1. Chapter 1: Financial Crisis

2. Industry Insiders  Collaboration  Collusion  Collaboration  Collusion

3. U.S. Mortgage Fraud  Affects Real Estate Values  Rental Markets  Affects Real Estate Values  Rental Markets State (2005 Data) MARI Fraud Ranking Subprime Loan Rank Florida 11 Utah 22 Georgia 35 Colorado 46 Illinois 54 Missouri 63 Texas 77

4. Mortgage Fraud in the US  Fraud  1974-1975  2000-2005  Fraud  1974-1975  2000-2005

5. Effects of Foreclosures  Boarded Up Homes  Negative Feelings  Difficult to Find Buyers  Lower Tax Appraisals  Eroded Tax Base  Fewer Community Services  Boarded Up Homes  Negative Feelings  Difficult to Find Buyers  Lower Tax Appraisals  Eroded Tax Base  Fewer Community Services

6. Effects of Foreclosures  Foreclosed Property Lowers for 1/8 Mile.9% to 1.44%  Each Foreclosed Property Reduces by 1.8% There Goes the Neighborhood  Foreclosed Property Lowers for 1/8 Mile.9% to 1.44%  Each Foreclosed Property Reduces by 1.8% There Goes the Neighborhood

7. Factors Leading to Foreclosures  Personal Bankruptcy  Poor Loan Servicing  ARM Adjustments  Identity Theft  Mortgage Fraud & Illegal Flipping  Predatory Lending  Personal Bankruptcy  Poor Loan Servicing  ARM Adjustments  Identity Theft  Mortgage Fraud & Illegal Flipping  Predatory Lending www.ftc.gov/idtheft

8. Roles of Professionals  Loan Officers Retail Loan Officer Mortgage Broker  Loan Processors  Underwriters  Appraisers  Wholesale Lenders  Loan Officers Retail Loan Officer Mortgage Broker  Loan Processors  Underwriters  Appraisers  Wholesale Lenders

9. Regulation Trends  Licensing Mortgage Brokers  More Education  Licensing Mortgage Brokers  More Education

10. Chapter 2: Mortgage Basics for Real Estate Licensees

11. Impact of Liens  Promissory/Mortgage Note  Mortgage/Deed of Trust  Promissory/Mortgage Note  Mortgage/Deed of Trust

12. Cost of Borrowing Money Factors  Term of Loan  Time Value of Money  Assessing Borrower’s Borrowing History  Loan Amount  Term of Loan  Time Value of Money  Assessing Borrower’s Borrowing History  Loan Amount Value Time

13. Loan Sources  Government-Assisted Programs  Private Sector Programs  Government-Assisted Programs  Private Sector Programs

14. Loan Types  Fixed-Rate Mortgage (FRM)  Adjustable-Rate Mortgage (ARM)  Fixed-Rate Mortgage (FRM)  Adjustable-Rate Mortgage (ARM)

15. Exotic Loans  Interest-Only (IO) Loans  Pay-Option ARMs  Negative Outcomes  Interest-Only (IO) Loans  Pay-Option ARMs  Negative Outcomes

16. Underwriting Criteria  Income  Credit  Assets/Down Payment  Occupancy  Income  Credit  Assets/Down Payment  Occupancy

17. Alternatives to Traditional Requirements  Full Documentation Loan  Lite Doc/Alt Doc Loan  No Doc Loan  Stated Income Loan  Seller Carryback Loan  Combinations  Full Documentation Loan  Lite Doc/Alt Doc Loan  No Doc Loan  Stated Income Loan  Seller Carryback Loan  Combinations

18. Role of Secondary Market  Primary Market  Secondary Market Securitization Tighter Standards More Losses  Primary Market  Secondary Market Securitization Tighter Standards More Losses

19. Manage Buyer Expectations  Lenders Who Specialize Meet Buyers’ Needs Use Reputable Lenders Avoid Unrealistic Expectations  Lenders Who Specialize Meet Buyers’ Needs Use Reputable Lenders Avoid Unrealistic Expectations

20. Chapter 3 Mortgage Fraud

21. Tracking Suspected Fraud  Financial Crimes Enforcement Network (FinCEN)  Financial Institution Fraud Unit (FIFU)  Suspicious Activities Reports (SARs)  Suspicious Mortgage Activity Report (SMARt Form)  Financial Crimes Enforcement Network (FinCEN)  Financial Institution Fraud Unit (FIFU)  Suspicious Activities Reports (SARs)  Suspicious Mortgage Activity Report (SMARt Form)

22. Mortgage Fraud  Define Deception, False Facts Collusion, False Premises Lying  Types Fraud for Housing Fraud for Profit (& Business)  Define Deception, False Facts Collusion, False Premises Lying  Types Fraud for Housing Fraud for Profit (& Business)

