California Man Sentenced to 51 Months for Fraud

California Man Sentenced to 51 Months for Fraud

The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) announcedthat Steven Pitchersky of Rancho Mirage, California was sentenced to 51 months in federal prison for a scheme to defraud GMAC Inc., since rebranded as Ally.

Through his fraudulent actions, the company incurred losses of approximately $5.3 million. In addition to the prison term, Pitchersky is ordered to pay restitution in the amount of roughly $3.2 million, serve five years of supervised release, and a $100 special assessment.

“Greed got the best of Pitchersky, and for his crimes, he will spend the next 51 months in federal prison,” said Christy Romero, Special Inspector General. “Through his mortgage origination company, Pitchersky ran a $5.3 million mortgage fraud scheme that caused millions of dollars in losses to Ally Financial, which still owes billions in TARP funds.”

Pitchersky operated Nationwide Mortgage Concepts (NMC), a California Mortgage Lender. Between 2009 and 2011, Ally was the warehouse lender for thousands of mortgages loans. NMC borrowed from a $10 million warehouse line of credit to refinance first mortgages held by other institutions.

Pitchersky misrepresented himself to Ally in order to secure the warehouse line of credit, including a false representation that NMC already had another $10 million warehouse line of credit with another company. The company, “MPL,” was a fake, with a contact number listed for a “Rick Jay” that dialed to Pitchersky’s cell phone.

He funneled the funds through a third-party title company, “Hanover,” which was actually created by Pitchersky, allowing him to have complete control over money NMC acquired from Ally’s warehouse line.

“Between December 2010 and January 2011, Ally advanced NMC approximately $5.3 million to pay off 23 first mortgages for NMC clients. NMC failed to use these funds to pay off these mortgages and instead used the money to pay off first mortgages for other customers,” SIGTARP said.

In total, $17.2 billion in federal taxpayer bailout funds were invested in Ally Financial through TARP. Pitchersky pled guilty to wire fraud in connection with the scheme.


CFPB Fines Alabama Firm for Mortgage Disclosure Violations

CFPB Fines Alabama Firm for Mortgage Disclosure Violations

The Consumer Financial Protection Bureau (CFPB) ordered RealtySouth to pay a civil penalty of $500,000 for inadequate disclosures. The largest real estate firm in Alabama was charged with leaving consumers unaware of their rights to choose service providers during the home-buying process.

“Disclosures give consumers the power to make informed financial decisions, and buying a house is among the biggest financial decisions most people ever make,” said CFPB Director Richard Cordray. “The Consumer Bureau will continue to take action against companies that attempt to modify disclosures and keep consumers in the dark.”

The CFPB charged RealtySouth with violations of the Real Estate Settlement and Practices Act (RESPA), which offers protection to consumers by prohibiting kickbacks for referrals of real estate settlement services. RealtySouth violated these rules by providing preprinted form purchase contracts, which its agents provided to homebuyers that either explicitly directed or suggested that title and closing services be performed by its affiliate, TitleSouth.

“While RESPA allows real estate companies to refer their customers to affiliated businesses, the law requires them to provide consumers an “Affiliated Business Arrangement” (ABA) disclosure that clearly states their right to shop around for a better price and that they are not required to use the affiliated company,” CFPB said.

The disclosure provided by RealtySouth did not comply with the law. The disclosure did not properly highlight consumers’ rights, and the language was buried in a section of text that also made marketing claim’s about the company.

The case was referred to the CFPB by the Department of Housing and Urban Development (HUD). RealtySouth has since changed its disclosure forms after being contacted by the CFPB.

Unemployment, High Rates Still Obstacles for Many Facing Foreclosure

The National Foreclosure Mitigation Counseling (NFMC) program has provided counseling to almost 1.6 million homeowners across the country since the program started in 2008.

According to an NFMC congressional report released Monday, common attributes of struggling homeowners include unemployment or underemployment and high mortgage rates.

About 62 percent of homeowners reaching out for foreclosure prevention counseling report income loss or reduction as the primary reason they are delinquent on their home loan, according to NFMC.

NFMC also pointed out that 37 percent of homeowners receiving counseling spend more than half their income on monthly mortgage payments. About 19 percent spend more than 75 percent of their income on mortgage payments, according to NFMC.

“Although the economy is improving, there are still many homeowners who need foreclosure prevention counseling and the NFMC continues to assist thousands of families,” said Eileen Fitzgerald, CEO of NeighborWorks America, which administers NFMC.

Almost 20 percent of homeowners receiving counseling through NFMC programs have mortgage loans with interest rates of 8 percent of higher.

However, NFMC pointed out in its report that this is down from 40 percent in October 2008.

Homeowners who receive counseling through NFMC are more likely to obtain loan modifications, and when they do they are more likely to receive higher monthly savings on their mortgage payments and are also less likely to redefault on their loans, according to NFMC.

When a homeowner seeks counseling, he/she is 97 percent more likely to obtain a loan modification and avoid foreclosure, according to data from the first two years of the NFCM program.

The average counseling recipient’s monthly payment reduction is about $176 greater than the savings obtained by a homeowner who did not receive counseling, accruing savings of $2,100 per year for counseled homeowners, according to a review conducted by the Urban Institute.

“A homeowner who receives help from the NFMC program saves significant money and time, and importantly, often is able to remain in their home,” Fitzgerald said.

The Urban Institute also estimates that by helping homeowners and preventing foreclosures, NFMC has saved homeowners, lenders, and local governments about $920 million.

