Bonnie Wolferd Presentation.ppt

							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   2
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   3
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   4
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   5
        Loan Issues




• Too much credit, poor credit, no
  traditional credit.
• Cash to close: not enough, non-
  traditional sources.
• Insufficient income, cash income.
• Lack of knowledge.
• Lack of affordable housing.




                  National Fraud Issues Conference, May 15—16, 2006, Chicago, Illinois   6
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


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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   8
        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




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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   10
       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   11
        Loan Programs
          Subprime




Subprime Lending Applicable to
• Borrowers who have lowered credit
  scores, unsatisfactory credit
  performance,
• Property
• Income




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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   13
Another Form of “Homeownership”




 Contract for Deed
    • Lack of legal documentation
    • Churning properties
    • Substandard housing




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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   15
        Originators
        Point of Sale




Lenders who are eager to reach
emerging markets hire originators who
reflect the community.




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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.



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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.




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