“Many of the people out there that have houses, shouldn’t”

From the Herald News:

Loan fraud seen as economic threat
Friday, May 18, 2007
By HEATHER HADDON

Two weeks ago, Pedro Rives set his sights on buying a new home on East 26th Street in Paterson. But after hearing so many horror stories about local people trapped in ballooning mortgages, Rives decided not to rush.

“They ask you to start signing one page after another. Then, you end up in bad situation,” said Rives, 42, a construction worker. “It’s easy to make these mistakes.”

Mortgage “mistakes”– fraud, in many cases, committed by loan brokers — can cost homebuyers and lenders dearly. In the last year, lenders lost $1 billion to bad loans.

“It’s going to be a disaster,” said Henry Wolfe, a lawyer with the Legal Services of New Jersey, who predicts the problem will eventually hurt the economy.

Nationwide, reported cases of mortgage fraud increased by 30 percent between 2005 and 2006, according to data released on Wednesday by the Mortgage Asset Research Institute, a company tracking loan defaults.

But in New Jersey, reported fraud incidences more than doubled in the first part of 2006. The state recorded the highest increase in the country, according to the institute. And while still trailing other states in total numbers of cases, New Jersey is catching up.

“We haven’t seen all the loans that there may be issues with yet,” said Merle Sharick of the Institute. “There’s another big group coming.”

That group, Sharick said, are untraditional loans granted to people with bad credit. While they were once limited to sophisticated clients with financial reserves, federal lenders like Fannie Mae opened them to those who couldn’t qualify for traditional 30-year mortgages. These “stated income, stated assets” mortgages easily led to fraud by allowing loan officers to bypass verification of someone’s financial means.

“This made everybody’s life easier when you are dealing with a qualified buyer. You didn’t have to bother with pay stubs anymore,” said Wendy Nastasi, a mortgage banker from Pompton Plains. “But I knew it was a disaster.”
…
Many of Lisette Alicea’s friends now face those grim circumstances. The former Passaic resident watched enviously as her friends bought homes a few years ago while she continued to rent. Now, she’s thankful she waited.

“Many of the people out there that have houses, shouldn’t,” said Alicea, 34.

For unscrupulous loan officers, risky mortgages translated into quick cash through high fees and interest rates. And even mortgage bankers admit that greed was a motivator.

“It’s bank robbery without a gun,” said Corey Carlisle, a senior director at the national Mortgage Bankers Association. “Unless there’s a real threat of enforcement, they think they can get away with it, because they can.”

New Jersey and other states enacted anti-predatory lending laws in the last several years to crack down on mortgage fraud. But New Jersey’s law only covers refinancing, not purchase loans. And at the request of loan rating companies, lawmakers tossed a statute ensuring a loan was in a borrower’s best interest, Wolfe said.