CFPB shuts down California credit repair company for lying to consumers

CFPB shuts down California credit repair company for lying to consumers

Gavel justice law legal

Prime Marketing Holdings, a California credit repair company, was already on the radar of the Consumer Financial Protection Bureau, as several of its associated companies were fined earlier this year by the bureau for misleading consumers and charging illegal fees for credit repair services.

Back in June, the CFPB announced that Prime CreditIMC CapitalCommercial Credit Consultants and Park View Law, formerly known as Prime Law Experts, and several executives in charge of the various companies will pay more than $2 million for the alleged illegal actions.

Several of those companies partnered with Prime Marketing Holdings, which operated under several names, including: Park View Credit, National Credit Advisors and Credit Experts.

Now, the CFPB is doling out its punishment against Prime Marketing and banishing the company from the credit repair business.

The CFPB announced Wednesday that it filed a proposed final judgment that would resolve its previous actions against Prime Marketing Holdings. The bureau filed a lawsuit against Prime Marketing, claiming that the company charged illegal advance fees and misled consumers about the cost and effectiveness of its services and the nature of its money-back guarantee.

The final judgment would permanently ban Prime Marketing from doing business in the credit repair industry and require the company to pay a $150,000 civil money penalty.

According to the CFPB, between Oct. 1, 2014 and at least June 30, 2017, the company charged over 50,000 consumers more than $20 million for credit repair services.

But in the bureau’s lawsuit, which was filed back in September 2016, the CFPB accused Prime Marketing of making “misleading and unsubstantiated statements about its ability to improve consumers’ credit scores by removing negative information from their credit reports.”

The company also “misrepresented and failed to disclose the limitations of its money-back guarantee,” the CFPB said.

According to the CFPB’s complaint, Prime Marketing’s customers included people who were seeking to obtain a mortgage, loan, refinancing or other extension of credit.

The CFPB claimed that at times, Prime Marketing represented during calls to consumers that it is a “mortgage affiliate” or otherwise represented that it can help consumers get a mortgage.

The CFPB said that Prime Marketing allegedly made a number of false promises to its customers, including (taken directly from the CFPB):

  • Charging illegal advance fees: Prime Marketing Holdings charged a variety of fees for its services before demonstrating that the promised results had been achieved as required by law. Specifically, the company charged consumers initial fees that it, at times, claimed were required to obtain special credit reports for consumers. The company also charged set-up fees totaling hundreds of dollars and monthly fees that often equaled $89.99 per month.
  • Misleading consumers about the benefits of its credit repair services: Prime Marketing Holdings misrepresented its ability to remove negative entries on consumers’ credit reports. The company also misrepresented to customers that its credit repair services would, or likely would, result in a substantial increase to consumers’ credit scores, generally by an average of 100 points. The company lacked a reasonable basis for making these claims.
  • Misrepresenting the costs of its services: In some cases, Prime Marketing Holdings failed to disclose to consumers during sales calls that they would be charged a monthly fee.
  • Failing to disclose limits on “money-back guarantee”: Prime Marketing Holdings misrepresented that it offered a money-back guarantee if consumers were unhappy with the results of the company’s services. The company also failed to clearly and conspicuously disclose that the guarantee had significant limitations, including that the consumer had to pay for at least six months of services to be eligible for the guarantee.

To take effect, the proposed final judgment needs approval by the U.S. District Court for the Central District of California.

“Today we are taking action to shut down a company that deceived consumers into paying for credit repair services that did not live up to the company’s promises,” CFPB Director Richard Cordray said. “We remain committed to taking action against companies that mislead consumers into paying illegal fees with false promises.”

 

Direct homebuyer Opendoor getting into mortgage business

Direct homebuyer Opendoor getting into mortgage business

Digital house

Late last year, Opendoor, an online marketplace that buys homes directly from homeowners, announced that it raised $210 million to fund the company’s expansion beyond the two markets where it initially launched.

The company first began operating in Phoenix and Dallas-Fort Worth, but back in December, Opendoor said that it planned to expand to 10 new markets this year.

The company now operates in Las Vegas and Atlanta.

And as it turns out, that’s not the only way that Opendoor plans to expand; the company is also getting into the mortgage business.

The company is currently piloting a mortgage program in Phoenix, touting its ability to save homebuyers when they buy one of Opendoor’s properties.

Opendoor, which launched in 2014, operates by buying homes directly from sellers, then turning around and selling the homes on its own marketplace.

A homeowner seeking to sell their home can go to Opendoor, enter details about their home, and get a near-instant price quote for the home.

