Twenty five professionals in the mortgage, banking and even the legal fields were charged this week with

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mortgage fraud.  At stake is over $100 million dollars in stolen money.  The AFG Financial Group, based out of Manhattan, is responsible for finding gullible buyers with excellent credit ratings and then pairing these buyers with distressed properties while telling the buyer it was good for the community and guaranteeing a high return on their investment.  The group approached other lenders and banks to sell the mortgage to, all the while keeping all the funds associated with the successful closing of the loan for their own personal use.

Some of these properties were nothing but vacant lots.  By bringing in unethical appraisers to “appraise” the phantom houses, they were able to get incredibly high values on nothing more than weeded lots, which, of course, validated the loan amounts.  One Manhattan District Attorney, Robert Morgenthau, said “This kind of activity is what led to the mortgage crisis.”  It’s being called the largest mortgage fraud ever in New York City.

Turns out, these buyers weren’t even required to be employed, so long as their credit was good.  During the investigation, W-2s, bank statements and other documents along with fake paychecks were forged and submitted to the lenders and even some banks that weren’t in on the fraudulent activity.  An excellent financial report, high credit ratings and appraisals for houses that didn’t exist was the formula that allowed these millions to be swindled over a several year period.

Now the buyers, who thought they were agreeing to a community improvement project are now looking at bad credit, foreclosures and federal investigators down their throats.  In a few cases, some buyers are doubly betrayed since the fraudsters would often retain second mortgages in a not-as-strict sub-prime market without the buyer’s knowledge.

The defendants, who were arraigned on Wednesday, were charged with enterprise corruption and each is facing twenty-plus years in prison if they’re found guilty.

We’ve all seen the news the past few days of how the economy is in big trouble and for the first time in a long time, it’s not the oil companies in the crosshairs.

Lehman Brothers and AIG are the two players who seem to be responsible for the breaking news emails. It’s difficult, at best, to understand why our sympathies should be directed to those at the top of the food chain. I’ve no idea either. I happen to believe in karma and maybe it’s time for another round of tumbles from these high pedestals.

But since it appears homeowners, especially those with the misfortune of having an adjustable rate mortgage or have what’s referred to as a “subprime mortgage”, will feel the pain in short order - we all know the trickle down effect of how the American economy works, maybe it’s time for a reminder of the fact they’re not alone.

Those in this category appear to be most at risk for foreclosure or bankruptcy proceedings. What generally happens is a potential homeowner, who sees an ad promising 100% approval for applicants, will apply for a mortgage. His credit history is the single most important factor in this entire process. If his credit is less than stellar, as most histories are, he might be offered a higher rate on an ARM. He gets a crash course of what that means and realizes it boils down to higher monthly payments and for two or three years, a consistent monthly payment. After the twenty four months (or thirty six months) elapse, the bank has the option to adjust his monthly payments, with little or no warning, to reflect whatever state the economy is in. What’s not as well known as it should be is that at this point, provided the homeowner has taken advantage of the tax incentives and has managed to improve his credit scores, is the option to refinance into a fixed (read: consistent) rate. Many do, but many don’t. It’s those who don’t refinance and stay in this unpredictable cycle of not knowing what their mortgage payments will be who are most at risk for foreclosure or bankruptcy. Foreclosure is to a homeowner what Ike was to Galveston. These homeowners usually lose their homes, or for those who file bankruptcy, they do have the option to keep their homes. The stress involved with financial uncertainty, the fear of foreclosure and/or bankruptcy prevents an objective plan of action, including thorough research into options that may not have even been considered. As I’ve mentioned before, there are many programs available to assist struggling homeowners. Everything from providing low interest loans to bring mortgages current, to assisting homeowners in their efforts to work with their mortgage companies to renegotiate a payment plan for the arrears - these are all options and are available with few or no restrictions.

It’s important to realize the attorney you sat down with at the loan closing is a title attorney and his job was to ensure the title had no liens and was otherwise clean and transferrable. You might have noticed he most likely came in long enough to ensure your competency and ability to understand what you were signing, and then had everything signed, and at that point, he certified there were no liens on your new home. But he did that at the request of the mortgage company. A title attorney’s major contribution to this entire process was the title search that was conducted while the paperwork was being processed and routed.

If you’re facing bankruptcy, and are certain there’s no other way, it’s important to find a lawyer who is experienced in these proceedings, is sensitive to the emotions people experience once they realize this is their only option and who will be available to answer your questions during the entire process. It’s also important to realize that as traumatic as it feels now, the future can offer a better financial outlook and it’s up to you to build upon that future - and know that in the whole scheme of things, when you look back on your life, you’ll see it as unfortunate, but not the end of the world and moving forward is the common denominator in each of our lives.

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It’s no secret the foreclosures are on the rise for the second year.  Two years ago,  it was possible to secure financing for a new home with credit scores in the low to mid 500 range and it wasn’t unheard of to secure one hundred percent financing. Stated programs, where a loan officer states an applicant’s income and employment history, versus obtaining actual documentation via the employers and banks, were also common.  The lenders were taking risks like never before.  Those risks, along with poor budgeting and a lack of home owners’ basic understandings in terms of how interest rates and appraisal values work are being blamed for the high number of foreclosures in this country.  Add to this high oil prices and other sectors that are performing below expectations and it’s no wonder we’re hearing more and more about an eminent recession.  Some say we’re entering into a recession now. 

There are programs, compliments of Fannie Mae, that are being implemented to assist homeowners who have fallen behind on mortgage payments.  Some of these programs include low interest loans for consumers that will allow them to catch up on payments, there are also incentives in place for lenders who are willing to delay foreclosure proceedings in an effort to keep families in their homes.  The problem, however, is many have no idea these options are available.  There are even refinancing options that have lower approval qualifications for those who are in high rate ARM mortgages.  These new initiatives, as crucial as they are, can serve no purpose if they’re not being used. 

Lenders and banks are closing and merging at a rate of one a week.  There’s not much incentive for these banks to pursue collection of overdue payments if they know an announcement is coming that they’re closing their doors.

Indymac was once considered one of the heavy hitters in the mortgage industry.  When the announcement was made recently that it was reigning in its mortgage division, the very real possibility that it couldn’t exist without this division was enough to send other lenders scrambling for ways to keep from being next on the chopping block.  It’s the classic mistake of making decisions while panicked or based on fear.

Fearful consumers who are worried about how to make an extremely high mortgage payment because of their adjustable rate mortgages present other problems due to this stress, including divorce, drug and alcohol use, gambling and even job burnout in their efforts to catch up by working overtime.  Often, they don’t slow down long enough to take a step back and rethink their options.  That, of course, can only lend to the further decline of the American mortgage sector.  There are no easy answers, especially with this being an election year. 

There are resources that have solid solutions and advice for homeowners who are at risk of losing their homes.  Some are:

U.S. Dept of Housing and Urban Development (HUD)

FAQ Section for Struggling Homeowners

Federal Housing Administration (FHA)