Occupancy fraud is a type of mortgage fraud that occurs when borrowers, or someone acting on behalf of borrowers, misrepresents whether they plan to live at the property. Following behind occupancy fraud were schemes involving hidden debt, which occurred in 31.6 percent of all claims, the Prieston Group said. Employment fraud was found in 30.3 percent of all claims, and straw borrowers were found in 12.9 percent of all claims.

“Although occupancy fraud was the most commonly reported type of fraud during the first half of this year, we often find that claims contain multiple types of fraud and involve multiple people,” said Arthur Prieston, chairman of TPG. “Recognizing all the fraud in a particular file is essential in identifying fraud schemes.”

TPG’s data said that reliance on automated fraud detection tools is clearly not enough. Nearly 80 percent of claims filed with TPG’s PBIS Insurance Services program involved loans screened by such detection tools. “Since we are standing side-by-side with lenders absorbing fraud losses, we support any tool that can reduce the incidence of fraud,” Prieston said. “However, our internal data show that tools alone are clearly not enough.”

To better arm its members against mortgage fraud, the Mortgage Bankers Association  launched the Mortgage Fraud Against Lenders Resource Center (http://mbafightsfraud.mortgagebankers.org) in April. This site is designed to be a one-stop shop for lenders to gather the information and tools they need to combat this problem. It is a cooperative effort by lenders in the industry to share information, provide input and understand the processes involved in curbing instances of fraud.

The Resource Center includes:
 • Fraud alert updates on emerging fraud schemes;
• News and Updates from Washington D.C. and across the country about fraud;
• A Lender Tool Box containing resources that can be employed by lenders in protecting themselves from being the victims of fraudulent acts;
• Resource library of reports and helpful links;
• Comprehensive list of state and federal agencies where lenders can file reports of fraud; and
• Information on educational programs focused on fraud.

Over the next few months, more components to the Resource Center are expected to be added further expanding its capabilities.
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Hurricane Katrina

(Orawin Velz is director of economic forecasting in the Mortgage Bankers Association’s economics and research department. She provides commentary and analysis on key monthly economic indicators. She can be reached at ovelz@mortgagebankers.org.)
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Effective January 1, the 12 CFR 226.32 points and fees trigger is the greater of   $528 or 8 percent of the total loan amount. This change can be found in the Regulation Z Commentary at 226.32(a)(1)(ii)–2, which lists the annual adjustments.

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Impac Funding Corp. (IFC) and Impac Warehouse Lending Group (IWLG), Newport Beach, Calif., launched a new Broker-to-Banker program designed to ease the transition from mortgage broker to mortgage banker. The new program will provide qualifying brokers with customized warehouse lines of credit and same-day funding capability with up to 100 percent financing on all loans sold to Impac.

Impac’s Broker-to-Banker program includes up to 100 percent financing; same-day fundings; online reporting; $3 million start-up warehouse line of credit; correspondent lending (flow & bulk delivery); and programs from Full Doc to No Doc.

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San Diego–based SNH, the parent company of SettlementOne and National Mortgage Reporting, announced the elimination of National Mortgage Reporting. All of National Mortgage Reporting’s functions and staff will now be part of the newly created SettlementOne Credit Division. 

The newly restructured SettlementOne, will continue to offer its services, but will be bundled to compliment SettlementOne’s settlement services including; title, closing, flood certification, AVM and appraisals. SettlementOne will relaunch over the next few months, introducing a new product for the lending industry and opening several more branches nationwide.
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Standard & Poor's Ratings Services, New York, said New Orleans has the greatest amount of CMBS collateral affected by Katrina, but it expects servicers to advance at least for the “first couple of months, even if they are unable to contact borrowers and assess the damage, as long as the peril-appropriate insurance policy is in effect and provides adequate coverage to recover the advance.”

“All the master servicers will most likely advance for the next month or two for all delinquent principal and interest until we get a better handle on the situation,” said Tim Mazzetti, executive vice president at Midland Loan Services, Overland Park, Kan.