If the seller accepts, Opendoor then allows the seller to close on the sale when they’re ready, rather than on the timeline of another buyer.

From there, Opendoor makes any necessary repairs or upgrades, then sells the home through its marketplace.

According to the details provided by the company, more than 3,500 Phoenix homeowners have bought and sold homes with Opendoor. While that figure may not be earth-shattering, consider the company’s growth in just the last few years.

During a HousingWire webinar on Wednesday, Daren Blomquist, the senior vice president of communications for ATTOM Data Solutions, spoke about Opendoor and similar “instant offer” companies.

As shown in the chart below, taken from the webinar and courtesy of ATTOM, Opendoor’s growth over the last three years is significant.

Instant offers in Phoenix

The company also claims that it is the top listing agent in the Phoenix area, and said that 10,000 “home shoppers” visit the company’s site each month.

The company now says it’s taking a similar approach to the mortgage business.

“Mortgages are typically a huge pain point in the buying process, but now Opendoor is extending the same speed and service from the buying and selling experience to mortgages, with an added boost of cost savings for the customer,” the company said in statement.

Buyers using Opendoor Mortgage will be eligible for a 1% discount off the purchase of an Opendoor home in the form of a credit towards closing costs.

“We’re fearless about reinventing every step of the transaction to put more dollars in the pockets of our customers,” the company said.

The company said that buyers using Opendoor Mortgage can get prequalified in 30 minutes and close on a home on their timeline, just as they can when selling their home to Opendoor.

The company also claims that a buyer can close on an Opendoor Mortgage in as little as 15 days. According to the company, every buyer gets a dedicated loan expert, which allows them to lock in a mortgage tailored to their financial situation.

The company also launched its own title insurance operation, Opendoor Title, to cover all parts of the real estate transaction.

“We launched Opendoor Mortgage and Opendoor Title so we could handle the process for our customers from start-to-finish and ensure a streamlined transaction,” the company said.

While Opendoor is getting into the mortgage business, the company is not acting as the lender for its mortgage program. Rather, Opendoor will act as a licensed mortgage broker that works with correspondent lenders.

Back in December, the company said that it was handling $60 million in home volume each month and served more 4,000 homeowners since it launched.

Opendoor’s latest round of funding valued the company at $1 billion, making it the latest billion-dollar company to attempt to be a true one-stop-shop for the homebuying process.

Earlier this year, Redfin revealed that it recently began buying homes directly from homeowners with a service called “Redfin Now.” That news came on the heels of Redfin launching Redfin Mortgage, which added a mortgage-lending operation into Redfin’s existing digital-focused real estate brokerage and title businesses.

Now, count Opendoor among the companies that are trying to do it all in the real estate process.

Former Michigan housing commission exec admits to stealing Section 8 funds

Former Michigan housing commission exec admits to stealing Section 8 funds

Gavel justice law legal

The former executive director of an affordable housing commission in Michigan admitted in court this week to stealing more than $336,000 in federal funds, including $162,000 that was meant for the Section 8 housing program.

According to the U.S. Attorney’s Office for the Eastern District of Michigan, Lorena Loren, the former executive director of the St. Clair Housing Commission, pleaded guilty on Tuesday to conspiring to commit federal program fraud.

In pleading guilty, Loren admitted to conspiring with several family members to federal funds provided by the Department of Housing and Urban Development to the St. Clair commission.

In addition to stealing money that was meant for the HUD’s Housing Choice Voucher program, otherwise known as Section 8 housing, which allows low-income families to lease a rental property with help from the government, Loren also admitted to taking $166,000 from the commission’s operating budget.

According to court documents, Loren used the stolen money to buy adult and infant clothing, furniture, food, beauty supplies, medications, other household items, and alcoholic beverages for herself and her family members.

Court documents showed that between August 2008 and August 2016, Loren fraudulently entered into some Section 8 contracts that directly benefitted her and nearly all of her immediate family members.

Specifically, Loren falsified Section 8 housing contracts and lease agreements by using nominees for lease agreements for Loren’s son. Additionally, Loren and several relatives falsely claimed to own rental properties where former Section 8 tenants lived.

Then, Loren fraudulently issued Section 8 rental subsidy payments to those relatives, and in the names of former Section 8 tenants who were no longer in the program.

Loren also directed her family members to establish joint bank accounts to allow other family members to access to the stolen money.

Additionally, between 2010 and 2016, Loren used the commission’s two credit cards to make unauthorized purchases of personal items for herself and her relatives from Amazon, Walmart and Sam’s Clubstores.

