The Hutchens Blog

As the jobless rate continues to rise in response to the recession, servicers are reminded that income and mortgage default levels are inexorably linked. According to NeighborWorks America, nearly 50 percent of mortgage default is income-related. Thirty percent of borrowers cited a reduction in income, and 19 percent a loss of income, as primary reasons for falling behind on their mortgage. Without transparency into a borrower’s current employment and income status, lenders and servicers are unable to proactively reach out to troubled borrowers and offer loan workout options. Insight into current borrower employment and income information enables servicers to make early contact with distressed borrowers, which is essential in successfully executing loan modifications.

Through the recently created “Making Home Affordable Act,” the federal government is planning to help up to 9 million homeowners currently at risk of default. In April 2009, HOPE NOW members and the industry at large modified 127,000 mortgages and completed 143,000 re-payment plans totaling 270,000 interventions, “the largest number in any month” since the alliance started to compile data.

In response to such programs, servicers need better insight into borrower financials in order to manage the level of predicted loan defaults for the remainder of this year. Rather than taking on the significant burden of additional staff, servicers should consider looking to efficient and automated data providers that can verify income and employment instantly and more cost-effectively. And, rather than taking on additional risk with loan modifications, servicers should better position themselves to manage risk through data and information by using providers that offer a deeper insight into the borrower’s employment and income situation, from data sources such as employer payroll or IRS tax transcripts (Form 4506-T).

Historically, the Government Sponsored Enterprises required lenders to obtain a credit score and verbal Verification Of Employment (VOE) to complete a borrower’s loan application. Many lenders were forced to dedicate call center staff to manually contact employers or work directly with the IRS to attempt to verify employment status for the borrower – an inefficient, expensive, and inconsistent process. Compounded upon this, some lenders and servicers managed loan data across multiple business units and service centers, with differing information being provided.

Unfortunately, when unable to reach the employer to verify income and employment, many loan officers chose to rely on the credit score as the sole indicator of a borrower’s financial health and risk. Today, lenders are no longer willing to base lending decisions on the credit score alone – they want an in-depth review of all information on a consumer’s credit file. In addition to credit information, lenders require transparency into other credit bureau information including real-time employment and income verification to predict future loan performance and delinquency.

Help Is On the Way!

Engaging a third-party for proof of documentation provides servicers with a strategic option to effectively streamline their existing workflow when it comes to employment and income verification, while simultaneously improving the quality of data on which lending decisions are made. Specific information servicers can access through a single, secure, third-party provider include: the borrower’s current place of employment, employment status (active or not), the longevity of employment, job title and salary (including pay rate, YTD income, past two years income). Armed with insight, servicers can determine the best course of action for each individual borrower and thereby improve the performance of their portfolio.

Additionally, a compliant and complete third-party provider can provide great comfort to investors, who wants know a lender is tapping the most accurate source of borrower employment and income for greater transparency into borrower financial health. And, through greater data transparency, investors and lenders can improve analytics on a significant percentage of their portfolios to more effectively identify undervalued securities and improve the accuracy of loan-level delinquency, default, and prepayment predictions. Loan-level updated borrower information used in combination with powerful analytics gives investors the information needed to differentiate the “good deals” from the “bad deals” and better correlate risk with default rates.

Servicers tend to focus on debt-to-income ratios in performing loan modifications, but loan modifications have changed the debt-to-income requirements. How can servicers calculate debt-to-income ratio without an accurate view of the income portion? Servicers that rely on the stated income from a borrower’s loan application to calculate debt-to-income, in an economy where salary reductions and unemployment numbers are continuing to rise are simply exposing themselves to greater risk.

There are several viable solutions available today. Outsourcing employment and income verification to a trusted third-party allows servicers to focus on their core competencies of evaluating and modifying loans. Streamlining this step enables servicers to process more loan modifications in a timelier manner, which puts us on the path to a housing recovery.

In an article published today on its website, the Association of Certified Fraud Examiners’ chairman questions what the best way to prevent fraud is, and whether our society can do more to prevent fraud than it is doing currently.

