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| Jerome Mayne |
Contact:
612-919-3007
E-mail
9185 Cedar Forest Rd.
Eden Prairie, MN 55347
612-919-3007
9185 Cedar Forest Rd.
Eden Prairie, MN 55347
Creative Fraud 101
By Jerome Mayne
I recently delivered a keynote speech at a mortgage convention and tradeshow dealing
with the real life consequences of committing fraud. About an hour before my talk, I took a
stroll around the exhibitor’s booths checking out all the latest in mortgage programs.
It had been a while since I actually originated loans so I was not really up to speed on the
flexibility of today’s mortgage product guidelines. I stopped at the booth of a well known
wholesale lender to brush up. Since a friend of mine is interested in refinancing her
investment property, I thought I’d check out their loan programs; learn the latest loan to
value limits.
The guy behind the booth told me that they’d go as high as 90% Loan To Value on a rate
and term or a cash-out refinance on an investment property. I thought that was pretty
good. I thanked the young man and turned to leave. I must have seemed unimpressed
because he stopped me before I could continue on my stroll.
He said, “Well, we can go to 95% if it’s a second home.” Then I replied, “It’s not a second
home. She just rents it out. Thanks.” I turned again to walk away.
This should have been the end of it, but this guy wouldn’t let me go. He said, “Wait, how far
is it from her primary residence?” I told him it was over 150 miles. Then he asked, “What’
s the value of her primary residence compared to this investment property?”
Okay, I could see where he was going with this. I haven’t been out of it that long. He was
trying to see if this deal would “make sense” to his underwriters. If this other property was
not worth as much as her primary residence, and if it was a significant distance away, then
it is conceivable he could call it her “second home”. This is typically how an underwriter
would scrutinize this type of transaction.
I was now curious to see how far this guy was going to take it. I answered his question by
telling him that her investment property was about half the value of her primary residence.
Clearly proud of the facts he had just uncovered, he proclaimed that this was definitely a
loan that he could do as a second home refi at 95% LTV.
I wanted to give him an opportunity to back out of this quagmire he had created for
himself. I responded, “But it’s not her second home. She doesn’t ever stay there.” He
then explained how the value and the distance would “make sense” to the underwriter.
Apparently this guy wasn’t getting it. I turned fully toward him and looked him straight in the
eyes. I said, “She doesn’t live or stay there. Ever. She rents it out 100% of the time. She
tells me that she will never ever live there.” His only response to me was a shrug of the
shoulders and a flip, “I guess it just depends on how creative she wants to be.” He then
moved on to the next potential co-conspirator who had just stepped up to his booth.
I just had to walk away.
“Creative?” What he was suggesting isn’t creative financing. Creative financing is when a
loan officer puts to use his vast base of product knowledge and his solid understanding of
the guidelines. A good “creative” loan officer is one who knows how to take a borrower’s
uncommon financial picture and find a mortgage loan that meets her needs. Put a square
peg into a round hole; not by force or deception, but with skill and finesse. Creative
financing does not involve the withholding or the misrepresentation of information.
Especially information that is pertinent to the lender making the loan.
There are reasons why lenders have guidelines. The money that the customer borrows
comes from somewhere. When it is all said and done, it is actually someone’s money.
Ultimately these people, the Money People, trust the lender to be the gate keeper of their
money. The lender promises to only open the gate if certain circumstances and conditions
exist. The Money People may say, for example, that they don’t want to lend more than
90% to someone who doesn’t actually live in the home (non-owner occupied). Why? They
have done research and found that, among other things, people are more likely to default
on a loan if that loan isn’t securing the roof over their head.
So, let’s just say Mr. Creativity submits an application on behalf of his client, Ms. Liar. The
application says that Ms. Liar is going to live in the home that she’s actually going to rent
out, and she wants to borrow 100% of the purchase price. Based on this information, the
lender opens the gate and lends the money that has been entrusted to them.
Four months later, Ms. Liar defaults on her loan because she can’t find a decent tenant.
The Money People have now stopped getting principal and interest payments, so they call
the lender to find out if the guidelines were followed. The lender (now a fraud victim) says
they thought they followed the guidelines but as it turns out, Ms. Liar has never lived there.