23. Penalties for Fraud  Conspiracy One Time Looking the Other Way  Examples Lying on Loan Application Lying about Purchase Price  Conspiracy One Time Looking the Other Way  Examples Lying on Loan Application Lying about Purchase Price

24. Red Flags Possible Mortgage Fraud  Shady Practices  Dual Contracts  Hidden Addenda  Silent Mortgage  Shady Practices  Dual Contracts  Hidden Addenda  Silent Mortgage

25. Red Flags Possible Mortgage Fraud  Inflated Appraisals  False Information on Applications  Rebates to Borrowers  Creative Financing  Inflated Appraisals  False Information on Applications  Rebates to Borrowers  Creative Financing

26. Fiction or Fact?  Hypothetical Situation  Real-Life Example Casey Serin Lived on Cash Back Foreclosures Fudge on Intent to Live Etc.  Hypothetical Situation  Real-Life Example Casey Serin Lived on Cash Back Foreclosures Fudge on Intent to Live Etc.

27. Chapter 4 Predatory Lending

28. Dilemma for Low Income & Poor Credit  Federal Housing Administration (FHA) Loans Not Kept Pace Lost Market Share  Growth of Subprime Market Concentration of Credit Problems Little or No Credit History  Federal Housing Administration (FHA) Loans Not Kept Pace Lost Market Share  Growth of Subprime Market Concentration of Credit Problems Little or No Credit History

29. Signs of Predatory Lending  Subprime Not Always Predatory  Legal Interests Not in Best Interest of Borrower  Lack of Competition from Prime Lenders  Subprime Not Always Predatory  Legal Interests Not in Best Interest of Borrower  Lack of Competition from Prime Lenders

30. Subprime Lending Practices  Higher Interest Rates  Adjustable Rate Mortgages (ARMs)  Excessive Origination & Closing Fees  Prepayment Penalty Fees  Binding Mandatory Arbitration (BMA)  Yield Spread Premiums (YSPs) as Kickbacks  Higher Interest Rates  Adjustable Rate Mortgages (ARMs)  Excessive Origination & Closing Fees  Prepayment Penalty Fees  Binding Mandatory Arbitration (BMA)  Yield Spread Premiums (YSPs) as Kickbacks

31. Steering & Targeting  Elderly  Racial Profiling  Immigrants  Those with Low Credit Scores  Flipping Loans  Unnecessary Products  Misleading or No Information about Loans  Elderly  Racial Profiling  Immigrants  Those with Low Credit Scores  Flipping Loans  Unnecessary Products  Misleading or No Information about Loans

32. Changing the Climate  Automated Underwriting Systems  More Regulation  Prohibit Appraisal Fraud  Consumer Education  Automated Underwriting Systems  More Regulation  Prohibit Appraisal Fraud  Consumer Education

33. HUD Borrower’s Bill of Rights

34. Chapter 5 Illegal Flipping

35. Real Estate Flips  Positive Effects Gentrification Construction Jobs Increase Tax Base  Negative Effects Locals Forced Out Tenants Displaced  Positive Effects Gentrification Construction Jobs Increase Tax Base  Negative Effects Locals Forced Out Tenants Displaced

36. Real Estate Flips  Equitable Title Beneficiary Developer Foreclosed Property Purchaser Vendee in Installment Sale  Back-to-Back Closings  Equitable Title Beneficiary Developer Foreclosed Property Purchaser Vendee in Installment Sale  Back-to-Back Closings

37. Illegal Flipping  Schemes Use of Kickbacks Fake Documents Straw Buyers False Identities  Real-Life Examples  Schemes Use of Kickbacks Fake Documents Straw Buyers False Identities  Real-Life Examples

38. Signs of Illegal Flipping  Lender Fraud  Possible Activities Deed Not in Seller’s Name & Lender Unaware Owned for Short Period Seller Orders Appraisal Rapid Increase in Value Unusual Payments  Lender Fraud  Possible Activities Deed Not in Seller’s Name & Lender Unaware Owned for Short Period Seller Orders Appraisal Rapid Increase in Value Unusual Payments

39. Magnitude of Fraud  All Parts of Country  Real-Life Examples Connecticut Southern California Twin Cities, MN  All Parts of Country  Real-Life Examples Connecticut Southern California Twin Cities, MN

40. Results of Illegal Flipping  Neighborhood Responses  Housing & Urban Development (HUD)  Illinois Efforts  Neighborhood Housing Services of America (NHSA)  Georgia Real Estate Fraud Prevention & Awareness (GREFPAC)  Neighborhood Responses  Housing & Urban Development (HUD)  Illinois Efforts  Neighborhood Housing Services of America (NHSA)  Georgia Real Estate Fraud Prevention & Awareness (GREFPAC)

41. Federal & State Involvement  Financial Institution Fraud Unit (FIFU)  States w/ Most Reported Fraud Florida Colorado & Illinois  Greatest Improvement Georgia South Carolina  Financial Institution Fraud Unit (FIFU)  States w/ Most Reported Fraud Florida Colorado & Illinois  Greatest Improvement Georgia South Carolina

