Wednesday, September 5, 2007

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Texas Residential Mortgage Fraud Task Force Convenes to Address Growing Housing Crisis

AUSTIN – Texas Attorney General Greg Abbott and key officials from state regulatory agencies today convened the Texas Residential Mortgage Fraud Task Force, a strategic partnership intended to improve collaboration among residential mortgage regulators and law enforcement officials. Task force members, including the attorney general and top real estate, banking and consumer credit regulators, will examine how to track and reduce mortgage fraud in Texas.

“Home ownership lies at the heart of the American dream,” Attorney General Abbott said. “To better track and prosecute mortgage fraud, the Texas Residential Mortgage Fraud Task Force will form a strategic alliance between law enforcement and regulatory agencies. We are committed to protecting Texas homeowners and cracking down on mortgage fraud.”

The Texas Residential Mortgage Fraud Task Force was created under House Bill 716, which was authored by Rep. Burt Solomons (R-Carrollton) and Sen. Kip Averitt (R-Waco) during the 80th Legislative Session. The 2007 legislation was intended to reduce false or misleading information on residential home loan applications by increasing cooperation among regulators and requiring new disclosures at closing.

Effective Sept. 1, mortgage lenders, bankers and brokers are required to warn loan applicants about the legal consequences of knowingly supplying false information on a residential loan application. Additionally, with the consent of the local district attorney, the attorney general is granted concurrent jurisdiction to prosecute criminal mortgage fraud cases, including those involving money laundering, loan document falsification, and mail or wire fraud.

“House Bill 716 is designed to more easily catch white collar criminals and put them behind bars where they belong,” State Representative Burt Solomons said. “We must take the necessary steps, including strengthening criminal penalties, to protect consumers and legitimate lenders in the mortgage loan process from fraud.”

“Mortgage fraud is a serious, costly crime, and legitimate home buyers end up paying the price,” State Senator Kip Averitt added. “Through the Residential Mortgage Fraud Task Force, we will form a strategic partnership with local, state and federal officials, enabling law enforcement and state agencies to better track and prosecute mortgage fraud and its perpetrators.”

Criminal mortgage fraud includes illegally inflating property appraisals; concealing a second mortgage from a primary lender; and concealing or stealing a borrower’s identity. Under the Deceptive Trade Practices Act, the OAG has authority to prosecute misleading practices and has recovered millions of dollars for Texans harmed by title scams, undisclosed costs and other unlawful mortgage-related schemes.

State agencies and officials represented on the Texas Residential Mortgage Fraud Task Force include: the Attorney General; the Consumer Credit Commissioner; the Banking Commissioner; the Credit Union Commissioner; the Commissioner of Insurance; the Savings and Mortgage Lending Commissioner; the Texas Real Estate Commission; and the Texas Appraiser Licensing and Certification Board. Under Sec. 402.032 (h) of the Texas Finance Code, the attorney general “shall oversee administration of the task force.”

Earlier this year, the OAG obtained $21 million in restitution for Texans harmed by lending giant Ameriquest Mortgage Co.’s deceptive lending practices. The settlement resolved allegations that Ameriquest and its affiliates did not adequately disclose certain terms to homeowners, including whether loans carried fixed or adjustable rates. According to court documents filed by the OAG, Ameriquest also charged excessive origination fees and prepayment penalties, refinanced borrowers into improper loans and inflated appraisals that qualified borrowers for loans.

In 2006, Attorney General Abbott negotiated a landmark agreement with Green Tree Servicing L.L.C., a Minnesota-based firm that services manufactured housing debts in Texas. Under the settlement, Green Tree agreed to assist more than 1,200 Texas homeowners who may have been issued invalid titles to homes they purchased from more than 115 unlicensed retailers in 2003. In a related move, the Attorney General secured an injunction and asset freeze against the unlicensed sellers.

The Office of the Attorney General has also halted scams purporting to save homeowners’ properties from condemnation. It has also cracked down on various title-related and refinancing scams.

To better assist Texans who are considering a mortgage loan, Attorney General Abbott also added new online resources to the agency’s Web site (www.texasattorneygeneral.gov). The new Web page, “Avoiding Home-Buying Pitfalls and Scams,” provides consumers with specific guidelines about the home-buying process as well as other helpful information. The Web page also helps homeowners recognize “foreclosure rescue” scams, equity-stripping schemes and other pitfalls to avoid when refinancing a home.

The most common pitfalls home buyers should be wary of include:
  • Interest rate surprises. Consumers should ask their lenders for written information to help them compare and select a mortgage. Prospective home buyers should not hesitate to ask questions about the various types of home loans. For example, adjustable rate mortgages (ARM), have interest rates that periodically fluctuate, where fixed rate mortgages keep the same rate through the term of the loan. While many consumers are willing to accept loans with variable interest rates, they should be prepared for those rates – and their payments – to climb in the future. An interest rate that increases by even a couple of percentage points could add several hundred dollars to a monthly mortgage payment, especially early on when the borrower is carrying a large balance.

  • Undisclosed costs. Not all mortgage loans have property taxes rolled into the monthly payment, so consumers should check before closing on the home whether they will have to pay those taxes separately. Consumers may also contact their county appraisal district for an estimate of property taxes. Similarly, while some mortgage loans include home insurance as part of the monthly payment, others might require consumers to obtain and pay the premium separately. If taxes and insurance are included in the monthly payments, these costs can often increase yearly. Thus, even with a fixed interest rate, the monthly cost of home ownership may rise because of taxes or insurance rate increases.

  • Predatory refinancing. Homeowners considering refinancing or the need to take out a home equity loan should carefully read all terms of the agreement. If the new contract is for a variable interest rate, homeowners should ask the lender the amount of monthly payments after the rate has adjusted several times.

  • “Credit clean-up” services. Consumers should be wary of “credit clean-up services,” which are marketed to prospective home buyers who have imperfect credit. Many of these services charge hefty fees for merely sending letters to credit bureaus that question all items in a credit report. Credit bureaus may temporarily remove the entries pending further investigation; however, as creditors confirm the accuracy of the data, the items reappear on the report. Prospective home buyers gain little to nothing from these services. If negative items in a consumer’s credit report are accurate, only time and diligent bill-paying will eliminate them.

  • Title scams. Aspiring home buyers should always use an independent title company to complete their real estate transactions. Title companies conduct important research regarding a property’s legal status. They confirm that prospective home buyers are working with the legitimate property owners – or their representative – and determine whether the property has any outstanding liens, including unpaid taxes or a previous owner’s unpaid mortgage. Consumers should deal directly with a title company and not trust a financing company or seller to act as a go-between.

For more home buying tips, brochures, consumer columns and additional information on the mortgage industry, visit the Office of the Attorney General’s Web site at www.texasattorneygeneral.gov