John Hall & Associates - Phoenix Real Estate Brokerage

This intense headline was released this afternoon by the U.S. Attorney’s Office.  (h/t: Kerry Melcher)  We gave Sandy Raynor (writer of the press release) a call to make sure we could post it in its entirety.  We didn’t really want to take our chances with her employer. :)  As Sandy gave us the okay, she also talked about the importance of getting the word out there about the mortgage fraud ‘hotline’ email address they have set up.  So, if you know of any suspicious mortgage activity past or present, please don’t hesitate to send them an email.  Without any further ado…

PHOENIX - The U.S. Attorney’s Office and the Federal Bureau of Investigation (FBI) announced today a takedown of mortgage fraud schemes, the culmination of substantial coordinated efforts during the last three and a half months to identify, arrest and prosecute mortgage fraud violators in Arizona. Operation Cash Back highlights the strong enforcement response undertaken by the U.S. Department of Justice and its law enforcement partners to combat the threat that mortgage fraud poses to the housing industry and credit markets.

From March 1 to June 18, 2008, Operation Cash Back in Arizona resulted in six mortgage fraud cases in which 36 defendants were charged. In the past two days, 30 arrests were made in mortgage fraud-related cases in the Tucson and Phoenix areas. The FBI estimates that approximately $100 million in losses were inflicted by the mortgage fraud schemes employed in these cases.

In Arizona Operation Cash Back represents the collaborative efforts of the U.S. Attorney’s Office, FBI, Internal Revenue Service-Criminal Investigation Division, U.S. Immigration and Customs Enforcement, Department of Housing and Urban Development Office of the Inspector General, U.S. Marshals Service, Arizona Department of Financial Institutions, and the Scottsdale Police Department.

United States Attorney Diane J. Humetewa stated that “The individuals charged in these Arizona indictments are responsible for more than $100 million dollars in fraudulently obtained loans in Arizona. The investigation & prosecution of mortgage fraud is a top law enforcement priority & we are jointly committed to aggressively pursuing those involved in these crimes.”

“Over the last few years with the fluctuation in Arizona’s real estate market, too many individuals associated with this industry have exploited this market for their own personal gain. Innocent homeowners and businesses all across Arizona are paying a steep price for the selfish and illegal acts of others who attempt to capitalize on this market” stated John E. Lewis, Special Agent in Charge, FBI Phoenix. “Mortgage Fraud is similar to other crimes which involve criminals exploiting innocent people and businesses for their own illegitimate gain. The FBI is dedicated to working with our law enforcement partners to combat this problem facing the lawful citizens of our state.”

Operation Cash Back in Arizona is part of the nationwide Operation Malicious Mortgage fraud law enforcement effort. Nationally the Operation resulted in 144 mortgage fraud cases in which 406 defendants were charged. 60 arrests were made in mortgage fraud-related cases in 15 districts. Nationally, the FBI estimates that approximately $1 billion in losses were inflicted by the mortgage fraud schemes.

Mortgage frauds employ a variety of tactics including misrepresentations, deceit and other criminal abuses to fund, purchase or insure mortgage loans. Operation Malicious Mortgage addresses primarily three types of mortgage fraud schemes: lending fraud, foreclosure rescue scams and mortgage-related bankruptcy schemes. Lending fraud frequently involves multiple loan transactions in which industry professionals construct mortgage transactions based on gross fraudulent misrepresentations about the borrower’s financial status, such as overstating the borrower’s income or assets, using false or fictitious employment records or inflating property values. Foreclosure rescue scams involve criminals who target legitimate homeowners in dire financial circumstances and fraudulently collect fees for foreclosure prevention services or obtain ownership interests in residential properties. Both of these fraudulent mortgage schemes may be furthered by filing bankruptcy petitions that automatically stay foreclosure.

Dawn Mertz, Assistant Special Agent in Charge, Internal Revenue Service, Criminal Investigation Division stated that “Mortgage fraud adds to the underground economy that erodes the integrity of our tax system and threatens the financial health of our communities. IRS CI is committed to pursuing individuals who commit these types of crimes.”