However, S&P said commercial servicers will need to track insurance and find out if the amount of damage is covered or if some assets have uncovered losses. Based on discussions with servicers, the ratings agency said there could be many loans with underinsured flood losses and insurance reimbursements and negotiations are going to be a slow process, particularly in the case of floods, similar to the hurricanes of 2004.

Servicer analyst Michael Merriam , a director in the servicer evaluations group at S&P, said no servicer stressed an immediate need for additional insurance administration staff based on the increased workload brought on by Hurricane Katrina. "So far, servicers tell us that the biggest challenge they anticipate will be completing property damage assessments and pursuing subsequent insurance claims," Merriam said.

Mazzetti said there is very often a gap between maximum flood insurance allowed by the Federal Emergency Management Agency [FEMA] and the necessary flood insurance coverage. “Most mortgage documents only require [borrowers] to carry the available flood insurance. Therefore, there may be a gap between [coverage] provided by flood [insurance] and [coverage] by the normal property and casualty insurance policy.”

For example, the Hyatt Regency New Orleans, with a total allocated balance of $95.05 million, has maximum flood insurance available per the policy of $2.5 million. It is one of three properties in the Strategic Hotel portfolio that has four pari passau A-notes in four transactions. Pari passau notes tend to be large and complex CMBS loan structures.

A J.P. Morgan report, “Commercial Property Insurance De-Mystified,” said FEMA classifies areas exposed to Hurricane Katrina as eligible for public and private assistance, or eligible only for public assistance. According to FEMA, areas that qualify for public and private assistance have been declared a “major disaster area” which includes 31 parishes (counties) in Louisiana. Under this program, individuals, families and businesses may be eligible for federal assistance if they live, own a business or work in a county declared a major disaster area, incur sufficient property damage or loss and, depending on the type of assistance, do not have the insurance or other resources to meet their needs. 

“This is the type of stuff that takes months,” Mazzetti said, adding that information will come into commercial servicers in bits and pieces. “It will be months before servicers, ratings agencies and investors get a better handle as to the extent of the damage and the potential payments. That is just the nature of the process.”

The protocol for servicers includes identification of loans affected by Hurricane Katrina and sending the data out to ratings agencies and investors. Then, servicers contact borrowers and property managers to discover the extent of the damage. S&P contacted a number of its ranked commercial mortgage servicers last week and found that many are already focused on these tasks. "All of the servicers have been generally successful in readily identifying potentially affected loans," Merriam said. "They are also being appropriately aggressive in their efforts to establish communication with borrowers."

Mazzetti said Midland already went into its systems, pulled portfolios with county and zip code information concurrent with FEMA counties declared as “state of emergency” areas and sent the information to ratings agencies and investors. “Then we have an internal process which is very time consuming, but we start dialing for dollars. We start calling property managers, calling borrowers and start trying to find out what is going on. It will easily be 30 to 60 days before we have a good handle on properties that have sustained damage and how much [damage],” Mazzetti said. “Phone lines are just now starting to come back up. In many cases, there is still no electricity. In most cases, no one is even down at the property and will not be down there for weeks or maybe months, especially in the New Orleans area because of the levees and the flooding.”

According to S&P, servicers with loans in the disaster region report that pinpointing the exact degree of collateral damage remains an ongoing challenge that will likely take much more time to determine. A few servicers are contending with default situations correlated to properties with significant damage and the process to transfer other loans to special servicing is already underway, the ratings agency said.

