What is Mortgage Fraud?
October 25th, 2006 Categories: Mortgage News
WARNING: What you are about to read are 100% factual accounts of grievous broker misconduct. The rules regarding YSP and disclosure are clear, yet some brokers continue to operate as if they’re above the law.
If you’ve never seen this 2-page brief on YSP & Consumer Disclosure from the California Department of Real Estate, or this bit of Capitol Hill testimony on YSP from a Harvard law professor, you’re in for an eye-opener.
PATRICK DANIELSSenior Loan Consultant, First Capital Corporation
Email: patrickdaniels@firstcapcorp.com
CLAIM TO SHAME: Caught by XBroker trying to slide $18,375 in commissions by a 75-year old retired physician. Fraudulent docs, threats…the works.
XBroker was contacted on 07/25/06 by a borrower who was told just 24 hours prior to close that his mortgage broker was receiving $18,375 in previously undisclosed compensation (YSP) in return for his accepting an interest rate higher than he actually qualified for. XBroker reviewed the Good Faith Estimate, Mortgage Broker Compensation Disclosure, and Escrow Services Closing Costs Estimate. Here’s what we uncovered: GOOD FAITH ESTIMATE: 
view There are two areas we look at on a GFE specific to broker compensation:
- The 800 SECTION (Broker Compensation)—$495 in disclosed fees
- ADDITIONAL COMPENSATION TO BROKER—$5,880 (.3 points) of YSP were originally included, but the borrower crossed it out and initialed it.
MORTGAGE BROKER COMPENSATION DISCLOSURE: view
- Mr. Daniels gave this document to the borrower to sign, failing to have the borrower personally date it.
- The date assigned by Mr Daniels was 7/17/06, which legally represents the borrower had 8 days to consider nearly four times the amount of YSP—the same YSP he had explicitly rejected on the GFE.
- With less than 24hrs before the mortgage was scheduled to close, the borrower was cajoled into signing the document and consent to closing the loan despite his defrauded feelings. ‘Too late now’ was the broker’s stance. Mr. Daniels refused to apply any YSP incentives towards the borrowers closing costs, which is the expressed purpose of YSP rebates.
- $18,375 is what the mortgage broker is making "as the result of a higher interest rate charged on [your] loan."
ESCROW SERVICES CLOSING COSTS ESTIMATE: view This is what we match up against the GFE in a Mortgage Autopsy™ to determine exactly what was promised, and what was delivered.
Key Points
- Mr. Daniels never told the borrower he had the option of a lower rate.
- Mr. Daniels pressured the borrower into signing a fraudulent legal document which represented to the lender that the borrower had 8 days to consider nearly four times the amount of YSP he had explicitly rejected on the GFE.
- Mr. Daniels neither answered nor returned our calls—even after being notified that we had been authorized by the borrower to resolve the dispute.
On 7/26/06, the day of the proposed closing, XBroker sent a letter along with supporting documents to First Capital, requesting an immediate response.
At 2pm PST, we received a call back from a "manager" (a recon agent deployed to assess the threat) attempts to forward me to Mr. Daniels’ direct manager. At 3:30pm, the "CEO" calls to discuss the situation. He was asked:
- Why wasn’t the YSP disclosed until 24hrs before the closing?
- Why was the borrower cajoled into signing a fraudulent document?
- Why wasn’t he told he actually qualified for a lower rate?
- Having rejected $5880 worth of YSP compensation on the GFE, what made the broker believe the borrower would accept over triple that amount?
- Lastly, what did Mr. Daniels do to deserve an $18,375 back-door commission on a stated income loan?
The "CEO" of First Capital maintained that:
- "The borrower got a great deal."
- "Paying only one point is a great deal."
- He "knew nothing about the backdating of any documents."
- His brokers are "independent agents"
- "This is how business is done in California."
Unfortunately, this IS how business is done in California—and the rest of the 49 states. Unfortunately, it’s the rule, not the exception.
UPDATE!!! 
After a delay in closing, the borrower was contacted by Patrick Daniels on 7/28/06 and informed that because of the XBroker’s "meddling," the matter was being taken up by First Capital’s in-house attorney:
Peter K. Solecki Prudential California Realty 12544 High Bluff Dr #420 San Diego, CA 92130 Rather than sit idly by, we contacted Mr. Solecki directly and were told he was preparing to file a complaint in response to the "slanderous and false" statements posted on our Broker Black List page. Of course, we maintained that all statements were factual and documented—and that if anyone had a right to damages it is the borrower.