They said that they relied on the information they received from the applicant. If they had
known the truth, they never would have made the loan to Ms. Liar.
Now the Money People (fraud victims) want the lender to return their money (buyback).
The lender talks to Ms. Liar to find out why she said she was going to live there but never
did. Ms. Liar tells the lender that it was all Mr. Creativity’s idea. Mr. Creativity says that he
didn’t tell Ms. Liar to do anything. This is known as the finger-pointing portion of the fraud.
The lender decides to launch an investigation. They review all of Mr. Creative’s closed
loans. They discover he’s had a number of similar transactions in the past. No defaults
yet, but misrepresentation nonetheless. The FBI gets called in. A few months later Mr.
Creativity is hauled out of the office in handcuffs.
That’s why lenders have guidelines.
I walked away from that booth without any doubt in my mind that Mr. Creativity has put
together many transactions just like this one. I wondered, “who trained him? Has he
trained anyone else? Does he realize this is wrong? Does he know it’s wrong but doesn’t
think it’s a big deal? Has he seen much worse around his office, and therefore thinks, ‘this
isn’t as bad as forging a signature’? Does he know that people go to prison for much
less? Does he have kids? Does he know how he would explain his 21 month absence
from home to his three year old if he went to prison? Would he find a better way to explain
it than I did?”
The worst part of a federal fraud conviction is not prison. Of course, prison isn’t great. I
don’t care how much fun we all think Martha Stewart had in there putting together
decorating contests. I was there, and I just don’t remember it being that fun. It’s no picnic
being stuck living with hundreds of men who don’t have personal hygiene anywhere on
their priority list. Then there’s the loss of freedom, etc., etc., etc.
No, the worst part about a federal fraud conviction is the unwritten sentence. The true
consequences of committing fraud are the loss of respect in your industry, the loss of self
esteem, the loss of a career and the fact that even though it was you who did something
wrong, everyone else close to you has to go through the same thing too.
About an hour after I parted company with Mr. Creativity, I addressed the group in the
convention hall. I gave my talk on the real life consequences of committing fraud. I kept an
eye out for Mr. Creativity but didn’t see him. I hope he was there. He’s the reason I was
asked to come and speak.
Jerome Mayne is a keynote speaker and author. He has worked with dozens of companies and associations
around the country helping their people make the right decisions, when the right decisions aren’t easy. He is a
member of the National Speakers Association as well as the Real Estate Educators Association. He’s the author
of the book, Life Saving Lessons – The Diary of a White Collar Criminal and co-author of Mortgage Fraud and
Predatory Lending – what every agent should know (Kaplan Publishing). .
© Copyright, Jerome Mayne 2010
By Jerome Mayne
I recently delivered a keynote speech at a mortgage convention and tradeshow dealing
with the real life consequences of committing fraud. About an hour before my talk, I took a
stroll around the exhibitor’s booths checking out all the latest in mortgage programs.
It had been a while since I actually originated loans so I was not really up to speed on the
flexibility of today’s mortgage product guidelines. I stopped at the booth of a well known
wholesale lender to brush up. Since a friend of mine is interested in refinancing her
investment property, I thought I’d check out their loan programs; learn the latest loan to
value limits.
The guy behind the booth told me that they’d go as high as 90% Loan To Value on a rate
and term or a cash-out refinance on an investment property. I thought that was pretty
good. I thanked the young man and turned to leave. I must have seemed unimpressed
because he stopped me before I could continue on my stroll.
He said, “Well, we can go to 95% if it’s a second home.” Then I replied, “It’s not a second
home. She just rents it out. Thanks.” I turned again to walk away.
This should have been the end of it, but this guy wouldn’t let me go. He said, “Wait, how far
is it from her primary residence?” I told him it was over 150 miles. Then he asked, “What’
s the value of her primary residence compared to this investment property?”
Okay, I could see where he was going with this. I haven’t been out of it that long. He was
trying to see if this deal would “make sense” to his underwriters. If this other property was
not worth as much as her primary residence, and if it was a significant distance away, then
it is conceivable he could call it her “second home”. This is typically how an underwriter
would scrutinize this type of transaction.
