Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Thursday, March 23, 2006

Fraud Files II

The Sun News
"An investigation by the S.C. Manufactured Housing Board's staff has led to charges that three Grand Strand home sellers violated state laws by including fraudulent information on loan applications to help buyers get mortgages for which they otherwise might not have qualified."

"The investigation led to charges that the home sellers falsified down payments and misrepresented financial information on loan documents for two buyers of homes in the Laurel Woods subdivision off S.C. 707 in the Burgess community."

"The housing board's staff investigation was prompted by The Sun News' ongoing investigation of mortgage fraud allegations in this area's manufactured home industry, according to housing board documents."

"Including false information on loan documents violates state and federal bank fraud and mail fraud laws, which carry penalties of up to 20 years in prison and a $250,000 fine for each occurrence."

"Charges stem from home sales in 2004 to buyers Ed and Hanna Hudzik and Bill and Susan Watts."

"Both couples bought from Beach Homes, which used to be on S.C. 707 across from Laurel Woods. Conner closed the location last year and has been operating the business from his home, according to the housing board."

"The housing board's staff investigation says Conner and Roy deposited $30,000 into the Hudziks' bank account, thus making it appear to a mortgage company that the Hudziks had enough money for a down payment and other loan fees."

"The staff investigation also says Conner and Curtiss deposited $6,500 into the Wattses' bank account for the same purpose."

"In both cases, the board's staff said in the complaints, Conner and his salesmen created false "gift letters" that claimed the money deposited into the bank accounts was from a relative or friend of the buyers."

"Beach Homes reclaimed the $30,000 and $6,500 deposits days after they were made by cashing personal checks the Hudziks and Wattses had written to the manufactured home dealer, according to the complaints."

"Money from those deposits was reflected on loan settlement statements required by the federal government, according to the complaints."

"The Hudziks say they did not make a down payment on their home, which they purchased for $120,000. The Wattses say they made a $500 down payment on their home, which they purchased for $100,000."

"In addition, the housing board's staff investigation says the Wattses signed a promissory note in the amount of $15,000 to New Century Ventures - which owned the house - as part of the transaction for the home, which was sold through the Beach Homes dealership. That promissory note "purportedly was satisfied on July 28, 2005," according to the complaint."

"The Wattses say they never made and were not asked to make payments on the promissory note. The housing board's staff, in its complaint, also says Conner failed to transfer the titles for the manufactured homes from the sellers to the buyers."

"After the Watts [sic] closed on the manufactured home, they were informed by Horry County that the home was still in the name of the previous owners, and that there were delinquent taxes and delinquent water and sewer bills," the board's complaint states.

"Horry County property records show the Hudziks' manufactured home still is titled to previous owners George and Tessa Magyar. The Wattses say they have lost their home to foreclosure. They recently moved to Granite Falls, N.C."

"The Hudziks say they have not made a house payment since April, when they learned the home was not titled in their name. The Hudziks say their mortgage company has threatened to foreclose but problems with the home's title have delayed legal action."

The Kansas City Star

"More first-time and lower-income homebuyers are losing the American dream to foreclosures on the courthouse steps."

"The warning signs are everywhere:
■ The Mortgage Bankers Association reports that the number of home-loan delinquencies nationwide in the last quarter of 2005 grew to a 2½-year high.
■ The association also noted a growing inventory of foreclosed homes, suggesting that banks are getting stuck with repossessed homes they can’t resell.
■ recently reported that the total number of foreclosures listed for sale in December rose 12.7 percent, reversing a recent trend of declining foreclosures. The online foreclosure-tracking firm estimated that about 92,000 foreclosed homes were on the U.S. market."

"Myra Batchelder, who heads the economic opportunity program at Demos, a New York think-tank on consumer issues, sees an ominous future for many Americans."

“The recent jump in foreclosures is a sign of a much larger problem: The American household economy is at a breaking point,” Batchelder said.

"She noted that Americans have withdrawn about $500 billion in home equity since 2001, often to pay credit card debts and medical bills. Indeed, consumers responding to low-interest rates and flexible terms expanded their total mortgage debt by $2 trillion in 2004 and 2005 alone."

"■ Mortgage indebtedness grew by $2 trillion in 2004 and 2005 alone.
■ Subprime lending grew 25 percent annually from 1994 to 2003, accounting for one of 10 home loans.
■ Qualifying debt-to-income ratios for subprime loans have risen from 28 percent to more than 55 percent.
■ U.S. average 30-day past due rates for subprime loans rose from 5.4 percent to 7.1 percent in 2005."

"Real estate experts in Kansas City and nationwide say they are seeing a trend in which homeowners — often using adjustable-rate mortgages — have been unable to keep up with fast-rising interest rates, forcing them to balance higher monthly payments against already soaring energy costs and living expenses."

"Last year, foreclosures rose 25 percent, according to RealtyTrac of California. Nationally, bank regulators worry that mortgage delinquencies and resulting foreclosures will continue to increase this year."

“Rising mortgage delinquencies in 2005 apparently mark the end of a period of generally improving mortgage loan performance between 2002 and 2005,” said Richard A. Brown, chief economist for the Federal Deposit Insurance Corp., which insures banks.