Commentary: We’re Forever Seeing Bubbles

The recent jump in home prices (near record month-over-month and year-over-year increases reported forMay by the National Association of Realtors) has led to speculation that the rapid surge in home prices could be the sign of a new housing bubble similar to the one that led to the Great Recession.

Is it? The not-so-short answer is, not yet.

Indeed, through May the median price of an existing single-family home has risen by double-digits for seven of the last eight months (and in the eighth, the year-over-year increase was 9.4 percent). For comparison’s sake, note that in the run-up to the collapse in 2006, the median price of an existing single-family home rose by double-digits year-over-year for 11 straight months.

An increase in prices itself does not signal a bubble. An unsustainable increase, not supported by other data, however, would. In the run-up to the 2006 collapse, the higher prices—which had been trending up for four years—led to a sharp uptick in construction wholly unsupported by demographics. Baby boomers were aging, transforming home buyers into sellers, and there weren’t sufficient numbers of “echo boomers” to replace them.

Nonetheless, in the last 12 months, the year-over-year increase in single-family starts has averaged about 26 percent, four times the average year-over-year increase in the 12 months just prior to the bubble bursting in 2006. When housing prices fell when the bubble burst, the construction jobs they supported disappeared along with hundreds of thousands of others as housing wealth vanished, seemingly overnight.

Even though the demographics haven’t changed—the 55-plus population is growing faster than the 25-34 population—builders in the last 12 months have completed 31 percent more single-family homes than they sold. Prior to the housing peak, completions were about 26 percent more than sales, adding to inventories and further depressing home prices.

While the “gap” between completions and sales was wider before the 2006 collapse than today, it has been expanding rapidly, growing in eight of the last 12 months.

So, what happened to the overall economy when the housing bubble burst? As prices and values dropped, so did consumer spending, a function of the “wealth effect.” According to some estimates, the decrease in home values reduced consumer spending by upwards of $400 billion and GDP by about 2.5 percent. That jobs fell as well only made a bad situation worse.

The slowdown in housing prices beginning in 2006 came just as baby boomers—born between 1946 and 1964—were approaching retirement, a time when they might be looking to use their homes as a retirement nest egg, finding themselves with more house than they needed. About a year later, employment began to sag along with wages and salaries, so there were fewer people with less money to spend on buying a home.

Despite the fact we still theoretically have more potential sellers than buyers, which should drive prices down, the inventory of homes listed for sale has remained low. That low inventory, combined with low interest rates keeping affordability high, has driven prices up.

That doesn’t necessarily mean a bubble unless sales increase with the higher prices, and they have even with regulatory changes in the wake of the housing collapse designed to stop banks from making loans borrowers could not afford. Just how effective those changes have been though is still open to question. According to the Federal Reserve’s most recent Senior Loan Officers Opinion Survey, mortgage demand is climbing and more banks are easing lending standards.

Those factors combine to drive prices still higher a cycle which, if incomes fail to keep pace, could inexorably lead to a bursting bubble.

Perhaps more significant than the question of whether we’re in or headed to a bubble and are we prepared for it to burst is what happens if prices again suddenly and dramatically collapse?

Many analysts contend the current prices are justified by low rates, which keep home affordable even as prices rise. This would suggest that as rates rise, prices will move in the opposite direction, a replay of the post-2006 economy. That’s not though what history tells us. If prices fall in response to higher rates, it would mean market behavior has changed, a phenomenon for which we may not be prepared.

International House Hunters Maintain Activity in U.S. Market

While the level of search activity from international house hunters changed little year-over-year, Trulia found trends are changing among foreigners who shop for homes in the U.S.

Among the home searches conducted on Trulia from April 2012 to March 2013, search activity from internationals accounted for 4.3 percent of all searches, down slightly from 4.4 percent a year ago.

Out of the metros eyed by foreigners, Miami was the most searched, representing 14 percent of home searches originating outside of the country. Among the top 10 markets favored by foreigners, six were in Florida. However, all six Florida metros saw year-over-year search activity fall.

While interest seems to be waning for Florida markets, two out of the top 10 most-searched markets saw activity from foreigners increase-Los Angeles and San Francisco.

Los Angeles ranked as the second most searched metro, with 13 percent of foreign searches focused on the area, up by 4 percent a year ago, while San Francisco saw activity from foreigners increase to 9 percent, placing it as the seventh most searched city.

A closer look at search activity revealed interest from internationals was more about specific neighborhoods than metros.

“Foreigners are drawn to the rich-and-famous neighborhoods,” said Jed Kolko, Trulia’s chief economist. “In some of the priciest neighborhoods in New York, Los Angeles, and Miami, more than one quarter of home searches come from other countries. But most Americans live in neighborhoods that lack worldwide name recognition. In most neighborhoods, foreigners account for less than 3 percent of home searches.”

For example, in Bel Air, 41 percent of searches are from internationals, compared to 13 percent for all of Los Angeles.

Two other neighborhoods in Los Angeles—Beverly Hills and West Hollywood—held a high share of international searches, at 38 percent and 34 percent, respectively.

The greatest share of foreign search activity originated out of Canada, which represented 19 percent of activity. Though, the year-over-year change in search share for Canada fell by 22 percent, Trulia reported.

Search activity out of the United Kingdom edged up to 9 percent, and for Germany, search share stood at 5 percent, down by 9 percent from the year before.

Meanwhile, Trulia noted, “home searches are on the rise from lower- and middle-income countries with strong economic growth and stronger spending power.”

India, which accounted for 4 percent of foreign searches, increased its activity by 24 percent, and activity from Nigeria was up by 37 percent and now accounts for 3 percent of foreign searches.
Russia, the Philippines, and China all increased search activity by at least 17 percent.