Day 6

U.S.A. Patriot Act

• Enforced by FinCEN (Financial Crimes Enforcement Network) – bureau of the Treasury Department
• Primary purposes
• Fight the funding of terrorism
• Combat money-laundering activities
• Deter & punish terrorists operating in the U.S. and abroad
• Money-laundering defined
• Filtering ill-gotten money through multiple transactions to hide its criminal origin
• Lender obligations
• Establish a Customer/Consumer Identification Program (CIP)
• Collect: name, address, DOB, SS#
• Create & maintain a formal Anti-Money-Laundering (AML) Program
• File Suspicious Activity Reports (SARs)
• Must be filed within 30 days of detection
• Maintain SAR records 5 years ("5 sides of a pentagon")
• Screen applicants against terrorist lists via OFAC (Office of Foreign Assets Control)
• Penalties for non-compliance
• Criminal: up to 1\text{ million} fine and/or 30 years imprisonment
• Civil: up to 250\,000 per incident

Telephone Consumer Protection Act (TCPA) & Telemarketing Sales Rule (TSR)

• Purpose: allow consumers to restrict sales/marketing calls
• National Do-Not-Call Registry
• Consumer registration is permanent
• Telemarketers must download/ sync lists every 31 days
• Exempt callers
• Political organizations
• Charities
• Telephone surveyors
• Companies with an existing business relationship (EBR) with consumer
• Inquiry / isolated transaction ⇒ contact up to 3\text{ months} ( 90 days )
• Customer (established relationship) ⇒ contact up to 18\text{ months} ( 540 days )
• Internal company DNC list
• If consumer requests placement, must honor within 30 days
• Permitted calling window: 8 a.m. – 9 p.m. (consumer’s time zone)
• Record-keeping: retain telemarketing records 2 years
• Mortgage professionals may contact for 90 days after inquiry
• Penalties
• Old: 16\,000 per violation
• Current: 40\,000 per violation
• Jurisdiction
• Interstate calls – FTC
• Intrastate calls – FCC

Fair Housing Act (FHA)

• Part of the Civil Rights Act of 1968
• Prohibits discrimination in renting, leasing, buying, or selling residential property
• Protected characteristics mirror ECOA plus disability

Mortgage Acts and Practices – Advertising (MAP Rule)

• Regulation N
• Regulatory agency: FTC
• Enforced by: CFPB
• Record retention: 2 years

Electronic Signatures in Global & National Commerce Act (E-SIGN)

• Enacted 2000 – applies to all industries
• Allows electronic signatures for borrowers
• If consumer requests paper copies, creditor must provide them
• “Person” ≠ “Human Person”
• Person = any legal/commercial entity (corp., LLC, trust, agency, etc.)
• Human person = actual breathing individual

Mortgage Assistance Relief Services (MARS)

• Covers for-profit companies offering to:
• Save a consumer from foreclosure
• Arrange loan modification or forbearance
• Cure defaults, waive acceleration/balloons
• Arrange short sales or deeds-in-lieu
• Requirements
• No false or misleading statements
• Mandatory disclosures about services
• No advance fees may be collected
• Record retention: 2 years

Ethics & Predatory Lending

• Guiding rules
• "Always side with the borrower"
• If an act is illegal, it is automatically unethical
• If legal, it is usually ethical (but still analyze)
• Common predatory practices
• Steering – pushing borrower to costlier product benefiting lender
• Packing – adding unwanted extras/fees
• Adding Co-Signer – co-signer won’t pay but used to qualify
• Contract Knavery – hiding burdensome clauses (e.g., undisclosed prepayment penalty)
• Price Gouging – exploiting consumers with inflated prices/fees
• Unbundling – charging same fee multiple times instead of grouping
• Blockbusting – provoking sales by stoking racial/class fears, then reselling at profit

Fraud Concepts

• Actual Fraud – intentional deception
• Constructive Fraud – unintentional (carelessness / negligence)
• Mortgage Fraud – intentional misstatement, misrepresentation, or omission relied upon by lender/insurer
• Two broad categories
• Fraud for Housing – borrower misrepresents to obtain housing (usually lone applicant)
• Fraud for Profit – insiders collude to gain illicit profit; involves multiple industry players
• Penalties: up to 1\text{ million} fine and/or 30 years imprisonment

Common Fraud Schemes

• Straw Buyer – individual uses another’s identity to obtain loan (family/friend)
• Property Flipping – rapid resale using inflated appraisal w/o legitimate value add
• Loan Flipping – coercing repeated refinances to earn points/fees → equity stripping
• Churning – broker and borrower refinance repeatedly; borrower accepts higher rate for lender credit, broker splits commission; lender loses
• Silent Seconds – undisclosed second mortgage for down-payment; recorded after first lien
• AIR Loan – loan on fictitious/non-existent property (fraud for profit)
• Asset Renting – borrower rents assets (bank balances, etc.) to appear qualified
• Shotgunning – multiple simultaneous loans on same property with different lenders
• Straw Seller – person temporarily holds title to hide real seller’s identity