Friday, December 7, 2007
Beware: Texas is a mortgage
San Antonio Business Journal - by Angela Arnwine
While certainly not as negatively impacted as other cities in the country
by recent real estate trends, San Antonio is feeling the ripple effects on
the heartiness of its economy from increasing foreclosure rates across
the country. In addition to the usual reasons for foreclosure -- job
losses, income reduction, family emergencies -- other factors are
major contributors as well. The unfortunate trend of people simply
getting into more house than they can truly afford by using the
teaser adjustable rate mortgages or initially purchasing the home with
both a first and second mortgage, or even obtaining an interest
only mortgage, has taken its toll.
Metaphorically speaking, homeowners have barely kept their heads
above water, and the waves simply got too high. In order to make the
house happen, the industry has seen an increase in mortgage fraud
across the board including people trying to buy a home, professionals
working in the real estate industry and criminals exposing the
vulnerabilities of the system.
According to the FBI's Web site, Texas is in the top 10 hotspots for
mortgage fraud. The federal government took notice, and the most
recent statistics from the FBI report that mortgage fraud increased
from 3,000 in the year 2000 to almost 22,000 in the year 2005. All
agree that these numbers likely only represent a fraction of the
According to the Mortgage Asset Research Institute, Texas ranks
seventh in the country for fraudulently obtained loans. Even more
disturbing: San Antonio ranks 11th nationally in early loan defaults
-- a common sign of fraud playing a role in the loan application
Fraud takes all forms
Mortgage fraud cuts both ways -- meaning both lenders and borrowers
are victims and perpetrators -- and even includes third-party bad guys.
That fact simply translates into all of us being victims; mortgage fraud
is a lose/lose situation.
The vast majority of mortgage fraud takes the form of misrepresentations
.on loan applications or the production of false financial statements.
.Unfortunately, this is an easy trick and trap, and the borrowers are
either intentionally counting on such things being missed or blindly
provide trumped-up information in pursuit of the elusive American
Dream. Either way, such actions are harmful to the market.
Conversely, lenders bear responsibility because of a string of deceptive
.lending practices. Several lenders have engaged in practices that misled
the borrower by failing to adequately disclose terms and inflating the
.appraised value of properties in order to be able to lend a certain amount.
Add to these issues the enormous scam artist industry such as illegal
property flipping (Think: "We'll save you from a foreclosure."), and you
have a recipe for financial disaster.
The federal government is responding with increased federal prosecution
.which has resulted in substantial prison time and millions of dollars in
On the state level, Attorney General Greg Abbott's office is prosecuting
.companies and individuals for failure to properly disclose information
to consumers, for charging excessive fees, for over-appraising property
and multiple other infractions. In an effort to educate the consumer, the
OAG has recently added new online resources to the agency's Web
site http://www.oag.state.tx.us. The new Web page, "Avoiding Home-
Buying Pitfalls and Scams," provides consumers home-buying guidelines
and other helpful information. The Web page also provides tips on
recognizing "foreclosure rescue" scams and other refinancing pitfalls.
In its most recent session, our Texas Legislature passed both civil and
criminal bills in response to the crisis. The penal code was amended
to make it a punishable offense to knowingly make a materially false or
.misleading written statement to obtain a mortgage loan. The statute
of limitations for such crime, and for other provisions under which
mortgage fraud might be prosecuted under, was extended to seven
years. Further, a provision was added to the finance code requiring
lenders to provide each applicant with a written notice at closing that
advises of penalties for false statements and stating that the information
.provided in the application is accurate as of the closing date. Finally, in
an effort to organize a state response to the crisis, the government code
was amended (effective on September 1, 2007) to require the OAG
to establish a residential fraud task force to organize all levels of
law enforcement with prosecuting mortgage fraud.
While clearly a drop in the bucket, the efforts of all levels of
government solidify that fraud in the mortgage industry is taking its
toll. The impact on the overall real estate market cannot be ignored.
Our role, as real estate professionals, is to proactively work to put
back in place the checks and balances on this system that shows all
signs of being a runaway train.
Angela M. Arnwine is a name partner in Prins Arnwine, which has
both a transactional and litigation practice. Contact her at
_ _ _ OFF _ _ _
Once again, not only lawmakers and the mainstream public misunderstand the mortgage
crisis and the role mortgage servicing fraud has played but here is an investigative reporter
who is also missing key ingredients.
Ed Cage | 1804 Cross Bend, Plano Texas 75023 | firstname.lastname@example.org | 972-596-4363