According to court documents, Loren had some of the unauthorized purchases, approximately $60,000 of the nearly $166,000 total, sent to some of the same relatives who were involved in the Section 8 housing scheme.

As executive director of the commission, Loren had control of its operating budget and used the budget to pay the credit card bills that contained her unauthorized purchases.

Loren also admitted to taking another $8,500 from the commission’s petty cash.

As part of her guilty plea, Loren agreed to pay $336,240.62 in restitution to HUD.

Loren also faces a maximum of five years in prison and a fine of up to $250,000 for her crimes.

“At such a critical time for the Department of Housing and Urban Development, with programs that are vital to the well-being of so many in our communities, it is critical that those entrusted to public service are completely dedicated to those in need,” Brad Gary, special agent in charge of HUD, said. “The HUD Office of Inspector General is committed to partnering with Federal prosecutors and fellow law enforcement to aggressively pursue those engaged in activities that harm HUD’s Public Housing programs.”

GDP estimate surges to 3% in second quarter

GDP estimate surges to 3% in second quarter

finane concept

Real gross domestic product surged in the second quarter to a level not seen since the first quarter of 2015, according to the second estimatefrom the Bureau of Economic Analysis.

The second estimate shows GDP in the second quarter increased to 3%. This is up from the advanced estimate’s 2.6% and up from the 1.4% increase in the first quarter.

In fact, the chart below shows this increase marks the highest GDP level since the first quarter of 2015.

GDP

(Source: BEA)

Recently, HousingWire examined whether President Donald Trump is on track to meet his campaign promise of 4% GDP. This increase puts the administration one step closer to that goal.

However, one expert explained this increase may not last.

“The American consumer was behind second quarter GDP numbers being revised up from 2.6% to 3%: Spending was revised to 3.3% from 2.8%, and consumers account for two-thirds of GDP,” said Robert Frick, Navy Federal Credit Union corporate economist. “But is it sustainable? Given wage gains are meager, and consumers are saving less and charging more, this may be a temporary surge.”

“Not coincidentally, today the ADP Employment report revised up its job numbers,” Frick said. “Americans are optimistic given the jobs situation, and that may be what’s behind increased spending.”

Real gross domestic income increased 2.9% in the second quarter, up from the first quarter’s increase of 2.7%. The average of real GDP and real GDI, a supplemental measure a measure of U.S. economic activity that equally weights GDP and GDI, increased 3% in the second quarter, up from an increase of 2% in the first quarter.

Here are updates to the previous estimate:

Current-dollar GDP: Increased to 4%, up from last estimate’s 3.6%

Gross domestic purchases price index: Held steady at 0.8%

Personal consumption expenditures: Held steady at 0.3%

Amitree, maker of real estate email software Folio, raises $7 million to fund growth

Amitree, maker of real estate email software Folio, raises $7 million to fund growth

message tech

Folio, a Google Chrome extension that helps real estate agents manage all parts of a real estate deal from within their email, is currently used in approximately 5% of the nation’s real estate deals.

But that percentage could soon grow, as the Amitree, the company that makes Folio, recently raised more than $7 million to fund the company’s growth.

Specifically, the company raised $7.128 million in its Series A round of funding.

According to the company, more than 200,000 real estate transactions have been managed through the Folio software to date, and according to Google Chrome Store stats, more than 30,000 agents have Folio installed.

The company wants to grow both of those numbers and will put its recently raised capital toward that goal.

“So much real-estate focused technology is about disrupting the market in some attempt to replace real-estate agents, yet homebuyers and sellers rely on these agents for their experience and expertise more than ever before,” Jonathan Aizen, founder and CEO of Amitree, said. “Our goal is to empower the real estate agent and give them tools that help them do more of what they do best: put people in their dream homes and help them through that huge transition in life.”

The company bills Folio as a “smart transaction assistant” for real estate agent. Here’s how the Folio works, directly from the company:

Folio uses machine learning to process millions of emails and understand what’s going on with every one of an agent’s transactions. Folio helps agents manage their workflow, creating smart folders for each transaction that automatically sort an agent’s emails, files, and contacts. When looking at an email related to a transaction, real estate agents see contextual information right inside their email client that contains the transaction timeline, files, contacts, and status.

The round of funding was led by Vertical Venture Partners, with participation from existing investors, including Accel Partners.

Also participating in the funding was Seven Peaks Ventures, led by Tom Gonser, a partner at Seven Peaks and the founder of DocuSign. Through the investment, Gonser joined the board of Amitree.