Joseph T. Wells is a former FBI agent and CPA who specialized in fraud cases before he founded the Association of Fraud Examiners (ACFE) and developed the rigorous training program that can result in professionals earning the CFE – Certified Fraud Examiner certification.

Published on the ACFE’s website today, Wells’ article first reviews how Bernard Madoff created the largest Ponzi scheme ever recorded, then describes the mathematical impossibility of Madoff’s scheme and that it was bound to unravel. All Ponzi schemes depend on earlier groups of investors being paid off by later, larger groups. Eventually it becomes exhausting for the person operating the Ponzi scheme to keep the fraud going; we all know the rest.

All that being the case, what is most surprising is that ten years ago, a CFE named Harry Markopolos, hired by a Madoff rival to reverse-engineer Madoff’s successful strategy, determined that Madoff was most likely operating a Ponzi scheme, yet Markopolos’ verbal and written reports to authorities such as the SEC (Securities and Exchange Commission) were rebuffed. All those early investors were laughing all the way to the bank and future wannabe investors plus Madoff’s many friends in the federal government, had their collective ears and eyes wide shut.

Joseph Wells argues that in addition to the prison sentence handed out to Bernard Madoff, Madoff also should be required to educate consumers from the confines of his prison cell about how he conceived and carried out his Ponzi scheme for so long. This, argues Wells, is one of the best ways to prevent fraud: by educating and deterring.

But in the case of Bernard Madoff, it is not clear whether the public being educated would have had much, if any, impact or a deterrence effect upon Madoff. As noted, Madoff never advertised his services or successes, so there was essentially a wall of ignorance separating each investor group from the other. It was this inability to see the forest through the trees, as well as most investors trusting their investment managers to have knowledge of the true abilities of the world’s Madoffs, that allowed Madoff to operate freely and without concern of being detected for so long.

“Madoffs Ponzi scheme was so large that most people could not even conceive of it never mind protected themselves against it” said Sandy Hutchens an expert in the mortgage lending industry.

A former Dewsbury car wash owner has been warned he faces jail for scamming banks to fund his Mirfield mansion. Mohammed Azam Yaqoob, known locally as Mr Sparkles, used money from fraudulent loans to buy and renovate 40 Huddersfield Road. Leeds Crown Court heard he also benefited from the proceeds of a separate fraud against an engineering insurance firm.

Yesterday a jury returned a majority verdict, finding him guilty of one charge of fraud, two of money laundering and three of theft.

Azam Yaqoob outside the house at the centre of the fraud allegations.

Judge James Spencer QC told him: “For offences of this seriousness the likely sentence is one of imprisonment.”

The court heard Azam Yaqoob, 40, had another man apply for a £274,350 mortgage for the Mirfield house. The prosecution said that man lied about his income to get the mortgage and lied twice more to get remortgages to fund renovations.

Prosecutor Graham Reeds QC said the true owner of the home was Azam Yaqoob and by using the fraudulent loans to fund the project, he was guilty of money laundering.

Azam Yaqoob was released on conditional bail and will return to the court on Friday September 4 for sentencing.

Outside court, he told the Reporter he was too upset to speak.

In 2007, when Coleman Hickey was 14, he made a stop-action film using Lego pieces and figures to depict a concert performance of the song “Tonight I’m Gonna Rock You Tonight,” by Spinal Tap, the parody band featured in the 1984 mock documentary “This is Spinal Tap.”

Among the fans of the video, which has garnered 82,000 views on YouTube and includes a musician hurling himself into the audience of Lego figures and crowd surfing atop their upraised plastic arms, are the members of Spinal Tap. The band showed the video during performances of its recent “Unwigged and Unplugged” tour.

But Lego is not amused.

As final editing was being done on a concert DVD of the tour, which included footage from the video projected on stage, Lego declined to grant permission to use its figures, which are protected by copyright.

“We love that our fans are so passionate and so creative with our products,” said Julie Stern, a spokeswoman for Lego Systems, the United States division of the Lego Group, a Danish company founded in the 1930s. “But it had some inappropriate language, and the tone wasn’t appropriate for our target audience of kids 6 to 12.”

