Emerging Markets Defined
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
What Are The Emerging Markets?
• • • • • •
Low-to-moderate income. First-time home buyers. Minorities. Immigrants. Women. Untapped markets.
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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Factors in Emerging Markets That Could Contribute to Fraud
• • • •
Borrower Market Environment Loan programs Originator
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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BORROWER and ENVIRONMENT
Immigrants
• • • Foreign born, unfamiliar with home purchase process May be “un-banked” – unfamiliar with financial services Language, cultural differences
Therefore, • Comfort with others sharing their experience, culture and language
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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BORROWER and ENVIRONMENT
Minorities-Native Born
• • Previous experience with financial services, loan denials, Perception/expectation of poor treatment
Leading to
• • Distrust of the “system” Seeking out those who share the race, language, experience
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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Loan Issues
• Too much credit, poor credit, no traditional credit. • Cash to close: not enough, nontraditional sources. • Insufficient income, cash income. • Lack of knowledge. • Lack of affordable housing.
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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Secondary Market Programs That Address Issues Related to Emerging Markets
Fannie Mae, Freddie Mac, Negotiated Loan Programs Features
• • • • • • • 100% LTV $500 “out of pocket” Nontraditional Credit Stated Secondary income Higher ratios Lower credit scores Downpayment assistance allowed up to 105% CLTV
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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Loan Programs Income
Income
• Stated Income Allows for income that is reasonable, but not verified Stated Secondary Income Allows for some income paid in cash Potential Problem Income not “real” but invented to produce desired ratios
•
•
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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Loan Programs Credit
Nontraditional credit Use of “alternate” credit verified through receipts, letter or credit report Rent,utilities,cell phone,insurance, etc Potential Problems
• • Bogus credit references Hidden credit that reflects poor performance
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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Social Security Numbers Are An Issue
Social Security Numbers as a Key to Credit
• • Identity theft is the use of another’s Social Security for purposes of work or credit. “Invented”, Social Security number for purpose of work, establishing credit.
Problem
• Lenders must verify borrower’s identity, accuracy of Social Security number.
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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Loan Programs ITIN-Portfolio
Mortgage Loan Programs • Use ITIN to identify borrower • Tax obligation • Can be used to establish bank account • Can be used in place of invalid social security number Loans are not currently purchased by Fannie Mae and Freddie Mac Loans must be placed in portfolio
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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Loan Programs Subprime
Subprime Lending Applicable to • Borrowers who have lowered credit scores, unsatisfactory credit performance, • Property • Income
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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Result of Subprime
Result • Higher down payment, interest rate, terms, prepayment, escrow requirement Problem • Borrowers can be profiled for a subprime product when it is not necessary
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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Another Form of “Homeownership”
Contract for Deed • Lack of legal documentation • Churning properties • Substandard housing
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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The Trusted Advisor Leads the Homebuyer
Trusted Advisor • Realtor • Broker • Nonprofit • Family, friends, other
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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Originators Point of Sale
Lenders who are eager to reach emerging markets hire originators who reflect the community.
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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What Lenders Can Do?
Background checks before hire Check references Training on product, basic mortgage skills Review of all marketing materials Continued training on ethics, fraud and its consequences • Know your vendors, Realtors, escrow officers • Look for suspicious trends, circumstances, common threads. • • • • •
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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A Final Word
• Today, Emerging Markets is the BUZZ in mortgage lending. • Where there is BUZZ, evildoers will look for opportunity.
National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois
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