“Real estate is going through a shift toward more intelligent tools that help streamline the experience,” Gonser said. “Electronic signatures were the beginning of this wave, and tools like Folio are the next step in enabling the real estate agent to bring more efficiency to their business through machine learning and vertical-specific AI that’s built for them.”

Monday Morning Cup of Coffee: Zillow claims Zestimates now more accurate than ever

Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on larger issues.

First and foremost, our thoughts are with all those affected by Hurricane Harvey. The hurricane made landfall on Friday evening, stalling over parts of Southeast Texas, just hours away from HousingWire’s headquarters outside of Dallas.

A report issued Friday by CoreLogic suggested that wind and storm surge from Harvey could cause insured property losses of between $1 billion and $2 billion for both residential and commercial properties.

The report, based on the storm’s projected path as of 10:00 a.m. Central on Friday, does not include projected insured losses related to additional flooding, business interruption or contents, because the rainfall is expect to last for several days.

But the damage likely far worse than CoreLogic’s report suggested, as the early projection of the storm showed that Houston would avoid much of the heaviest rain.

But that’s not the case.

The storm settled over Houston over the weekend, creating flooding of “historic proportions” in the nation’s fourth largest city. The images emerging on Sunday from Houston are horrifying and tragic.

In some areas, waters rose to nearly 20 feet.

From the National Weather Service, issued on Sunday morning:

If you want to help the victims of the storm, the Houston Chronicle has details on how to donate to the Red Cross and other information.

As our Kelsey Ramírez reported on Friday, both Fannie Mae and Freddie Mac issued bulletins late in the week, reminding mortgage servicers and homeowners of the government-sponsored enterprises’ disaster relief policies.

“Relief, including forbearance on mortgage payments for up to one year, may be available if their mortgage is owned or guaranteed by Freddie Mac,” Yvette Gilmore, vice president of single-family servicer performance management at Freddie Mac, said.

Fannie Mae has similar disaster relief policies. Click here for more on the housing industry’s response to Harvey.

On Saturday, the Board of Governors of the Federal Reserve System, the Conference of State Bank Supervisors, the Federal Deposit Insurance Corporation, and the Office of Comptroller of the Currency issued a statement providing financial institutions with some guidelines about how to handle the aftermath of Harvey.

The agencies said that they “recognize the serious impact of Hurricane Harvey on the customers and operations of many financial institutions and will provide regulatory assistance to affected institutions subject to their supervision.”

Click here for the full bulletin from the agencies.

In other news, the real estate industry has long had its issues with the “Zestimate,” the property value estimation tool that appears on every listing on Zillow.

While Zillow describes the Zestimate as a “great starting point” for determining the value of a home, homebuyers and sellers often believe that the Zestimate listed on a home is the true market value of the home.

And that causes issues when the true market value differs from the Zestimate’s projection.

Just last week, a judge in Illinois dismissed a lawsuit brought by a number of homeowners who claimed that the Zestimate undervalued their homes and cost them money when they tried to sell their house.

MarketWatch’s Andrea Riquier gives us more details:

The suit claimed that home buyers read the estimate as an appraisal regardless of whether it was an official appraisal and expected to negotiate accordingly. Zillow, for its part, had stressed that the Illinois statute made clear that calculations formulated in the way that Zestimates are can’t be used as official appraisals.

The judge, in dismissing the suit, agreed. “Zestimates are not false, misleading, or likely to confuse,” the ruling read. “The word ‘Zestimate — an obvious portmanteau of ‘Zillow’ and “estimate’ — itself indicates that Zestimates are merely an estimate of the market value of a property.”

Zillow has consistently tinkered with the algorithm that powers the Zestimate over the years, improving its accuracy, measured by how close the Zestimate is to the eventual sale price of a home, from 14% in 2006 to 5% as of a few months ago.

But a 5% error rate is still a 5% error rate, which leads to problems like lawsuits in Illinois.

Zillow wants so badly to make its Zestimate even more accurate that earlier this year, it launched a contest to improve the algorithm that powers the Zestimate, offering $1 million to anyone who could markedly improve the Zestimate’s accuracy.

But Zillow isn’t sitting on its hands and waiting for someone else to improve the Zestimate. Its analysts are also still working to make the Zestimate more accurate.

In fact, as part of an announcement about the Zestimate contest, Zillow said Friday that it just released a “major” update to the Zestimate that brings the error rate down from 5% to 4.3% nationwide.

Zillow said that it accomplished this latest improvement by moving its data into the cloud.