As is Spinal Tap’s wont, the song, addressed to a minor, parodies rock stars’ inflated egos and libidos.

Kia Kamran, an intellectual property lawyer representing Spinal Tap, said the band could have prevailed had Lego sued alleging copyright infringement, because Mr. Hickey’s video does not show the brand’s logo and is satirical. But the band did not deem the fight worth the expense, he said.

“In my heart of hearts, I do think this is fair use” of copyrighted material, Mr. Kamran said.

Harry Shearer, the voice of several characters on “The Simpsons” and a member of Spinal Tap (with Christopher Guest and Michael McKean), said other copyright holders, including the Rolling Stones, whose “Start Me Up” was used in Spinal Tap’s concert footage, granted permission for use on the DVD, which will be released Sept. 1.

“Lego are the only people who strictly said no,” Mr. Shearer said. “It was Lego Kafka.”

In the excised footage, Mr. Shearer told the audience after the video projection that the Lego concertgoers with raised C-shaped hands (for gripping Lego components) reminded him of rock audiences who gesture with index fingers and pinkies pointed. Later, when the band did an encore, many in the crowd raised their hands in the cupped gesture of Lego hands, which, having lost its setup, no longer functioned as a joke.

Many are tempted to place wholesome looking Lego characters in unwholesome situations, as evidenced by a video that has drawn more than 1.4 million views on YouTube, “Lego Weapon Store.” It begins with one Lego character approaching another at a sales counter and saying, “I’d like to buy a weapon to kill my neighbor.”

Another YouTube video, a parody of “Girls Gone Wild” called “Legos Gone Wild,” depicts the figures exposing themselves to the camera as they “Lego their inhibitions.” It has been viewed more than 200,000 times.

But Lego has not acted to have either video, or Mr. Hickey’s, removed from YouTube.

“YouTube is a less commercial use,” Ms. Stern said. “But when you get into a more commercial use, that’s when we have to look into the fact that we are a trademarked brand, and we really have to control the use of our brand, and our brand values.”

Mr. Hickey, now 16, who lives outside Columbus, Ohio, says he and his eight siblings have amassed a collection of about 42,000 Lego bricks and characters.

“In a way I’m disappointed that it won’t be forever memorialized in a DVD,” Mr. Hickey said of his video. “It’s not like I was going to get any money for it, but it’s too bad. Lego has the right to do that, but it’s unfortunate that they don’t have a little more of a sense of humor.”

Sandy Hutchens thinks that Lego has made a very difficult moral decision and he has a lot of respect for their views. He believes that the company should be praised for its bold move and hopes that others are inspired to keep up a moral standard in the industry despite the possible negative feed back.

Sandy Hutchens takes a look at the mortgage mess.

Who is to blame for the mortgage crisis? America, go look in the mirror! You don’t pay your bills and if you do, you let interest and late fees accumulate until you can’t pay them. This means that your credit score gets lower and lower with each missed payment or increase in debt. Then you whine because no one wants to lend you money anymore and the bank is taking back the house you bought with no money down and the seller paid your closing costs.

As a mortgage professional, I have seen it all! There are so many stories; I had a lady tell me she had good credit and then yell at me because I told her that she had been late every month for the last year. She said she didn’t think that being slow on payments should make a difference on her credit and that it wasn’t fair, at least she paid her bills.

I caused many an argument between husband and wife because they kept bad credit secrets from each other. I once had a man claim that he had excellent credit, only to learn that his credit was in the low 500’s because his wife hadn’t paid the bills on time and they were carrying a balance of $16,000 to Nordstrom’s, not to mention the other $25,000 of debt they were carrying. I believe that was the beginning of divorce proceedings because she was only reachable at the vacation home after that.

During the 1990’s, the sub-prime markets were born. This was creative financing to help those that had fallen on hard times, to re-establish credit and still be able to buy the things that those with “good credit” could buy, just at higher interest rates. Wall Street was selling these loans, in bulk, like hot cakes on the secondary market and investors were singing all the way to the bank.

