Aug. 20: A wire transfer scam example; more notes on pros & cons of H.R. 2121; HOA super lien status clarification

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. Read more...

Cybersecurity means more than changing your Hotmail password from “passwerd1” to “Passwerd1” every six months, or keeping your password list in your drawer instead of taped to your computer screen. Yes, believe it or not, ransomware is now infecting home appliances that are connected to the internet – like thermostats. (“Is it hot in here, or is it just me?”)

 

Eight large US banks are collaborating to share information about cyber-threats, plan responses to hacks and sharpen cyber-defense through war games. The group is part of a broader industry effort but focuses on threats specific to big organizations.

 

In fact, industry groups, including SIFMA, fear that the Securities and Exchange Commission’s consolidated audit trail plan lacks the necessary cybersecurity measures to keep the wealth of market data it will compile safe from hackers. Limiting access to the database and ensuring that improved security measures are implemented at all access points could assuage concerns.

 

Banks and non-depository mortgage banks are “where the money is” and thus the target of plenty of scams. Education is critical. California wholesalers Plaza Home Mortgage and Mountain West Financial (there may have been others that didn’t cross my desk) sent out a succinct note to their clients to alert them to this criminal activity and assist brokers and their borrowers in avoiding being victims of such a scam.

 

“This is to alert you about some sophisticated scams that have recently been targeting businesses…that perform wire transfer payments. The scope of this type of mortgage fraud has expanded to include lenders, realtors, and borrowers being instructed to divert funds to hackers by changing wiring instructions.

 

Mountain West & Plaza’s memo goes on to provide an example of a mortgage wire transfer scam from which the entire industry can learn. “A real estate agent sends an unencrypted email to your borrower, which contains details of the loan closing (including settlement location, date, cash to close needed, etc.). A fraudster hacks into unencrypted email and learns of closing details, which include the name of the settlement agent. The fraudster sends an email (called a spoofed email) to the borrower pretending to be the settlement agent. The email states to wire the cash to close to them prior to closing and provides wiring instructions to an account owned by the fraudster. The borrower follows the instruction in the spoofed email and arranges for funds to be wired to the fraudster’s account.”

 

Recommendations? “As you work with your borrowers to prepare for closing, let them know to be vigilant regarding emails. They should not take any action regarding closing instructions via email. They should notify you immediately if they receive any such messages. If you receive changes to wiring instructions, verify that the email address you have been using is exactly the same as the one requesting a change. Do not take action unless you first contact the settlement agent using a telephone number that was previously vetted to be accurate. When responding to an email, use the ‘Forward’ option and type in the known email address (rather than using ‘Reply’) to ensure the intended recipient’s correct email address is used.”

 

Lenders should visit the Federal Bureau of Investigation’s Internet Crime Compliance Center (IC3), read Public Service Announcement Alert Number I-012215-PSA (includes the process for filing a complaint) and Public Service Announcement Alert Number I-061416-PSA (includes an update to the Business E-Mail Compromise scam).

 

The opinions about H.R. 2121 – transitional licensing – continue to swirl, and there will be more next week. It is difficult for the residential lending industry to present a common front to regulators and legislators when we can’t even all agree on something like this. The key is not whether the is self-interest-based support for this bill; the key how does this improve the very protections designed by the concept of the SAFE Act and the creation of an agency dedicated to that purpose (even if the agency fails to meet and often interferes with its consumer protection purpose).

 

Here was one e-mail I received: “There are reasons that the members of NAHB and NAR don’t lie awake at night trembling in fear of Congress, regulators and bureaucrats. Those reasons are called BUILD-PAC and RPAC respectively. There may be some fighting in the family behind closed doors, but when that door opens……it is one voice, one message and a checkbook to back it up. The cold, hard reality is those two groups (clearly dominant forces in our industry) would have never allowed such an abomination as the CFPB to have emerged from Congress to begin with.

 

“How many Realtors, builders, and Wall Street folks paid fines, went to jail, or received this CFPB scrutiny as a result of their actions that led to the meltdown in Fall of ’07 into Spring of ’08? I’m still waiting for that Realtor with a conscience that got paid a commission on a fraudulent NINA loan to stand up and offer to give that commission back. I’m thinking that will happen about the same time that Hank Paulsen donates his GS earnings to charity.”

 

From Texas attorney John Fleming asks a few poignant questions about the bill. “I have heard some state regulators and industry members say transitional licensing would place consumers at risk by allowing unqualified registered loan originators to originate for non-depositories without having a license. I find this curious because in fact the registered loan originators are often already originating loans in the state. I find the argument particularly confusing when it comes from the mortgage regulator in a state agency that also oversees state chartered depository institutions. Apparently the agency allows loan originators to originate when they work for a State Bank, but they pose a danger when they work without a license for a non-depository. Is the mortgage regulator saying that their boss is not being hard enough on the deputy director for banking in seeing the bank LOs are qualified, or what? But this also raises another question, does anyone know whether licensed loan originators have better consumer compliance records than registered loan originators? It seems to me that states that have an agency that regulates both depositories and non-depositories are in a unique position to study this issue because they have examination authority over state chartered depositories and non-depositories.”

 

Bill Cosgrove, President & CEO of Union Home Mortgage, opined, “Regarding 2121 – today’s system of hiring a bank loan officer is broken and needs fixed, bottom line. A qualified loan officer working for a bank should not have to sit on the sidelines and put their career on hold for even one day. H.R. 2121 allows for the continuation of a professional’s career while keeping proper consumer protections in place. Nothing is perfect, but this bill goes a long way in evening the playing field between banks and nonbanks, bottom line. This is good for all nonbanks, large, middle and small.”