“To establish these new gains in home valuation accuracy, Zillow transitioned all its data to the cloud and can now compute the Zestimate in near-real time,” Zillow said. “Now, Zillow can process three times as much data as before, which allows its data scientists to experiment and iterate faster than ever, creating more accurate valuations.”

As for the contest itself, Zillow said that it is very encouraged by the response.

According to Zillow, more than 15,500 people have downloaded the competition dataset since the contest launched in late May. Additionally, more than 2,500 competitors from 76 countries have submitted an average of 350 entries a day to the contest.

“The Zestimate is trying to answer an incredibly complex and important question, and with the strong contest submissions we’re already seeing, we are on pace to reach our goal of becoming one of the world’s most impactful machine learning competitions,” Stan Humphries, Zillow Group chief analytics officer, said. “In the meantime, we think homeowners will be pleased with the new enhancements we’ve made to ensure they have a trusted starting point when monitoring the value of what is often the largest purchase of their lifetime.”

The contest runs through Jan. 15, 2019.

And in other online real estate news, it’s been fascinating to watch investors’ response to Redfin, which went public one month ago.

The online real estate brokerage, which also recently expanded into mortgage lending and buying homes directly from homeowners, priced its initial public offering at $15 per share. Investors loved the stock in early trading, pushing Redfin above $20 per share in its first day of trading.

Since then, Redfin’s stock has continued to climb, closing Friday’s trading at $24.89 per share, an increase of nearly 66% from where the stock opened back in July.

And while the company’s executives were, shall we say, rather pleasedwith the results on that first day, the fun part for the rest of us starts very soon, because Redfin is about to have to start revealing its quarterly financial results.

In fact, Redfin announced Friday that it will report its second quarter financial results on Sept. 7, 2017 after the stock market closes. That means investors and the rest of the housing industry will soon get a good look at what Redfin’s got going on under the hood.

Should be interesting.

And with that, have a great week everyone!

Consumer Bankers Association to Cordray: It’s time to put up or shut up about Ohio

Consumer Bankers Association to Cordray: It’s time to put up or shut up about Ohio

CFPB

Despite seemingly overwhelming rumors about Consumer Financial Protection Bureau Director Richard Cordray’s supposed intention to step down and run for governor of Ohio, thus far, Cordray has done nothing one way or the other to stamp out the rumors about his future.

All the while, the noise surrounding Cordray’s future keeps getting louder and louder.

And according to the Consumer Bankers Association, the cloud of uncertainty hovering around Cordray is now negatively affecting the CFPB’s ability to function and the financial services industry’s ability to plan for the future.

“It is well past time Director Richard Cordray clarify his intentions to run for public office as the speculation has become a distraction and now casts a shadow over the impartiality of the CFPB,” CBA President and CEO Richard Hunt said Friday in a note to the group’s members. “We need to have stability at the CFPB.”

According to Hunt, the mounting speculation about Cordray’s future is another sign that the CFPB should not be run by a single director, but rather by a bipartisan commission.

“The current limbo – will he or won’t he? – is just the latest reason why a Senate-confirmed, bipartisan commission must be established at the CFPB,” Hunt said. “A diverse group of experts directing and formulating agency policy – not a single director – would ensure consumers receive a balanced, deliberative and thoughtful approach to regulation.”

This isn’t the first time that the CBA has called for a bipartisan commission to run the CFPB.

Back in the June, the CBA joined more than 20 of the housing industry’s largest trade groups to call on Congress to enact legislation that would change the leadership structure of the CFPB from a single director to a bipartisan commission.

There is currently legislation making its way through Congress that would change how the CFPB is structured, but would not replace the bureau’s single director with a commission.

Recently, the House of Representatives voted to pass the Republican-crafted Financial CHOICE Act, which would abolish the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The version of the Financial CHOICE Act that passed the House would change the structure of the CFPB to make the director fireable at will by the president, rather than for cause only, as it stands now.

The original version of the Financial CHOICE Act would have seen the single director replaced by a commission, but that stipulation didn’t make it into the updated Financial CHOICE Act.

As Hunt notes, Corday is rumored to officially declare his intentions next month.

“Currently, Director Cordray is scheduled to speak at the Ohio Land Bank Conference in Cleveland, Ohio on September 12th, 2017,” Hunt writes. “Also, he is rumored to appear at an Ohio AFL-CIO Labor Day picnic. Could these appearances have implications for a potential run for office?”

The Ohio Democratic Party recently announced that its first debate for the party’s nomination for governor would be held on September 7, leading to more speculation that Corday will step down over Labor Day weekend.