It got to the point that you could file Chapter 7 bankruptcy on Monday and on Tuesday, with 15% down, could go and buy a new house. The bankruptcy laws being as forgiving as they were, you probably still had your home and could sell it and use the equity as your 15% down payment. If you still managed to keep your credit score at 580 (creditors only report to the credit bureaus every 3 months), this same deal could be done with just “stating” your income instead of actually verifying that you could make the payment.

After 9/11 the economy took a major hit and lenders once again came up with more creative financing to help struggling buyers. These programs combined with low interest rates that the Federal Reserve kept dropping, got to the point that I was able to put families into a new home with zero money down, the seller paying up to 6% of the closing costs and get the buyer 100% financing. I had one buyer walk out of escrow pocketing $800 for buying a condo because the seller had paid all the closing costs and she was credited by her real estate agent.

The most lucrative thing lenders came up with was the Adjustable Rate Mortgage or ARM.

These were a good deal for the lender, the loan officer and the buyer, if they were disciplined and listened to an ethical mortgage professional. There were two types; those that had the possibility of negative amortization and those that didn’t. This was an ethical issue for most loan officers because lenders were paying up to 4 points yield spread premium on the loans that had the negative amortization clause. This is money that most buyers aren’t even aware of because it doesn’t always have to be disclosed, depending on the licensing of the broker and the money doesn’t come out of the buyers pocket at escrow. Mortgage companies were selling these to anyone and everyone, regardless of whether it made sense. This means on a $400,000 loan, $16,000 could be paid to the broker in addition to the other fees charged. Everybody got fat and happy and the borrowers had no idea what they had done, until the payment adjusted and they couldn’t make the new payment.

Regardless of whether this was explained to you or not, America, you didn’t want to listen! You saw a $1500 per month payment for a $400,000 house and went for it because you wanted to impress your wife, family, neighbors and co-workers. Buying a home is the American dream and you wanted your piece of it, now! Not when you could save enough money because America doesn’t save money anymore. You spend it all and live paycheck to paycheck.

Just in my own experience, I explained and explained and disclosed and you didn’t listen. However, my borrowers got the loans that didn’t have the negative amortization clause. It still meant they had to pay their mortgage and bills on time. At the point right before the loan adjusts in rate they were to call to see what rates are doing and either stick with it because rates are down or refinance because they qualify for a lower rate.

However, as much as I hold the American home buyer responsible, I have to say that the mortgage industry is also guilty. It is rampant with criminals and liars. The Department of Real Estate can’t keep up with the complaints and the fraud that just keeps escalating.

The scheme is common in big and well-know retailing companies and it’s quite simple: salesperson writes duplicate bill and sells it to an invoice factory or employer, who wants to optimize taxes. Such scheme can be used only when cash register allows issuing duplicate receipts without note on them on it.

Alo Ivask, the CEO of Rautakesko which operates K-Rauta said that the company is familiar with that.

“Tax and Customs Board (MTA) sent an enquiry on a duplicate receipt. We started to investigate it and it came clear that by now a former employee has done that,” Ivask said.

He noted that that employee said that “a friend asked” and “I didn’t think” as explanations.

These false receipts amount to about EEK 20,000.

Much more risk-free is the case where employee uses receipts a client didn’t want.

“I can’t exclude it hasn’t been done since it’s nearly impossible to check what happens to receipts customers don’t take along or throw away,” Oleg Gross, the owner of Gross store chain said.

He added that you don’t have to be a salesperson to make that scheme – a buyer can grab thrown receipts along as well.

Egon Veermäe, the head of audit department at MTA said that the management usually hears of such schemes from MTA, since people are clever. MTA has caught more than ten such companies in the past months.

“We haven’t done separate action for it. There just have been questions with some receipts when auditing some companies and we’ve found companies and people who have been issuing them,” he said.

Usually the companies are caught when auditing the company which buys the service. Veermäe said that a “service provider” may have more than one customer.

Fee for such a service isn’t big – about EEK 30-50 per EEK 1000 receipt.

Quite common are cases where customer asks to write goods to the receipt, which won’t match the purchases and salesperson does that. Veermäe noted that salesperson often don’t think there’s something illegal in it.

