I will use the tone that I gathered from the thinkers here and promote them in my April article of Colorado Lifestyle Magazine that spotlights Brian Margolis. Hey, Michael Richardson, can I use “mortgage mauraders?” Love it! Now, more than ever, we must do our homework when getting involved in big ticket items. Thank you all again for the vital, impassioned and profound dialogue.

Best wishes to all of you, and a maybe we could exercise some compassion for those victims of mortgage fraud which we undoubtedly will encounter in their desparate futures.

The “F” word “Fraud”, more specifically “Mortgage Fraud”, been there and done that, not a as a “fraudster” but a victim and I’ve paid for the crimes of those who’ve done so without my knowledge. If you do not want to be a victim you should want to learn from my mistakes, my naiveté, and my inexperience in dealing with criminals who know exactly how to work the system, and make others like you and I pay for their crimes.

If you become a victim, which trust me you do not want to walk down my path the last 20 months dragging the baggage of a ruined reputation, dozens of confused colleagues, and borrowers were wondering about the status of their perhaps fraudulent mortgages?

I say all this not to sound bitter but to describe for you the feeling I had on March 21, 2005, the day the doors seemed to shut on my company and myself. The day I learned that I had been not only the victim of mortgage fraud but according to my accusers, a key player in committing said fraud.

The day, in effect, all the doors of my life slammed shut at once…my company Primero Home Loans originated and processed loans. We completed loan applications and then processed the loan based on the wholesale investor guidelines to underwrite a loan, sound familiar, easy right.

It is not easy being in the mortgage business, as you probably know. Every day, or so it seems, there are a dozen brush fires to put out and the minute one is extinguished another pops up right beside it. Still, I’d managed to build a solid company in a competitive industry, and up to that point my reputation was as unsullied as our customers were satisfied and the wholesale investors wanted our loans.

I managed to weather my share of storms and, in the spring of 2005, little did I know it was my world, and not the housing market, that was about to burst.

A letter was waiting for me on my desk from Department of Housing and Urban Development, I learned that HUD was, in fact, notifying Primero of its intention to “terminate its Origination Approval Agreement because of its default and claim rates on HUD/FHA insured mortgages…”

As one might imagine, I was devastated. Since opening Primero Home Loans two years earlier – and after owning two other mortgage companies that were approved to issue HUD/FHA loans and did not have any problems with early default or claim rates – the letter seemed particularly unjustified. Why, I had even received a Best Practices award from HUD in 1997. I was confused, to say the least.

More questions followed: “How could HUD think the fraud had been done by Primero?!?” I wondered.

In fact, it was the wholesale lending investor underwriting department, not Primero, which determined the final approval and gave us the “clear to close” on whether a borrower qualified for a loan under the lender’s guidelines. As is the case with most mortgage brokers, Primero did not make the final determinations regarding a borrower’s loan eligibility, nor did we actually fund the loans. We worked with approximately nineteen different wholesale investors. Our individual loan officers working for Primero determined which investors to close the loans with – on specific transactions.

The news set off a ripple effect through my already reeling brain. Such a decree from HUD would be a crucial blow to our monthly volumes and revenues, but what pained me the most was the shame I felt at receiving such a letter, particularly when I’d done nothing to deserve it and did not knowingly participate in the fraud committed. HUD was terminating us due to our default comparison ratio, which was a direct result of the fraudulent loans originated and closed the year before.

After all, this was not some phony shell corporation or business front; Primero was my pride and joy, a company in which I’d invested endless amounts of money, blood, sweat, and tears over the past two years; starting and operating what I had decided to be my final company until my retirement days.

Now, with a single letter, HUD was basically accusing ME of fraud. My stomach lurched. Still, despite the jittery nerves and gloomy financial forecast for Primero, there was an ironic sense of smugness that filled me that morning.

I knew I hadn’t committed fraud. In some small way, this measure of intestinal fortitude gave me the resolve I needed to fight HUD’s decision tooth and nail. I would need every ounce of pride, resolve, and emotional follow through I had in the coming months, but of course I didn’t know that then.

A hundred different scenarios went through my mind as I put in a call to my lawyer, then huddled my closest staff, several of which are close family members, including my partner in business and life, my wife, to discuss the implications of the now infamous HUD letter. But the more my staff and I investigated HUD’s allegations, the more we realized that something, indeed, was very wrong.

And, unfortunately for all of us, it wasn’t back at HUD…

Things happened quickly after that. I felt like a prison warden who wakes up one morning only to discover that all his inmates have escaped. I’d done nothing wrong but the guilt by association was shameful, depressing, and alarming. I felt betrayed, violated, and taken advantage of.

It had started back in late September 2004, with the quality control of Primero closed loan files. HUD requires mortgage companies to have an audit done on 10% of all mortgage loans closed. Our current quality control company had started sending audit reports with some unusual notations from one of my senior – and highest volume – loan officers. I did not suspect what I eventually found, but the more quality control reports we received and the deeper we dug, the more we realized we were up to our knees in it.

In fact, it soon came to my attention that the misrepresentations and suspected fraudulent activities of several (now former) employees of Primero, in conjunction with several underwriters at a couple of national wholesale investors and a customer service representative working for a nationwide credit reporting agency and possibly an appraiser as well, and yes a Real Estate Agent were significant factors contributing to Primero’s default and claim rates with HUD, which was the main reason for the termination letter. The news was at once both reassuring and disturbing. We’d found the source of the scam but now we needed to know how far it had spread and how it worked, if that was at all possible.