Mazzetti said a number of businesses will no longer be up and running following this disaster. Midland will need to look at these situations on a case-by-case basis. “Insurance should cover a number of the gaps,” Mazzetti said. “Last year, with the hurricanes in Florida, [insurance companies] basically stepped up to the plate like may did after 9/11 and basically covered the gap so there were not many uninsured losses.”
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Meeting highlights include:

• Deal Making MarketPlace – Meet with the following lenders all ready, willing and able to make deals:

Capital Source, CIBC World Markets, Column Financial, GMAC, Hypo Real Estate Corp., KeyBank Real Estate Capital, LaSalle Bank, LEM Mezzanine, Inc., MetLife, Mezz Cap, Perseus Realty Partners, Prudential Mortgage Capital Co., TerraCapital Partners LLC, Tremont Realty Capital, Wells Fargo.

• Guest Speakers – R. Glenn Hubbard, former chairman of the White House Council of Economic Advisors; Jay Cross, president of the New York Jets.

• Panel Discussions:
Equity Options in a Low Cap Environment – Find out where and how today’s most active acquirers source equity for their businesses.

Fill ‘Er Up With 100 percent Financing – Mezzanine money and preferred equity capital are all now available. Talk to the players in this part of the capital structure and understand the costs, risks and guarantees that may or may not be required.

Permanent Financing Outlook – Fixed-rate loans come from a variety of lenders with a variety of structures. What can you expect in 2006? Will lenders continue to be aggressive?

For meeting details and registration information, visit www.icsc.org/2005CF or call (646) 728-3800.
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DBBM provided 70 percent financing on the loan with a nine-year fixed rate plus one-year floating rate financing that is open to prepayment without premium during the floating rate period and a full-term interest-only feature. DBBM provided an early rate lock for the interest-only loan.

The borrower intends to spend more than $5 million to fully rehabilitate the units, the property exterior and the landscaping. The improvements should allow the borrower to capitalize on rising property values and strong occupancy levels in the Tampa/Sarasota area.

DBBM also provided a $13.7 million Fannie Mae loan for the refinancing of Cross Creek Apartments, a 225-unit garden-style property located in Richmond, Va. It is the third time that DBBM has financed the property.

The loan was provided over a 10-year term and was underwritten to the actual all-in interest rate of 5 percent. DBBM said the refinancing allowed the borrower to significantly reduce the existing interest rate and to cash out some of the equity which had built-up in the property.

DBBM said Fannie Mae’s streamlined refinance process, which involved reduced documentation and a rapid underwriting process, allowed it to rate-lock and close the transaction quickly.
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Have you started using your MBA Membership Directory?  If you have, then you have experienced first-hand the value of the information now available at the stroke of a finger. If not, start today!  To receive your member access, please contact Venita Murray, senior membership specialist, at (202) 557-2845 (vmurray@mortgagebankers.org).

Please take a moment to review your company listing.  MBA updates the Directory monthly, and you can make changes to your listing at any time.

Updating your profile is easy.  Just visit http://mymba.mortgagebankers.org and enter the username and password that was provided in a recent email from Venita Murray.  At this site, primary contacts or a representative of your company can:

* Update company information;
* Register additional users to the Directory (all staff members can use one CD to load the Directory).
* Manage MBA subscriptions such as Mortgage Banking magazine, and more.

Changes made to corporate profiles are uploaded to the membership directory on a weekly basis.  Each month, users are prompted to update their directory.  Accepting this prompt will load all changes that have been made and will provide you with the most up-to-date details regarding not only your company, but all MBA members.  Keeping your company profile updated guarantees that the most current information is being displayed and accessed by your peers in the industry.

But, please don’t stop there: share this valuable networking tool with all of your employees. Simply take a moment to register any and all staff members via http://mymba.mortgagebankers.org and pass your CD along to other staff members so that they too can download the Directory.
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MBA Participates in Congressional Roundtable on Hurricane Katrina
The effects of Katrina continued to be felt on Capitol Hill this week as planned committee hearings and political events fell by the wayside.  Members of the Financial Services and Banking Committees attempted to come to grips with the scale of physical destruction and disruption to the financial services sector through a series of briefings with federal financial regulators and trade groups that included the Mortgage Bankers Association .  We informed Congress that MBA is running public advertisements to inform consumers of the grace periods that MBA's members are offering and suggested that Congress consider improving aid in a few key programs and revising policy in other areas.