“The markets and consumers demand stability, and announcing his intentions is just the right thing to do,” Hunt concludes.

But for now, the industry is left waiting to see what Cordray is going to do next.

Damning report finds state agencies wasted millions meant for struggling homeowners

Damning report finds state agencies wasted millions meant for struggling homeowners

Money tightening

A damning new report from a federal watchdog shows that 19 state housing finance agencies wasted millions of dollars that should have gone to struggling homeowners as part of the government’s Hardest Hit Fund program.

The report, published Friday by the Office of the Special Inspector General for the Troubled Asset Relief Program, showed that SIGTARP’s investigation found that the all 19 of the state housing finance agencies that participated in the Hardest Hit Fund collectively wasted $3 million on items like barbecues, steak and seafood dinners, gift cards, flowers, gym memberships, employee bonuses, litigation, celebrations, and cars, instead of using the money to help struggling borrowers.

The Hardest Hit Fund was created in 2010 and is designed to help state’s housing finance agencies assist struggling homeowners and help stabilize neighborhoods in many of the nation’s hardest hit communities, as part of TARP.

The program initially set aside $7.6 billion for those communities, but last year, the Department of the Treasury announced that it was committing an additional $2 billion to the Hardest Hit Fund.

The money in the Hardest Hit Fund program went to state housing agencies in Alabama, Arizona, California, Washington, D.C., Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, North Carolina, New Jersey, Nevada, Ohio, Oregon, Rhode Island, South Carolina, and Tennessee.

According to SIGTARP’s report, the Hardest Hit Fund program established significant guidelines around what the state agencies could do with the money they received from the Treasury.

Specifically, all expenses charged to TARP by the state agencies must be “necessary” to facilitate loan modifications. The SIGTARP report provides more detail on how the payment structure works.

“Treasury’s contracts with the state agencies administering HHF also included a schedule of permitted expenses, which listed specific categories of necessary expenses and dollar limits,” SIGTARP said in its report.

But SIGTARP’s investigation found that each of state agencies “lumped unnecessary expenses into permitted expenses categories, elevating the risk of fraud, waste, abuse, and overpayment throughout the program,” in some form or fashion.

Included among those unnecessary expenses were meals and other expenses directly involving Treasury officials.

All in all, the SIGTARP report found that the 19 housing finance agencies charged $3 million in unnecessary charges to TARP.

As SIGTARP notes in its report, some of the expenses are minor, including TARP gift cards for employees, TARP barbecues, TARP flowers, TARP gym memberships, and TARP balloons, but others were significant.

For example, Rhode Island charged to TARP “hundreds of thousands for the construction of a customer center even though it is also used for non-HHF purposes—years after billing TARP for the build-out of an office in 2010,” the report stated.

The SIGTARP report lays out some of the other “wasteful” spending by the housing finance agencies, including:

North Carolina Housing Finance Agency. $107,578 for barbecues with Treasury employees, parties, celebrations, Visa gift cards, flowers, restaurant outings including steak and seafood dinners, gifts, gym memberships, regular employee meals, and employee cash bonuses, customized Lands’ End shirts, and a CVS gift card to recognize new HHF funding in 2016.

Rhode Island Housing. $1,031,210 for a new customer center with a new kitchen and new furniture in 2016, marketing, systems and rent that were fully charged to HHF but also used for other purposes, backdated “rent” for three years when the HHF program was closed, and a monthly employee payment to defray transportation costs.

Nevada Housing Division. $43,497 in bonuses, of which nearly all went to the chief executive officer who was later terminated, and employee picnics.

Florida Housing Finance Corporation. $106,774 in bonuses approved by the now terminated executive director. Gift certificates to employees and a barbecue.

District of Columbia’s Housing Finance Agency. $258,333 to prepay for five years of avoidable online storage access and data two years after the HHF program was closed to homeowner applications.

Illinois Housing Development Authority. $98,305 in employee cash retention awards. HHF funds were also spent for lunch at a pizza restaurant to “to celebrate getting new HHF funds and an employee’s upcoming wedding.”

Alabama Housing Finance Authority. A TARP barbecue with Treasury employees Visa gift cards, and fruit baskets.

Kentucky Housing Corporation. Picnic with food trucks, an employee gelato outing, catered lunches with Treasury employees.

Ohio Housing Finance Agency. More than $13,000 in events with housing counselors, including admissions to three zoos and catering.

South Carolina State Housing Finance and Development Authority. An executive’s use of a car for more than four years

But the SIGTARP report doesn’t only hold the state agencies responsible for the wasteful spending.