"According to FDIC statistics, the average 30-day past-due rate for subprime mortgages — those made to borrowers with limited or less than perfect credit — rose from 5.4 percent at the beginning of 2005 to 7.1 percent at year’s end, reversing an eight-year decline."

"Making matters worse, experts say a cooling real estate market makes it less likely that financially strapped consumers can count on rising home values and equity to bail them out."

“Many people are living on the razor’s edge,” said Kansas City mortgage attorney Berry S. Laws III. “When their interest rates go up, they automatically have to pay more for the mortgage. People are betting their homes will appreciate, but if the value of their homes flattens out, they face a deficit.”

'Now, unable to make house payments and having cashed out their equity, many consumers have seen their retirement nest eggs vanish. Some families, Batchelder said, “are losing everything.”'

"Some experts say lenders only have themselves to blame for the increase in foreclosures. Lulled by appreciating values and the lowest interest rates in a generation, they made riskier loans. Loans to subprime borrowers increased from $35 billion to about $332 billion between 1994 and 2003, according to one study."

"Researchers also blame delinquencies and foreclosures on predatory tactics by aggressive lenders, who offer low rates initially but hide other costs from consumers, such as balloon payments and prepayment penalties."

"A recent study by the Kenan Institute for Private Enterprise at the University of North Carolina at Chapel Hill found that a predatory loan can increase the chances of a foreclosure by as much as 50 percent."

Lenders faulted

"The lure for many Americans has been creative adjustable-rate mortgage plans that have made it all-too-easy for some people to buy homes that were too expensive for them. Many loans begin with low, teaser rates or only charge interest. But interest and payments increase over time."

"Scelloquzle E. France, 83, lost her Kansas City home this past week. France and her husband had bought the house in 1960. After he died, she refinanced in 2002 to pay off family debts. Late last year, however, she no longer could make the monthly payments, which had risen from an affordable $500 to an out-of-reach $900."

"Though her house was appraised for more than $110,000, she couldn’t sell it for that amount. In fact, her loan raised her total debt beyond the value of her house. Now she lives in a nursing home and is on state aid."

"Her experience is not unusual. Local housing experts are seeing many new foreclosures on loans less than two or three years old."

“Many of these are like brand new home loans being foreclosed on,” real estate investor Lorrie Robison said, while attending a recent foreclosure sale at the Jackson County Courthouse.

"Robison and others who track home sales locally say people get in financial trouble for many unexpected reasons: A spouse dies or a couple divorces, and the person who ends up with the house can’t make the payments. In other cases, people suffer a job loss."

"But they say consumers also lose their homes for preventable reasons. They refinance loans and take out equity to pay off high-cost debts, but don’t limit their spending."

“They don’t correct their spending behavior, and jump right back into credit cards,” said Bruce Morgan, chairman, president and CEO of Valley State Bank.

"A decade ago, few lenders would have accepted a borrower whose monthly debts amounted to more than 28 percent of their monthly income. But in the last two years, many lenders allowed debt-to-income ratios to climb as high as 60 percent."

"As a result, troubled loans exceeded expectations. Now, the FDIC says, the number of delinquencies has grown and spread to financial institutions on the secondary mortgage market, such as Fannie Mae and Freddie Mac."

"Kansas City housing experts say that mortgage fraud and inflated appraisals also can lead to foreclosures on homes valued far more than they were worth."

"But even as lenders clamp down, some experts are predicting that the bankruptcy reform law that was adopted last year threatens to fuel an additional round of foreclosures."

"In the past, consumers who couldn’t pay their debts could go to a bankruptcy lawyer and immediately stop a foreclosure and at least keep a portion of their home’s value.
Not anymore, said Laws, the Kansas City mortgage attorney."

If homeowners can’t make house payments during the 180-day period before being approved to file for bankruptcy, Laws predicted, “they won’t be able to save their house. It’s a mess.”

Advice for FBs

"■ If you’re having trouble paying bills, always pay your mortgage first.
Make sure you can afford the payments on a home before you buy it.
Keep a budget that takes into account all of your monthly expenses.
Avoid borrowing large sums from your home’s equity.
Don’t run up huge credit card and other high-interest debts.
Stick with a conventional loan from an established lender."

Morning News

"The FBI is warning Pee Dee Realtors and consumers to be wary of mortgage fraud. South Carolina has the second highest incidence of mortgage fraud in the nation, according to FBI Special Agent in Charge Brian Lamkin."

“It is a really big problem,” Lamkin said. “The impact on the financial institutions is one thing, but it has a huge impact on the community.”

"Lamkin said unscrupulous mortgage brokers can end up driving up the cost of housing in an area, then cause a slump in the market when fraudulent loans are defaulted."

"Lamkin said often home buyers will be conned into going along with a mortgage broker in falsifying their financial statements. They’ll inflate their reported salary, or a devious home appraiser will inflate the price of the home."

"Jean Leatherman, president of the Realtors Association, said there have been several cases of mortgage fraud in Florence in which no monthly payment was ever made by the home buyer.
“It takes 12 to 18 months for a foreclosure to go through, and you’ll have someone get into a house with no intentions of making the first month’s payment,” Leatherman said."

"Lamkin said home buyers are often “backed into a mortgage,” a situation where the mortgage broker will find out what the criteria to buy a particular home is, then falsify a buyer’s application to fit that criteria. Then the buyer can’t afford to make the payments, and foreclosure results."


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