I was now curious to see how far this guy was going to take it. I answered his question by
telling him that her investment property was about half the value of her primary residence.
Clearly proud of the facts he had just uncovered, he proclaimed that this was definitely a
loan that he could do as a second home refi at 95% LTV.
I wanted to give him an opportunity to back out of this quagmire he had created for
himself. I responded, “But it’s not her second home. She doesn’t ever stay there.” He
then explained how the value and the distance would “make sense” to the underwriter.
Apparently this guy wasn’t getting it. I turned fully toward him and looked him straight in the
eyes. I said, “She doesn’t live or stay there. Ever. She rents it out 100% of the time. She
tells me that she will never ever live there.” His only response to me was a shrug of the
shoulders and a flip, “I guess it just depends on how creative she wants to be.” He then
moved on to the next potential co-conspirator who had just stepped up to his booth.
I just had to walk away.
“Creative?” What he was suggesting isn’t creative financing. Creative financing is when a
loan officer puts to use his vast base of product knowledge and his solid understanding of
the guidelines. A good “creative” loan officer is one who knows how to take a borrower’s
uncommon financial picture and find a mortgage loan that meets her needs. Put a square
peg into a round hole; not by force or deception, but with skill and finesse. Creative
financing does not involve the withholding or the misrepresentation of information.
Especially information that is pertinent to the lender making the loan.
There are reasons why lenders have guidelines. The money that the customer borrows
comes from somewhere. When it is all said and done, it is actually someone’s money.
Ultimately these people, the Money People, trust the lender to be the gate keeper of their
money. The lender promises to only open the gate if certain circumstances and conditions
exist. The Money People may say, for example, that they don’t want to lend more than
90% to someone who doesn’t actually live in the home (non-owner occupied). Why? They
have done research and found that, among other things, people are more likely to default
on a loan if that loan isn’t securing the roof over their head.
So, let’s just say Mr. Creativity submits an application on behalf of his client, Ms. Liar. The
application says that Ms. Liar is going to live in the home that she’s actually going to rent
out, and she wants to borrow 100% of the purchase price. Based on this information, the
lender opens the gate and lends the money that has been entrusted to them.
Four months later, Ms. Liar defaults on her loan because she can’t find a decent tenant.
The Money People have now stopped getting principal and interest payments, so they call
the lender to find out if the guidelines were followed. The lender (now a fraud victim) says
they thought they followed the guidelines but as it turns out, Ms. Liar has never lived there.
They said that they relied on the information they received from the applicant. If they had
known the truth, they never would have made the loan to Ms. Liar.
Now the Money People (fraud victims) want the lender to return their money (buyback).
The lender talks to Ms. Liar to find out why she said she was going to live there but never
did. Ms. Liar tells the lender that it was all Mr. Creativity’s idea. Mr. Creativity says that he
didn’t tell Ms. Liar to do anything. This is known as the finger-pointing portion of the fraud.
The lender decides to launch an investigation. They review all of Mr. Creative’s closed
loans. They discover he’s had a number of similar transactions in the past. No defaults
yet, but misrepresentation nonetheless. The FBI gets called in. A few months later Mr.
Creativity is hauled out of the office in handcuffs.
That’s why lenders have guidelines.
I walked away from that booth without any doubt in my mind that Mr. Creativity has put
together many transactions just like this one. I wondered, “who trained him? Has he
trained anyone else? Does he realize this is wrong? Does he know it’s wrong but doesn’t
think it’s a big deal? Has he seen much worse around his office, and therefore thinks, ‘this
isn’t as bad as forging a signature’? Does he know that people go to prison for much
less? Does he have kids? Does he know how he would explain his 21 month absence
from home to his three year old if he went to prison? Would he find a better way to explain
it than I did?”
The worst part of a federal fraud conviction is not prison. Of course, prison isn’t great. I
don’t care how much fun we all think Martha Stewart had in there putting together
decorating contests. I was there, and I just don’t remember it being that fun. It’s no picnic
being stuck living with hundreds of men who don’t have personal hygiene anywhere on
their priority list. Then there’s the loss of freedom, etc., etc., etc.