 

But this from an LO. “There are some big mortgage bankers that will benefit from this ease of requirements this revision to our Safe Act will allow. The large non-depository mortgage bankers are willing to risk the consumer protections of the current laws to line their pockets. I suggest that consumer protection was not the forethought of this bill. I further suggest that the comments you have received did not come from the individual licensees that practice loan origination (non-management) nor from small TPO originating shops – only from the burn and churn larger mortgage bankers. That is the only group that this bill best serves.

 

“The supporters of this bill will state it is to ‘even the playing field’ for the employees of the depositories (I’d love to know how many comments came from depository regulated people). And as stated in earlier communications, this is not the focus of consumer protection. If a person wants to move from the depository side of the field then they can do their studies, tests, finger printing, credit evaluations, and application to be properly screened to work as a state regulated licensee – and therefore will have EARNED the privilege of serving our community and consumers as proven by their ability to obtain the license.

 

“Why even bother having individual licensees? If you want to even the playing field, make the companies bear the burden of the license and their employee actions and do away with individual licensees and individual ACCOUNTABILITY. This will certainly do away with the small mortgage shops, increase the overhead of doing business and make mortgages more expensive for the consumer. OR – have the bank registered MLOs be become state licensees that are also regulated by the state regulators!  Just follow the money and you will learn the why for this bill.”

 

Yet Glen Corso, Executive Director of the CMLA, sent, “I would like to address the criticisms leveled against HR 2121, the legislation that provides a transitional license for registered loan originators who move to a position requiring a license. The association I manage, the Community Mortgage Lenders of America (CMLA) is composed exclusively of small and mid-size lenders who originate FHA, VA and conventional conforming loans. HR 2121 allows non-bank lenders to hire experienced loan originators who are currently registered and working for banks as loan officers. Once HR 2121 passes, non-bank lenders will then have the same flexibility as banks currently enjoy, to hire the best person for an open loan originator position, either a licensed loan officer or a registered loan officer…HR 2121 simply levels the playing field, which is why my organization, with a membership of both non-bank and community bank lenders, supports this bill.”

 

Finally, this last week the commentary included news on the Ninth Circuit HOA “super lien” decision. I received a note from the MBA’ Scott Nowak, Esq., the Asst. Director of State Government Affairs.

 

Our understanding is that the decision doesn’t outright prevent an HOA super lien from extinguishing a mortgage lender’s security interest in the State. The decision strikes at Nevada’s original HOA statute, which it deemed facially unconstitutional—due to its “opt-in” notice standard for mortgagees and other lienholders to receive critical foreclosure-related notices from HOAs. That statute version was effective until October 1, 2015—when MBA-supported legislation to mitigate Nevada’s super lien dangers became effective. A key aspect of this legislation was the implementation of mandatory HOA foreclosure-related notices to the lienholders.

 

“So, the Ninth Circuit’s decision will impact litigation over HOA foreclosure sales conducted under the prior Nevada statute, but it is our understanding that HOA super liens still have the capacity to extinguish a mortgage lender’s security interests under the current Nevada law (a concept MBA vehemently opposes).”

 

“On August 12, the U.S. Court of Appeals for the Ninth Circuit weighed in on whether the super lien statute’s provisions governing notice to purported junior lienholders, including mortgagees, were constitutional, holding in Bourne Valley Court Trust v. Wells Fargo that the statute facially violated due process rights under the U.S. Constitution’s Fourteenth Amendment. Specifically, judges ruled that the statute’s facially unconstitutional nature derived from its ‘opt-in’ notice standard, which only required an HOA to alert a mortgage lender that it intended to foreclose if the lender had affirmatively requested notice from the HOA. The panel additionally held that ‘the “state action” requirement for purposes of constitutional due process was met by the Nevada Legislature’s enactment of the [s]tatute, which unconstitutionally degraded the mortgage lender’s interest in the property.’ Accordingly, the Ninth Circuit panel remanded the case for further proceedings in accordance with its ruling. “Importantly, Bourne Valley concerns a prior version of Nevada’s statute that was effective until October 1, 2015—when MBA-supported legislation to mitigate Nevada’s super lien dangers became effective. A key aspect of this legislation was the implementation of mandatory HOA notice to junior lienholders.” Scott & the MBA’s note wrapped up with, “Bourne Valley Court Trust may now petition the Ninth Circuit Court of Appeals for a rehearing or en banc review. If they pursue these routes and the decision is upheld, it will be binding on all Nevada federal courts, with Bourne Valley Court Trust’s remaining option being pursuit of the issue before the U.S. Supreme Court. Within the Nevada state court system, absent U.S. Supreme Court direction, the Ninth Circuit’s decision will serve as compelling, persuasive authority. Given that countless HOA foreclosure sales were conducted under the prior Nevada statute and are still pending quiet title actions in the courts, the Bourne Valley case will likely have a momentous impact in both the federal and state court systems.”

 

 

(This is the last installment 6 days of football quotes & jokes guaranteed to insult practically every team. Feel free to change the team to whoever you like.)

How can you tell if a Clemson football player has a girlfriend? There’s tobacco juice on both sides of the pickup truck.

What do you get when you put 32 Arkansas cheerleaders in one room? A full set of teeth.

University of Michigan Coach Jim Harbaugh is only going to dress half of his players for the game this week; the other half will have to dress themselves.

How is the Kansas football team like an opossum? They play dead at home and get killed on the road.

Why did the Tennessee linebacker steal a police car? He saw “911” on the side and thought it was a Porsche.   

How do you get a former Illinois football player off your porch? Pay him for the pizza.

Why does the Texas A&M football field have artificial turf? So that the homecoming queen won’t graze.

 

 

Rob

 

(Copyright 2016 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)