I felt like a detective solving a crime; to uncover the massive conspiracy that had led to HUD’s decision to terminate its Origination Approval Agreement.

During the early fall of 2004, I had been reviewing our quality control audits and started discovering a trend in some closed loan files of a single senior loan originator at Primero, whom we had worked together for about 3 ½ years. I had challenged her on some of these issues, but she seemed to have valid excuses for what I was finding, after all I had no reason to not believe her at that time. Then I discovered a file that had just closed had enough information to prove “mortgage fraud” was happening with her loan files and that her excuses from earlier where untrue, to say the least. I immediately informed her that she and her team was being terminated from Primero due to “quality control issues” and suspected misrepresentations and fraud.

In taking these drastic steps it turned out I was a day late and a dollar short. Now the events of October 2004 were coming back to haunt me. It didn’t matter that after October 7, 2004 none of these individuals originated or processed loans for Primero. It didn’t matter that I had changed the locks on the doors and computer codes to ensure that none of these individuals could gain access to Primero’s office or any of its loan files.

The “mortgage marauders,” as I would later come to call them, merely picked up stakes and moved their whole operation elsewhere and to this day still operating.

After analyzing HUD’s Notice of Termination, my staff and I eventually calculated that over 80 % of the loans HUD had identified as being in default were originated this loan officer her co-conspirators. It was a crushing blow to my own, as well as the company’s, formerly high self-confidence.

It proved to us that if we could get hit, no company was safe. After all, I thought we had a sufficient quality control plan in place. I also considered our back up plan to be our wholesale investor, who was underwriting the final loan files to obtain the clear to close. It was like a safety net for us; we felt what we did not catch, they would.

We all knew each other, or so we thought, and to be betrayed in such a fashion – and to such a wide-ranging extent – was truly a crushing blow to one and all. This loan officer has gone on to wreak considerable havoc at other mortgage loan companies after being terminated from ours. The fact that ours was not the only company she has “hit” was of little consolation.

Still, I can’t help but think of how much time, energy, and money has been spent defending us against charges that resulted through no fault of our own.

So far the implication seemed clear: almost every piece of processing and approving a loan in the mortgage transaction had been affected. My investigation revealed that not only had the loan officer and her team of assistants been at the root of the problem, but the wholesale investor mortgage company, the real estate agent, possibly one of the appraisers, but the credit reporting agency were all involved!

How far did the conspiracy reach?

It seemed incredible to me that the problem could be so systemic. It was the proverbial tar pit: every time I so much as moved, another part of me – and my company – got dirty. At the end of some days I had to ask myself: Was there anyone who wasn’t involved in the conspiracy?

We discovered that certain underwriters working for the wholesale mortgage investor company were waiving standard closing conditions or not asking for standard closing conditions then approving loans giving them the “clear to close” without obtaining the proper required documentation.

Had these underwriters at the wholesale mortgage investor diligently performed their duties by ensuring that each borrower had satisfied the wholesale mortgage investor and FHA’s lending criteria, then a majority number of these loans might never have been closed and funded.

Why do I mention all this? Why have I laid my soul bare for all to see? Please know that I’m not trying to scare you or paint a picture of the real estate mortgage business that is all doom and gloom. It isn’t.

My story, in general, and my book “An American Epidemic, Mortgage Fraud a Serious Business” as well as my “Focus on Fraud” workshops in particular, are designed to arm you with the tools you’ll need to combat the forces of those who would commit fraud. These people cared nothing about my company, me, or the good people they hurt by creating fraudulent loans that lined their pockets and robbed the rest of us of our good names. Their credentials looked great on paper; they talked the talk and even walked the walk, and fooled an experienced business owner who had been in the real estate industry for nearly two decades. And I sadly report that Primero could not and did not survive we closed our doors due solely to this group of “fraudsters”

I guess my point is if it can happen to me, it can happen to you.

But it doesn’t have to…

Together we need to learn what it takes to stop mortgage fraud, not just at our own companies but at every level of the real estate playing field that mortgage fraud exists and to avoid becoming a victim we must be vigilant about combating fraud at every step.

Together we can do just that, if you take proper actions to obtain all the tools you’ll need to prevent yourself from becoming a victim of this increasingly American Epidemic, mortgage fraud.

By Michael S. Richardson, Author, Mortgage Broker, Real Estate Agent
www.preventmortgagefraud.com

One problem with the current system is that the employers are left to determine the authenticity of government identification documents. They are not trained in this task, nor are they capable of doing even a cursory background check.

Sadly, the solution appears to be either have the government issue standard, fool-proof ID (aka national ID card) or support a background check for prospective employees.

Take a look at the tens of thousands of high-paying jobs, with benefits, that have been eliminated from the region in the last seven years. Those jobs have been replaced with part-time, service sector jobs with compensation near the minimum wage.

One does not make mortgage payments and pay for automobile insurance, groceries, health care, and utilities with the money earned from these “chump-change” jobs.

Actually all value is just an assumption, r multitude of assumptions. What is needed is people who believe it these assumptions to be true.

Believing is seeing.

It is all about creating an image or multitude of images which people accept as being true and thus believe.

The tool use is language. Semantics; in spoken, written, printed form. This is the tool of trade for bankers, lawyers, politicians, royalty etc. etc. And these language beliefs are already planted in schools.

Of course one overlooks language, as it is so common in daily life.