No, the worst part about a federal fraud conviction is the unwritten sentence. The true
consequences of committing fraud are the loss of respect in your industry, the loss of self
esteem, the loss of a career and the fact that even though it was you who did something
wrong, everyone else close to you has to go through the same thing too.
About an hour after I parted company with Mr. Creativity, I addressed the group in the
convention hall. I gave my talk on the real life consequences of committing fraud. I kept an
eye out for Mr. Creativity but didn’t see him. I hope he was there. He’s the reason I was
asked to come and speak.
Jerome Mayne is a keynote speaker and author. He has worked with dozens of companies and associations
around the country helping their people make the right decisions, when the right decisions aren’t easy. He is a
member of the National Speakers Association as well as the Real Estate Educators Association. He’s the author
of the book, Life Saving Lessons – The Diary of a White Collar Criminal and co-author of Mortgage Fraud and
Predatory Lending – what every agent should know (Kaplan Publishing). .
© Copyright, Jerome Mayne 2010
All of Fraudcon and Jerome Mayne Services:
Jerome Mayne is a Public Speaker for Fraud Conferences and Fraud Conventions, including
Mortgage Fraud Conferences and Mortgage Fraud Conventions. In addition to being a Fraud,
Mortgage Fraud and White Collar Crime and White Collar Mortgage Fraud Public Speaking Expert,
he also consults for Public Speakers who speak in the areas of Fraud, Mortgage Fraud, White
Collar Crime and White Collar Mortgage Fraud Public Speaking.
A customized public speaking engagement can include fraud statistics, federal fraud statistics,
mortgage fraud statistics and the effects of fraud on a company.
Has been an Expert and a Keynote Fraud Public Speaker at Fraud, Mortgage Fraud, White Collar
Crime and White Collar Mortgage Fraud Public Speaking events, including conferences and
conventions. For specific engagements, see client list.
Primary Areas of Expertise:
Mortgage Fraud Public Speaker
White Collar Crime Public Speaker
Fraud Public Speaker Trainer
Fraud Public Speaker Consultant
Fraud Convention Public Speaker
Fraud Conference Public Speaker
Fraud Expert Public Speaker
Mortgage Fraud Expert Public Speaker
Mortgage Fraud Consultant Public Speaker
Jerome has developed a talk on ethics that evokes thought and discussion. He explores the
definition of ethics as described on www.dictionary.com, the differences between general business
ethics and the set of principals of right conduct, or ethics, as set forth by an employer or a trade
association. His talk on ethics was designed for presentation to the MBA program at Hamline
University in Minneapolis, Minnesota.
Jerome Mayne is a Public Speaker for Fraud Conferences and Fraud Conventions, including
Mortgage Fraud Conferences and Mortgage Fraud Conventions. In addition to being a Fraud,
Mortgage Fraud and White Collar Crime and White Collar Mortgage Fraud Public Speaking Expert,
he also consults for Public Speakers who speak in the areas of Fraud, Mortgage Fraud, White
Collar Crime and White Collar Mortgage Fraud Public Speaking.
A customized public speaking engagement can include fraud statistics, federal fraud statistics,
mortgage fraud statistics and the effects of fraud on a company.
Has been an Expert and a Keynote Fraud Public Speaker at Fraud, Mortgage Fraud, White Collar
Crime and White Collar Mortgage Fraud Public Speaking events, including conferences and
conventions. For specific engagements, see client list.
Primary Areas of Expertise:
Mortgage Fraud Public Speaker
White Collar Crime Public Speaker
Fraud Public Speaker Trainer
Fraud Public Speaker Consultant
Fraud Convention Public Speaker
Fraud Conference Public Speaker
Fraud Expert Public Speaker
Mortgage Fraud Expert Public Speaker
Mortgage Fraud Consultant Public Speaker
Jerome has developed a talk on ethics that evokes thought and discussion. He explores the
definition of ethics as described on www.dictionary.com, the differences between general business
ethics and the set of principals of right conduct, or ethics, as set forth by an employer or a trade
association. His talk on ethics was designed for presentation to the MBA program at Hamline
University in Minneapolis, Minnesota.
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