Kenneth M. Donohue, Inspector General of the Department of Housing and Urban Development (HUD), stated, “Today is an important milestone in a combined effort by law enforcement and the U.S. Attorney’s Office against mortgage fraud. The Real Estate Settlement Procedures Act (RESPA) was enacted to protect all parties involved in real estate transactions, to including the lenders. These cases involve individual homebuyersand real estate professionals, driven by greed, who falsified closing documents that diverted “cash” to the buyers. Mortgage fraud and white collar crimes - whether aimed at the lender or the borrower - strike at the economic heart of the American system. To the extent that we can uncover and prosecute these activities, it’s to everyone’s benefit. Accordingly, I am happy for the HUD Office of Inspector General to join the U.S. Attorney’s Office in heralding this successful effort.”

“Mortgage fraud is a serious problem in Arizona and we are committed to working with city, state and federal agencies to protect Arizona residents and lenders. I applaud the hard work of the U.S. Attorney’s office, law enforcement and our state agency investigators,” stated Felecia Rotellini, Superintendent, Arizona Department of Financial Institutions. “We will continue to cooperate in the investigations and to pursue administrative actions against our licensees to send the message that mortgage fraud will not be tolerated in Arizona.”

“This case sends an important message about maintaining high standards for the mortgage industry,” stated Alan Rodbell, Chief of the Scottsdale Police Department. “It’s clear how these types of crimes can affect all levels of the community, from the financial industry to neighborhoods and individual homeowners. We are pleased to be part of this collaborative effort.”

An indictment is not evidence of guilt. All persons charged with a crime are presumed innocent until proven guilty beyond a reasonable doubt. The prosecution is being handled by Kevin Rapp, Assistant U.S. Attorney, District of Arizona, Phoenix.

RELEASE NUMBER: 2008-160(Operation Cash Back)

# # #

To report mortgage fraud, send an email to px_cashback@ic.fbi.gov

Sandy Raynor

Public Affairs Officer
U.S. Attorney’s Office
District of Arizona
Office 602.514.7625
Cell      602.525.2681
Fax       602.514.7676
sandra.raynor@usdoj.gov
http://www.usdoj.gov/usao/az/

Dru showed us her blog post that highlights this really cool graph on the NY times website… 

Is it better to rent or buy? 

Well, that depends on lots!  But a few of the variables this graph takes into consideration are…

          ◊  What’s the cost of the home?

          ◊  How much are you paying for rent?

          ◊  Are homes in the area appreciating or depreciating?  

          ◊  How long do you plan on staying put?

          ◊  Are rents going up or down?

          ◊  What’s the interest rate on your mortgage?

          ◊  How much is your down payment?  

          ◊  How much are the property taxes?

Pass this along to your buyers that are having trouble answering this question for themselves!  

I just got this email from L&G Mortgagebanc, a local company that allows REALTORS to be compensated for originating loans.  For more information hit me up!      

Arizona, Nevada, California, and Florida are currently classified as Extreme Declining Markets by Fannie Mae and Freddie Mac. As a result of this new classification, FNMA and FHLMC will require the following on all appraisals (this only applies to declining market areas):

1.  The most recent and similar comparable sales available as part of the sales comparison approach must be used. Any change in market conditions from the date the contract of sale was signed and date of the appraisal must be considered.
2.  Verification of comparable sales with a reliable party that is not associated with the subject property or the subject property’s development, and at least two comparables must be verifiable through the Multiple Listing Service (MLS) as Arms-Length transactions.
3.  Two of the comparable sales must have closed within the last 90 days.
4.  At least one current listing or pending sale must be provided.
5.  Comparable sales must be mapped in the appraisal.
6.  Days-on-market for subject and comparable sales must be provided, if applicable. The average days-on-market for the comparable sales must not exceed the “Marketing Time” box marked by the appraiser.
7.  If the appraiser is unable to meet any of the above requirements, the appraiser must provide a detailed explanation as to why the requirements were not met, and if it resulted in making an adjustment to the property value.

Recommended Practice
If the subject property is an REO, or if the subject is located in an area where there are a substantial number of REO properties, the appraiser must identify this fact and discuss its impact on the subject’s property value. In addition, REO comparables should be considered if the appraiser believes that such comparables are legitimate competing properties.

Additional Requirements for New Projects and Developments
1.  The appraiser must use at least one current sale from the subject builder/developer in the project, and either:
2.  One current sale from a competing builder/developer or
3.  A resale from within the subject property’s development that has closed within the last 30 days.
4.  If the appraiser is unable to provide a competing comparable sale or resale within the subject property development that closed within the specified time period, a detailed explanation of why the requirement was not met is required.

