0201 US Bank, Inc. installs policy to prohibit funding on flips within 90 days
0201 US Bank, Inc. installs policy to prohibit funding on flips within 90 days
Friday, May 20, 2005
By Jessica Swesey
Inman News
Banks and financial agencies are taking action against property flipping practices that may result in financing a falsely inflated home loan, which can lead to huge financial losses for the institutions.
US Bank Home Mortgage this week implemented an "anti-flipping" policy for conventional home purchases, saying it will no longer fund loans for properties in which the seller has held title for the property for less than 90 days, according to a memo sent out Thursday from US Bank Home Mortgage wholesale operations.
Property flipping has become "a threat to the integrity of the residential real estate industry," the US Bank memo states.
Flipping occurs when a home is bought and then quickly sold at a higher price. Legitimate investors practice flipping to make profits on real estate deals after some repairs or upgrades have been made to the subject property.
However, many mortgage fraud schemes involve flipping properties that have falsely inflated appraisals, enabling crooks to buy cheap and make back two or three times their investment.
In a fraudulent property flip, the lender could end up holding a property worth far less than the mortgage that was funded.
The US Bank policy is set for all conventional loan applications dated June 1, 2005, and after, the memo states.
US Bank representatives weren’t immediately available to provide more details about the anti-flipping policy.
Alex Stenback, a mortgage banker with Prime Mortgage Corp. in Minneapolis, said US Bank’s new anti-flipping policy is "a sign that the big banks are now noticing this is becoming a problem."
Mortgage fraud continues to increase in the United States, with the number of suspicious activity reports to the FBI in 2004 almost triple those in 2003, according to an FBI report.
In 2003, 6,936 suspicious activity reports were made to the FBI, and the number zoomed to 17,127 in 2004, the agency reported.
Stenback, who received the memo from US Bank on Thursday, said he expects other large lenders may soon follow suit.
US Bank’s new policy is positive for the industry, however Stenback cautioned that it won’t eliminate flipping or fraud.
If all the top institutional lenders implement similar 90-day seasoning policies, he said, "You have the subprime market out there waiting in the wings who would be more than happy to finance ’flipped’ properties."
People will still be flipping properties, and inexperienced buyers could end up holding high-cost loans on overvalued properties.
US Bank’s action follows a similar rule the U.S. Department of Housing and Urban Development put in place in 2003 that makes home re-sales occurring within 90 days of the last purchase ineligible for a federal mortgage through the Federal Housing Administration.
The federal housing agency had analyzed examples of predatory lending and found that the most egregious examples of predatory lending were on property flips that occurred within a brief time span, often days.
Freddie Mac, the nation’s second largest mortgage buyer, last October implemented automated property valuation warnings for lenders using its Loan Prospector underwriting system to help them spot and hold funding on potentially fraudulent loans.
The company’s automated valuation model quickly estimates the subject property value for lenders and compares it with the stated value. If the value is excessively high – a common sign of fraud-in-progress – the system will return a feedback message to the underwriter.
Freddie Mac also has an aggressive fraud unit, company spokesman Brad German said.
The company’s anti-fraud efforts have led to more than 100 indictments by federal and state prosecutors, 76 convictions, nearly $75 million in civil judgments and $20 million in criminal restitution orders, and recovery of nearly 70 percent of the company’s fraud losses.
German said the Freddie Mac fraud unit works with state and local law enforcement and provides training to the FBI.
In addition, the mortgage finance company maintains a list of about 255 companies and 464 individuals that are excluded from participating in transactions involving Freddie Mac loans.
Freddie Mac has a toll-free fraud hotline at 800-437-2838 where loan originators and other real estate professionals can report suspected fraudulent activity.
Friday, May 20, 2005
By Jessica Swesey
Inman News
Banks and financial agencies are taking action against property flipping practices that may result in financing a falsely inflated home loan, which can lead to huge financial losses for the institutions.
US Bank Home Mortgage this week implemented an "anti-flipping" policy for conventional home purchases, saying it will no longer fund loans for properties in which the seller has held title for the property for less than 90 days, according to a memo sent out Thursday from US Bank Home Mortgage wholesale operations.
Property flipping has become "a threat to the integrity of the residential real estate industry," the US Bank memo states.
Flipping occurs when a home is bought and then quickly sold at a higher price. Legitimate investors practice flipping to make profits on real estate deals after some repairs or upgrades have been made to the subject property.
However, many mortgage fraud schemes involve flipping properties that have falsely inflated appraisals, enabling crooks to buy cheap and make back two or three times their investment.
In a fraudulent property flip, the lender could end up holding a property worth far less than the mortgage that was funded.
The US Bank policy is set for all conventional loan applications dated June 1, 2005, and after, the memo states.
US Bank representatives weren’t immediately available to provide more details about the anti-flipping policy.
Alex Stenback, a mortgage banker with Prime Mortgage Corp. in Minneapolis, said US Bank’s new anti-flipping policy is "a sign that the big banks are now noticing this is becoming a problem."
Mortgage fraud continues to increase in the United States, with the number of suspicious activity reports to the FBI in 2004 almost triple those in 2003, according to an FBI report.
In 2003, 6,936 suspicious activity reports were made to the FBI, and the number zoomed to 17,127 in 2004, the agency reported.
Stenback, who received the memo from US Bank on Thursday, said he expects other large lenders may soon follow suit.
US Bank’s new policy is positive for the industry, however Stenback cautioned that it won’t eliminate flipping or fraud.
If all the top institutional lenders implement similar 90-day seasoning policies, he said, "You have the subprime market out there waiting in the wings who would be more than happy to finance ’flipped’ properties."
People will still be flipping properties, and inexperienced buyers could end up holding high-cost loans on overvalued properties.
US Bank’s action follows a similar rule the U.S. Department of Housing and Urban Development put in place in 2003 that makes home re-sales occurring within 90 days of the last purchase ineligible for a federal mortgage through the Federal Housing Administration.
The federal housing agency had analyzed examples of predatory lending and found that the most egregious examples of predatory lending were on property flips that occurred within a brief time span, often days.
Freddie Mac, the nation’s second largest mortgage buyer, last October implemented automated property valuation warnings for lenders using its Loan Prospector underwriting system to help them spot and hold funding on potentially fraudulent loans.
The company’s automated valuation model quickly estimates the subject property value for lenders and compares it with the stated value. If the value is excessively high – a common sign of fraud-in-progress – the system will return a feedback message to the underwriter.
Freddie Mac also has an aggressive fraud unit, company spokesman Brad German said.
The company’s anti-fraud efforts have led to more than 100 indictments by federal and state prosecutors, 76 convictions, nearly $75 million in civil judgments and $20 million in criminal restitution orders, and recovery of nearly 70 percent of the company’s fraud losses.
German said the Freddie Mac fraud unit works with state and local law enforcement and provides training to the FBI.
In addition, the mortgage finance company maintains a list of about 255 companies and 464 individuals that are excluded from participating in transactions involving Freddie Mac loans.
Freddie Mac has a toll-free fraud hotline at 800-437-2838 where loan originators and other real estate professionals can report suspected fraudulent activity.
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