But, rather than settle the matter by rebating a portion of the borrower’s $18,375 in YSP to cover his closing costs (YSP’s stated purpose) and accept a an $8,000+ payday for Mr. Daniels’ "efforts," they declined. Mr. Solecki said bluntly that they would not be rebating so much as a penny of YSP. Their position was, the deal stands, take it or leave it—knowing full-well if the borrower backed-out he’d lose the home. Mr. Solecki abruptly hung-up on us, making further dialogue impossible.
ON THE BRIGHT SIDE: While our comrade/borrower ultimately had to swallow this bitter pill, you’ll be glad to know that two regional newspapers want to run with his story. DOWN WITH FIRST CAPITAL! We’ll be posting their frivolous lawsuit/complaint as soon as it rears its head.
I have been reading your posts over the last couple of weeks and I must say it has been a real eye opener. I am a Real Estate Broker and can’t believe how ignorant I am when it comes to this stuff. And I thought Realtors were making too much money! At least the consumer knows what we are getting paid
Thanks for the lessons!
Thx BB…unfortunately this type of situation is the rule, not the exception….
But, what about poor Mr. Daniels? I’m sure he has a Mercedes or Yacht payment to make that justified his $18,000 commission on a stated loan.
BTW, I LOVED your Starbucks analogy.
thx
Ken Cook…you wanted a specific example instead of general claims? This ones for you…..
10/27/2006 by Jeff Corbett
Be careful Jeff, I don’t want you to get in trouble over this! You could be sued for libel if they found this blog in the internet
10/27/2006 by Jessica Hughes
There is only one defense to libel, slander, defamation, etc.
Truth. Not one line of the post is fabricated.
We took great care to outline all the facts with documentation.
They already found this.
10/27/2006 by Jeff Corbett
But even if it is all true, you could still be found guilty of defamation of character. (I have personal knowlegde of this happening, truth is not always impenetrable armor)
10/27/2006 by Jessica Hughes
Mr. Daniels is the archetypical poster child for “bait and switch” YSP hoodlums – a swindler of the highest order. We need justice and Xbroker is serving it up cold.
This is Broker Bryant’s wife…TLW…I feel caught up to speed now. This is a hellava story. Thank you for sharing this with all of us. The fact that this is true baffles my brain. I will await the reared head…That should be interesting…See ya’ round…The Lovely Wife from Active Rain…
Wow what a story. I’m new to the business and as a seasoned consumer and now a new LO, I can tell you I do have a license to steal…my ethics as a business man won’t let me. One thing is certain, I can either be paid on the front end or back end…my customers aren’t always savy enough to even understand what “origination” means let alone try and explain to them what the hidden YSP means to them. My goal is to continue to offer competitive rates with 0 orginination and a small YSP so I can pay my mortgage.
I have some interesting info about some of the parties involved. XBroker, is there any way to email you directly?
interesting:
jeff.corbett@gmail.com
Jeff-
I offer a few comments:
1- I don’t think the issue of the amount Mr. Daniels made is as important as the way he deceptfully made it.
2- A loan of that size does take some “extra” work and will have “extra” compensation (above the average fee in California).
3- Mr. Daniels needs a tremendous re-education about the TILA and the required disclosures. The handwritten GFE, while awfully rare in today’s world, is not illegal. An intentionally vague, handwritten GFE (as this one appears to be) is a direct violation of the TILA.
Often, originators “screw up” and bury their head in the sand. Mr. Daniels should have recognized his mistake early, addressed it with the borrower, and properly disclosed his five-figure fee.
Now, if he did that…we wouldn’t have any fun here, would we?
And here I thought I was all alone in the world. Excellent site, brother. Even I could learn something here, although I’m not a fan of flat fees. Charge what you charge. The laws are designed to protect the consumer. Obey the laws. Just be upfront and honest. Keep the client’s best interest in mind, not the brokers. But I respect your message and your effort.
Thx Brian
Can’t anyone cut this guy a little slack? He’s probably got a family to take care of and was just doing his job. Fleecing the innnocent consumer.
Why did this move so far down on the Google search roster.
Not sure Barry…write a post and link to it…that’ll help move it back up :))
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