MBA suggested that FHA 203(h) and (k) programs could be an effective way for consumers to obtain financing to rehabilitate existing properties or acquire new housing.  Also, the HOME program and American Dream Downpayment assistance might prove useful to fund temporary housing or a downpayment while equity is locked up in a non-habitable destroyed home until insurance claims are settled.

Importantly, MBA informed Congress that there will be some percentage of the 360,000 mortgages in the storm damage area that will not be appropriately insured, particularly in the flooded areas of New Orleans. Addressing this development will be a top priority for MBA in the coming weeks as Congress continues to formulate its response to Katrina.

For more information, please contact Erick Gustafson at (202) 557-2913 (egustafson@mortgagebankers.org).

HMDA Data to be Released
We expect the Federal Reserve to release its long-awaited report on the Home Mortgage Disclosure Act (HMDA) data early next week.

MBA has been actively engaged this year in efforts to educate policymakers about the new HMDA data requirements, meeting with members of Congress and the Bush Administration to inform them that allegations of discrimination cannot be determined based on HMDA data because the data do not include risk-based pricing information such as credit scores or loan-to-value ratios.

For more information, please contact Ken Markison at (202) 557-2930 (kmarkison@mortgagebankers.org).

HUD Launches Effort to Assist Hurricane Victims
On Wednesday, HUD announced the creation of a single toll-free number (1-888-297-8685) that victims of Hurricane Katrina may contact with housing concerns. In addition to establishing the hotline, HUD has declared a 90-day moratorium on foreclosures of FHA properties in the disaster areas, and is encouraging lenders to take actions such as waiving late charges.

HUD is also working to address the immediate needs of victims whose homes have been damaged or destroyed, and has reached out to a number of private sector partners to assist in these efforts. On Thursday, the Department announced a partnership with the U.S. Conference of Mayors and the National Association of Counties to identify available homes to temporarily house displaced families.

More information is available at www.hud.gov/katrina

Freddie Mac Takes Steps to Aid Borrowers in Gulf States
Freddie Mac announced on Thursday that it would grant a temporary three-month suspension of mortgage payments for all borrowers with Freddie Mac-owned single-family mortgages in Federal Emergency Management Agency (FEMA)-designated disaster zones.  Following the three-month suspension, Freddie Mac is allowing servicers to continue suspending or reducing payments on Freddie Mac-owned mortgages on a case-by-case basis for an additional nine months. 

Additional Cosponsors Secured on REMICs Legislation
This week, two additional cosponsors signed onto H.R. 1010, sponsored by Reps. Mark Foley, R-Fla., and Earl Pomeroy, D-ND. The new cosponsors are Rep. Thomas Reynolds, R-NY, and Mark Souder, R-Ind., bringing the total number of cosponsors to 26.  H.R. 1010 would modernize Real Estate Mortgage Investment Conduits (REMICs) tax law. 

REMIC modernization is one of MBA's advocacy priorities for 2005.  Passage of H.R. 1010 will help to spur new economic growth and employment by enhancing the ability of commercial property owners to upgrade buildings after the mortgage has been securitized without the need for costly tax opinions.  MBA will continue to monitor the bill's progress and will continue to work to secure additional cosponsors.  

For more information, please contact Josh Denney at (202) 557-2816 (jdenney@mortgagebankers.org)

MBA Hosts Successful Regulatory Compliance Conference
On September 8 and 9, MBA hosted its annual Regulatory Compliance Conference in Washington, D.C. Rep. Paul Kanjorski, D-Pa., addressed the nearly 600 attendees at the conference's opening general session. Later in the day, attendees heard from representatives of HUD, the Federal Trade Commission, the Federal Reserve Board, and the Office of the Comptroller of the Currency.

For more information, please contact Ken Markison at (202) 557-2930 (kmarkison@mortgagebankers.org).
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