42. Fraud vs. Subprime Loan Rates State (2005 Data) MARI Fraud Ranking Subprime Loan Rank Florida 11 Utah 22 Georgia 35 Colorado 46 Illinois 54 Missouri 63 Texas 77

43. Protect Against Illegal Flipping  Know Market  Use Competitive Market Analysis (CMA)  Thoroughly Inspect  Know Extent of Repairs  Meticulous Documentation  Know Market  Use Competitive Market Analysis (CMA)  Thoroughly Inspect  Know Extent of Repairs  Meticulous Documentation

44. Chapter 6: Federal Protections  Fair Housing Act  Equal Credit Opportunity Act (ECOA)  Home Mortgage Disclosure Act (HMDA)  Community Reinvestment Act (CRA)  Real Estate Settlement Procedures Act (RESPA)  Truth –in-Lending Act (TILA)  Fair Housing Act  Equal Credit Opportunity Act (ECOA)  Home Mortgage Disclosure Act (HMDA)  Community Reinvestment Act (CRA)  Real Estate Settlement Procedures Act (RESPA)  Truth –in-Lending Act (TILA)

45. Educate Buyer Borrowers  HUD Web Site  HUD Pamphlet English Spanish  HUD Web Site  HUD Pamphlet English Spanish

46. Real Estate Settlement Procedures Act (RESPA)  Federally-Related Residential Loans  Disclosures at Time of Application Information Booklet Good-Faith Estimate (GFE) Affiliated Business Arrangement (AfBA) Seller Cannot Require Certain Title Insurance Company  Federally-Related Residential Loans  Disclosures at Time of Application Information Booklet Good-Faith Estimate (GFE) Affiliated Business Arrangement (AfBA) Seller Cannot Require Certain Title Insurance Company

47. RESPA (continued)  Prohibits Kickbacks  Disclosures at Settlement/Closing  Disclosure After Settlement/Closing Escrow Account Rules Servicing Transfer Statement  Prohibits Kickbacks  Disclosures at Settlement/Closing  Disclosure After Settlement/Closing Escrow Account Rules Servicing Transfer Statement www.realtor.org

48. RESPA Enforcement  Section 6: Servicing of Loans  Section 8: Anti-kickbacks & Unearned Referral Fees  Section 9: No Specific Title Insurance Company  Section 10: Limits on Escrow Accounts  Section 6: Servicing of Loans  Section 8: Anti-kickbacks & Unearned Referral Fees  Section 9: No Specific Title Insurance Company  Section 10: Limits on Escrow Accounts

49. RESPA Enforcement  Injunctive Relief  File a Complaint with HUD In Writing Confidentiality  Injunctive Relief  File a Complaint with HUD In Writing Confidentiality

50. Truth-in-Lending Act (TILA)  Implemented by Regulation Z  No Coverage Business, Commercial, Agricultural, Organizational Loans More than $25,000 Loan Student Loan Programs  Implemented by Regulation Z  No Coverage Business, Commercial, Agricultural, Organizational Loans More than $25,000 Loan Student Loan Programs

51. Truth-in-Lending Act (TILA)  Right of Rescission  Trigger Items  Penalties Fines Imprisonment  Missing Information from Disclosure  Right of Rescission  Trigger Items  Penalties Fines Imprisonment  Missing Information from Disclosure

52. Home Mortgage Disclosure Act (HMDA)  Implemented by Reg C  Monitors Reporting of Loan Data Serving Community Needs? Investments Attracting Private Investments? Possible Discriminatory Lending Patterns?  Implemented by Reg C  Monitors Reporting of Loan Data Serving Community Needs? Investments Attracting Private Investments? Possible Discriminatory Lending Patterns?

53. Community Reinvestment Act ( CRA )  Regulations 12 CFR  Meet Credit Needs of Community  Loan Applicants Asked Ethnicity, Race, & Color Applicants Should Answer Honestly Used to Monitor Compliance  Regulations 12 CFR  Meet Credit Needs of Community  Loan Applicants Asked Ethnicity, Race, & Color Applicants Should Answer Honestly Used to Monitor Compliance

54. Tips for Real Estate Licensees  Know the Laws  Find Buyers Earlier Help Find Appropriate Lender Manage Expectations  Know the Laws  Find Buyers Earlier Help Find Appropriate Lender Manage Expectations

55. Reporting Appraisal & Mortgage Fraud  Federal Bureau of Investigation (FBI)  Federal Trade Commission (FTC)  Dept of Housing and Urban Development (HUD)  Department of Justice (DOJ)  Federal Bureau of Investigation (FBI)  Federal Trade Commission (FTC)  Dept of Housing and Urban Development (HUD)  Department of Justice (DOJ)