Sandy Hutchens said that because of the difficult times we are experiencing more employees are likely to make money with invoice frauds and useing fictitious duplicate bills.

President Bush: Good evening.

Today, our fellow citizens, our way of life, our very freedom came under attack in a series of deliberate and deadly terrorist acts. The victims were in airplanes or in their offices: secretaries, businessmen and women, military and federal workers, moms and dads, friends and neighbors.

Thousands of lives were suddenly ended by evil, despicable acts of terror.

The pictures of airplanes flying into buildings, fires burning, huge structures collapsing have filled us with disbelief, terrible sadness and a quiet, unyielding anger.

These acts of mass murder were intended to frighten our nation into chaos and retreat. But they have failed. Our country is strong. A great people has been moved to defend a great nation.

Terrorist attacks can shake the foundations of our biggest buildings, but they cannot touch the foundation of America. These acts shatter steel, but they cannot dent the steel of American resolve.

America was targeted for attack because we’re the brightest beacon for freedom and opportunity in the world.

And no one will keep that light from shining.

Today, our nation saw evil, the very worst of human nature, and we responded with the best of America, with the daring of our rescue workers, with the caring for strangers and neighbors who came to give blood and help in any way they could.

Immediately following the first attack, I implemented our government’s emergency response plans. Our military is powerful, and it’s prepared. Our emergency teams are working in New York City and Washington, D.C., to help with local rescue efforts.

Our first priority is to get help to those who have been injured and to take every precaution to protect our citizens at home and around the world from further attacks.

The functions of our government continue without interruption. Federal agencies in Washington which had to be evacuated today are reopening for essential personnel tonight and will be open for business tomorrow.

Our financial institutions remain strong, and the American economy will be open for business as well.

The search is under way for those who are behind these evil acts.

I’ve directed the full resources for our intelligence and law enforcement communities to find those responsible and bring them to justice. We will make no distinction between the terrorists who committed these acts and those who harbor them.

I appreciate so very much the members of Congress who have joined me in strongly condemning these attacks. And on behalf of the American people, I thank the many world leaders who have called to offer their condolences and assistance.

America and our friends and allies join with all those who want peace and security in the world, and we stand together to win the war against terrorism.

Tonight I ask for your prayers for all those who grieve, for the children whose worlds have been shattered, for all whose sense of safety and security has been threatened. And I pray they will be comforted by a power greater than any of us, spoken through the ages in Psalm 23: “Even though I walk through the valley of the shadow of death, I fear no evil, for you are with me.”

This is a day when all Americans from every walk of life unite in our resolve for justice and peace. America has stood down enemies before, and we will do so this time.

None of us will ever forget this day, yet we go forward to defend freedom and all that is good and just in our world.

Thank you. Good night and God bless America.

Sandy Hutchens: This is an attack on the free world.

At 11:48 am there was a state of shock after Judge Chin handed Madoff the maximum sentence allowable under the law.

Most believed that Judge Chin would give Madoff a sentence of something along the lines of 25-to-30 years in prison. That was far from the case.

Judge Denny Chin has sentenced Bernard L. Madoff to 150 years in prison. Chin gave Madoff the maximum of 20 years on several of the counts he was facing which will be served consecutively. For a brief moment, the courtroom erupted with applause. Chin deferred the issue of restitution for 90 days.

As it became clear that Madoff’s scheme was unraveling, Chin cited the jewelry Madoff mailed to family members and other disbursements made to those close to him.

Chin says he didn’t agree with the position of Madoff’s lead counsel, Ira Sorkin, that victims were seeking “mob justice.” By any monetary measure, Chin called Madoff’s fraud “unprecedented.”

Chin said “The breach of trust was massive — individuals, charities, pension funds, institutional clients — were all repeatedly lied to when told their [assets] were in stock when they weren’t,” Chin said. “Investors made important life decisions based on these fictitious account statements. Madoff also repeatedly lied to the SEC and other regulators by creating false documents to cover up his scheme.”