SIGTARP also chides the Treasury for not doing enough to prevent the issue from happening.

“Treasury did not hold state agencies accountable to the requirement in Treasury’s contract that expenses must be necessary for the specific services in HHF,” SIGTARP wrote in its report. “Treasury regularly reviewed state agency expenses, but only on a small sample basis with minimum dollar thresholds.”

In a statement, SIGTARP’s Christy Goldsmith Romero did not mince words either.

“Congress did not authorize TARP dollars for barbecues, steak and seafood dinners, gift cards, flowers, gym memberships, employee bonuses, litigation, celebrations, cars, and other unnecessary expenses of state housing agencies, but those are some of the charges SIGTARP’s forensic analysis uncovered,” Goldsmith Romero said.

“SIGTARP previously reported on scores of people who earn under $30,000 a year, but were turned down for the Hardest Hit Fund. Now we find that some state housing agencies are more willing to keep TARP dollars for themselves than distribute it to low-earning homeowners, a violation of TARP contracts and inconsistent with TARP law,” Goldsmith Romero continued.

“With more than $1 billion to be spent on HHF administrative expenses, the mindset must change at state agencies and Treasury. Otherwise taxpayers will continue to pay more for these services than is necessary,” Goldsmith Romero added. “TARP is not a source to fund state agency’s general operations, boost state employees’ morale, or throw catered barbecues when Treasury employees visit. TARP is not a windfall.”

SIGTARP concludes its report by calling for the Treasury to recover the $3 million in wrongful spending from the housing agencies.

“This report should deter future unnecessary spending when state agencies can see that other state agencies modify loans in HHF without charging TARP for these same expenses,” SIGTARP said. “However, the responsibility to stop TARP spending on unnecessary expenses rests with Treasury.”

In a response from Treasury that was included in the report, the department said that it agrees that the Treasury should recover the amounts expended in violation of program requirements.

American Pacific Mortgage sues insurer after hacker stole funds from lender

American Pacific Mortgage sues insurer after hacker stole funds from lender

Computer hacker

American Pacific Mortgage filed a lawsuit in federal court this week against Aspen Specialty Insurance Company, claiming that the insurance company is refusing to cover a claim filed after a hacker impersonated the mortgage company’s former CEO and stole more than $75,000 from the company.

Law360 has more details, but here’s the gist of the lawsuit from that same article:

A California-based mortgage company hit its insurer with a lawsuit in a New York federal court Tuesday seeking to recoup under a $3 million policy “substantial” losses incurred when an impostor duped the mortgage lender into wiring money for a nonexistent transaction.

American Pacific Mortgage Corp. asserts that Aspen Specialty Insurance Company must indemnify it for a cyberattack that resulted in an employee wiring more than $75,000 to a fictional company.

In a statement provide to HousingWire, American Pacific CEO Bill Lowman said that the incident took place two years ago and while the theft was the result of an “elaborate scheme,” the money stolen did not affect the company’s operations.

“In August 2015, American Pacific Mortgage was a victim of an elaborate scheme which involved an email hacker posing as the (company’s) CEO and duping an unsuspecting employee,” Lowman said in a statement.

“It is important to point out, at no time were our systems infiltrated or confidential data breached. While the event was significant enough to file an insurance claim, the amount in no way impacted the company’s operations, employees or the consumers we serve,” Lowman continued.

Lowman said that the company filed the breach of contract lawsuit now because the incident happened two years ago and the company is nearing the end of the statute of limitations.

“While we are not at liberty to speak about the specifics of the event, we feel it is our responsibility and welcome the opportunity to share our experience with others in the industry and make them aware of both the threat and the potential gaps in their insurance,” Lowman said.

“Since this unfortunate event, American Pacific Mortgage has invested significantly in fortifying our systems and protecting our company,” Lowman concluded. “We consider our company the safest independent mortgage bank in the industry.”

When reached for comment, a spokesperson from Aspen Specialty Insurance said that the company does not comment on matters of litigation.

While the circumstances of this incident are not exactly the same, it does share some similarities with a rise in cybercrime involving the real estate industry in recent years.

Last year, the Federal Trade Commission and the National Association of Realtors issued a warning to people interested in buying a home that scammers were posing as real estate agents, Realtors and title insurance companies to steal consumers’ closing costs.

And earlier this year, the FTC and NAR reissued that same warning because similar scams are still taking place.

In these scams, hackers take over the email accounts of homebuyers, real estate agents, or Realtors. Then, they obtain information about upcoming real estate transactions and send an email to the homebuyer, pretending to be the real estate agent or the title company that’s being used for the closing.