Purchase Transaction Requirements
As a reminder, in accordance with agency guidelines for purchase money transactions, the appraiser must be provided with a copy of the Purchase Contract so he can take into account any unusual or excessive sales contributions or concessions.

Age of Appraisals

Conforming Loan Programs
If the appraisal report is more than 120 days old (180 days if the transaction involves construction completed after the loan application), either a new appraisal or a Form 1004D is required. If a Form 1004D is being used, it must include:

A determination on whether or not the property value has declined.
• Note: If the appraiser determines that the value has declined, a new appraisal is required and the loan must be re-underwritten using the new value. An indication there has been an exterior inspection of the property.
Comments on any market changes.

Check it out for yourself. 

Eventhough the Phoenix MSA isn’t considered a “high cost” area, our FHA loan limits were increased from $263,150 to $346,250!  Hopefully the loan limit increases around the country will help convert sellers to buyers.  (Thanks for the help Dru!) 

Anybody think Jan. 2008 will be considered the bottom of our market?  

We received an awesome email this morning from the past president of the Arizona Mortgage Lenders Association,  Amy Swaney.  She does an excellent job of explaining the relationship between the Fed’s rate cut and mortgage rates.

Many consumers have misconceptions about the FED, and its affect on the long term interest rates.  I thought I would give you a crash-course on the truth behind the Fed’s meeting and the affect it has on long-term rates.  This may be a refresher course for many, but always good information to review. 

 The Federal Open Market Committee (FOMC) is a twelve-member committee made up of the seven members of the Board of Governors and five Federal Reserve Bank presidents. It meets eight times per year to determine the near-term direction of monetary policy, such as setting guidelines for the purchase and sale of government securities and setting policy relating to System operations in the foreign exchange markets. The Fed determines interest rate policy at FOMC meetings.  The interest rate set by the Fed, the federal funds rate, is the lending rate banks charge each other for the use of overnight funds and it serves as a benchmark for all other rates. A change in the fed funds rate also changes the dynamics of competition for investor dollars: when bonds yield 10 percent, they will attract more money away from stocks then when they only yield 5 percent. Again, the level of interest rates affects the economy for a­ higher rate tend to slow activity; and lower rates stimulate activity, a ripple effect that expands into all sectors of the economy.

These changes in monetary policy are now announced immediately after FOMC meetings so many assume that a drop in the discount rate or the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank’s lending facility–the discount window or the Fed Funds Rate, will automatically translate into a corollary drop in the long term rate. This is inaccurate. 

Is a Fed rate cut really good news for long term mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years, a rate that is set by the Fed can change from one day to another.

How does a change in the monetary policy directly affect consumers?  Consumers will see fairly immediate changes in short-term or consumer type loans such as credit cards and Home Equity Line of Credits (HELOCs) as the rate has ties to the Prime Rate.  But then how are long-term mortgage rates based?

As it turns out the answer is mortgage-backed bonds known as Mortgage Backed Securities (MBS). Bonds issued by Fannie Mae and Freddie Mac (MBS) and the trading performance of those bonds will determine the direction of mortgage rates. Finding the catalyst that causes mortgage bonds to move will give you the keys to finding out what makes mortgage rates rise or fall.

That catalyst could be any type of economic, political or global data.  Something to consider is that as bond prices rise, interest rates fall. As bond prices fall, interest rates rise including large movements in the Stock Market.  This concept is simple if you think in terms of where money comes from.  Investors have basically 2 places to put their money; in the stock market or the bond market.  Since money is a finite resource, if people are buying stocks, they typically have to pull that money out of the bond market and vice versa, thus they typically move opposite of each other.  

As the Nasdaq (Bond Based) moves higher, bond prices move lower causing interest rates to rise. As the Nasdaq declines, mortgage bonds benefit, causing mortgage rates to fall. Additionally, and unlike common opinion, Fed rate cuts have had virtually no direct effect on mortgage rates. In actuality, it appears that since Fed rate cuts act to stimulate the Nasdaq, they have a negative effect on mortgage rates.

The reality is that market participants weeks before the meeting announcement speculate about the possibility of an interest rate change at these meetings, and if the outcome is different from expectations, that is truly the only time the rate hike or cut will have a direct impact on the markets, but it usually tends to be short-term and volatility based. 

Amy Swaney