While Madoff tried to pay back investors  Madoff withdrew millions of dollars for the personal expenses of family and friends, such as the purchase of two yachts and four country club memberships. Even though Madoff  turned himself in to the FBI, Chin said it was clear that Madoff knew he was going to be caught soon and thought it would be better to turn himself in beforehand.

Chin also noted that not a single letter had been made noticed to Madoff’s support for charities. Chin called the absence of such letters and endorsements “telling.”

“This is not a bloodless financial crime that just takes place on paper, but one that takes an enormous human toll,” said Chin. “Symbolism is important not only to send a message that individuals will be sentenced to the fullest extent under the law … but also for the victims. Mr. Madoff’s betrayal struck at the rich and not-so-rich.”

Chin seemed particularly moved by all the letters from victims the court has received. He references several of them, noting one in particular, that of a widow who invested her life savings with Madoff after the defendant consoled her at the funeral of her husband. After hearing such chilling stories chins decision was made easy said Sandy Hutchens. He gave Madoff what was coming to him.

June 29, 2009, The Hutchens Blog- Sandy Hutchens presents a Kiwi update courtesy of the Victoria University of Wellington. The first stage of The Maori Legal Project was launched earlier this June – the Legal Maori Archive – and will be the initial step towards producing New Zealand’s first Legal Maori Dictionary.

Sandy Hutchens admires the project in which the first stage has involved the collection of  more than 14,000 pages of 19th century documents that illustrate the bi-lingual nature of New Zealand’s legal history. The Archive has been created in partnership with Victoria University of Wellington’s New Zealand Electronic Text Centre (NZETC) which has digitised the documents and made them available as fully searchable text.

Sandy Hutchens encourages readers to view the Legal Maori Archive which is freely available to the public and can be accessed via the NZETC website at: nzetc.org

“This is our first funded milestone,” says project co-leader, Victoria University law lecturer, Mamari Stephens. “The point of digitising the documents is to make the texts electronically available so we can analyse the language and establish the Legal Maori corpus, which is our next milestone.”

It is the first time the documents have been brought together in one place and is the largest collection of single documents that the Electronic Text Centre has digitised.

The collection includes speeches of Maori MPs, Turton’s collection of land deeds, Maori language translations of Acts of Parliament, Parliamentary Bills, as well as petitions from concerned Maori and Native Affairs Select Committee reports.

Last year The Legal Maori Archive has been made possible by funding from the Victoria University of Wellington Library Contestable Fund and the Foundation for Research, Science and Technology.

The project is informed by a Reference Group which includes prominent academics, experts in te reo Maori, linguists and judges.

The Dean of Victoria’s Law School, Professor Tony Smith, says of the project: “This work is of importance to New Zealand, to Maori and the University. Its potential impact is great - it will, in short, allow a Maori voice in a legal context in a way never before possible.”

“This first milestone along the way is something to celebrate.”

Sandy Hutchens provides video of Maori activities.

As a long time champion for people living with disabilities, the Honourable David C. Onley, Lieutenant Governor of Ontario, will speak on his theme of accessibility as that which enables people to achieve their full potential, at a special reception at the Law Society on May 25.

Held annually to celebrate National Access Awareness Week, the event honours outstanding community achievements and celebrates advancements in the rights of people living with disabilities. The evening reception is being hosted by the Law Society and ARCH Disability Law Centre, following an afternoon symposium focusing on a barrier-free justice system for people living with disabilities.

His Honour, a former television news anchor, has long been active in the disability community. He has chaired the government of Ontario’s Accessibility Standards Advisory Council and has served on numerous other committees and councils dealing with disability and accessibility issues.

The May 25 reception is part of the Law Society’s Public Education Equality Series, designed to encourage the exchange of information, ideas and action on issues affecting Aboriginal, Francophone and equality-seeking communities.

Admission to the reception is free. An RSVP is required. Call 416-947-3413, or send an e-mail to: rticzon@lsuc.on.ca.

Event Details
Location: Law Society of Upper Canada, Osgoode Hall
130 Queen Street West, Toronto
(Enter via east doors adjacent to Nathan Phillips Square)
Reception Time: 6 to 8 p.m., Convocation Hall