The email tells the buyer that there has been a last-minute change to the wiring instructions, and instructs the buyer to wire their closing costs to a different account – one controlled by the hacker.

Then, once the buyer sends the money to the scammer’s account, the money disappears.

The FTC and NAR weren’t the only ones to issue warnings about these types of scams.

Last year, the Contra Costa Association of Realtors warned Bay Area homebuyers that they could be targets of similar schemes, one of which cost a local buyer nearly $1 million.

And earlier this year, the American Land Title Association said that last year’s warning from the FTC and NAR didn’t do enough to protect consumers and the group wanted the Consumer Financial Protection Bureau to issue a warning of its own.

Are Employee Stock Ownership Plans the key to healthier mortgage finance companies?

Are Employee Stock Ownership Plans the key to healthier mortgage finance companies?

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An Employee Stock Ownership Plan, ESOP, isn’t new to the finance world. Companies across all industries take advantage of ESOPs. But while the idea dates back, Gellert Dornay, president and CEO of Axia Home Loans, which became 100% owned by its employees back in September 2016, gave a unique perspective on how this type of plan could be the key in creating a healthier mortgage finance market.

And, most notably, how an ESOP can help lessen mortgage default risk all while retaining great employees, which were both strained during the financial crisis.

As explained by the National Center for Employee Ownership, “ESOPs are most commonly used to provide a market for the shares of departing owners of successful closely held companies, to motivate and reward employees, or to take advantage of incentives to borrow money for acquiring new assets in pretax dollars. In almost every case, ESOPs are a contribution to the employee, not an employee purchase.”

The center noted that while ESOPs were almost unknown until 1974, ESOPs are now widespread. According to the most recent data, 6,717 plans exist, covering 14.1 million employees. Of this amount, finance, insurance and real estate companies make up 17% of ESOP plans, coming in third after professional/scientific/technical services (18%) and manufacturing (22%) companies.

A full explanation on how ESOPs work can be found on the center’s website. For starters, there’s a brief description below:

An ESOP is a kind of employee benefit plan, similar in some ways to a profit-sharing plan. In an ESOP, a company sets up a trust fund, into which it contributes new shares of its own stock or cash to buy existing shares. Alternatively, the ESOP can borrow money to buy new or existing shares, with the company making cash contributions to the plan to enable it to repay the loan. Regardless of how the plan acquires stock, company contributions to the trust are tax-deductible, within certain limits.

When Axia Home Loans first became 100% owned by its employees, Dornay said, “An ESOP rewards employees who contribute to the company’s success by allowing them to share in the company’s future increase in value.”

Now about one year later, Dornay told HousingWire exactly how beneficial an ESOP can be: “When employees run the company, our decision methodology is different. Everything is in the primary best interest of the shareholders, who are the employees,” he said.

He explained that the decision more fairly compensates people and gives them ownership. Once people feel invested in their company and that they have partial ownership in it, employees are more likely to commit to a company longer. This is helpful in an industry that has a high turnover rate.

Taking it a step further, Dornay said that if employees run the company, then they have more skin in the game, and it creates less default risk on mortgage loans.

After the financial crisis, the government slammed the industry with mortgage regulations in order to ensure nothing like the 2008 collapse ever happens again.

An ESOP, in design, should create an added layer of protection from the likelihood of another crisis since if the company goes down, so does an employee’s savings. Just as lenders discuss the need for skin in the game for down payments, this would create skin in the game for employees.

This mindset behind an ESOP doesn’t happen instantly though. Ted Margarit, principal, corporate finance at Chartwell, explained that it could take a couple years for employees to see how much stake they have in a company and to feel like they are an owner.

But as time goes by, they’ll get the power and see the value in an ESOP, he said.

When employees feel like they own the company, he stated, they look for ways to reduce costs or expenses because it all accrues to their benefit.

Margarit said this change in employee mindset is something they see time and time again.

“Turnover is lower and recruiting is easier because you’re offering a benefit that other companies don’t offer,” he said.

“This is a great opportunity for business owners to change their corporate culture,” said Margarit.

But, he added, “every business is unique and you really need to seek out the proper advice.”

For those considering an ESOP, Margarit noted these three major things in order for it to work:

  1. You have to be profitable because savings aren’t worth anything unless you are profitable.
  2. You need a minimum number of employees (about 20 -25 people) because of federal requirements.
  3. This is a long-term transition plan, so you need to make sure you have a next generation of leaders. If you don’t have that transition plan, you need someone there to run the ships.