppose, with the primary joy being seeing their crooked competition cease operations for 5 to 15 years.
As for the golden handshake folks, I do believe their comeuppance is still in the works.
And byzantine, yes, the tendency is to think that they can get away with it forever, stupid huh, I'm sure there must be a few mortgage fraud scamsters sitting in tropical shade right now with facelifts and fake id's, tapping into the Grand Caymans or Swiss accounts. Some people do know when to quit ahead, others obviously don't. Sorta like the stock market or piling up Level 3 assets at the TAF window.
If people do this now on an apparent wide scale what will happen when law and order breaks down? Call the FBI? Doubtful.
[I'm just curious if there are long-time operators or if it's just the development equivalent of a "rogue trader"]
I have read (yah, anecdotal) that it's been decided mortgage fraud is safer than drug running and organized crime is into it in a big way in some areas (ISTR Florida was mentioned, & NY would seem likely). In which case I imagine they are very 'professional' about it rather than a little guy here, a little gal there type-of-thing. Certainly there are rings involved, I read of one in N Texas but they were just ordinary criminals rather than bigger badder boyz
FDDIC,
You know better than many of us here from your vast past experience.
Somebody's gotta put up the money to be stolen. If they are legit businesses, really they should wise up. Quit trying to save money on due diligence. If they care, it's OPM but it does quit coming in, eventually.
Or, it is entirely probable this fraud is also used for money laundering. In which case the money to be laundered is washed from the bank account of a phony type lender into an escrow account at a phony type escrow and into the pockets of phony type sellers and so on.
Tanta writes: "Thing is, at the height of the boom, some of these lenders didn't even lose that much on this crap when they took the REO. In the year or so it took for the thing to unwind, vacant lots were selling for $275K. So some of these doodz got the idea that the endless boom would basically always make it not cost-effective for the lenders to prosecute."
I think is the main reason fraud exploded in the last few years. Basically, some lenders didn't really care all that much if loans defaulted, since they could re-sell the REO at a similar price in the worst case. And once lenders don't care, that's a sure-fire recipe for the complete meltdown we're seeing now.
I've been inside a couple dozen vacant homes in my neighborhood, some of which looked much like these condos, some actually worse. One notable one had a water meter stolen from the basement, which let water leak for about a week in the wintertime, resulting in a two-foot deep block of ice. One side benefit to this is that we didn't have to worry about the furnace being stolen since it was frozen in place.
Much of my spare time these days is spent trying to keep my neighborhood from completely crumbling...
Two interesting things. 1) The report failed to note that lenders really should be the first line of defense against fraud and they were pretty much failing to do that. 2) If read that right they are seeing much higher levels of fraud in Alt-A than in sub-prime.
Good catch on #2, quartz, I had skimmed over that. Here's the relevant quote from the article:
"BasePoint Analytics, a fraud analysis and consulting service, analyzed loans that were originated between 2002 and 2006; nearly 1 million Alt-A loans and 3 million nonprime loans were evaluated. The relative fraud-loss rate of Alt-A loans was more than three times higher than nonprime loans. Losses within Alt-A loans were caused by income misrepresentations, employment frauds, straw buyers, investor-related frauds, and occupancy frauds."
Yeah, I think you read that right... "nonprime" must mean "subprime" in this context, if you assume there are only three types of loans: Prime, Alt-A and Subprime.
I've long suspected that some of the pure for-profit mortgage fraud was Alt-A, since the documentation standards for Alt-A were even lower than Subprime (supposedly "compensated" for by a higher FICO). But this seems to indicate that most of it was Alt-A, not Subprime.
most of it was Alt-A,
Makes sense, bigger loans for Alt-A's, more used to white collar crimes, more access to OPM. After all Alt-A were safer than subprime! Going out on a limb, I'd guess the majority will be linked to mortgage broker scammers.