DS News - Digital Archives

STATE OF AFFAIRS: WEST » "You've got to have exceedingly high FICO scores, and banks require additional liquidity over and above the down payment," he said. He says that during the past 18 months, nearly a trillion dollars in mortgage applications have been denied to people whose credit scores were higher than 700. "The reason for denial is that the debt-toincome ratio was too high and/or there was insufficient down payment. In other words, the deficiency of equity causes the problem," according to Cinelli. Cinelli believes that through the homeownership and investment plan offered by his company, many people who find it difficult to be approved for a loan will find a solution. "Although there are FHA [Federal Housing Administration] programs that allow for lower down payments, there are other costs to consider which jeopardize the ability of an individual to qualify for a mortgage," he said. "If the prospective homeowner doesn't have enough capital, then let's bring in private capital to supplement that and allow those investors to benefit from the price movement of the property." The first thing PRIMARQ does when considering whether to secure financing for a property is consult with a number of data and analytic firms that not only assess credit market values, but, more important, also identify projected price movement and appreciation rates. The company also considers other factors that drive price movement such as job creation and inventory in the area. Second, assuming there is a level of debt in the purchase, PRIMARQ looks at how much leverage is being applied to the property. The debt, if priced appropriately, creates a leveraged return for the equity investor. Then, the third consideration is to ensure the prospective homeowner is qualified to assume the debt. To accomplish this, PRIMARQ does its own credit underwriting. "We take a proactive view of the homeowner's present employment and also assess his ability to find new employment in case his present job ends," Cinelli said. "Our assessment is not just based on this person's employment history." And lastly, PRIMARQ assesses the optimal structure between debt and equity for the property and homeowner. As Cinelli explains, once interest rates reach a certain level, equity becomes a less expensive source of financing. An added advantage to the homeowner who chooses this plan is the opportunity to buy back an investment equity if one of the 136 investors wants to sell. Investors are required to offer the opportunity to the homeowner before other buyers. Cinelli explained that traditional equity in a home, unlike a stock portfolio, cannot be actively managed. "It's an asset, but it's a dormant asset," he said. "However, one of the applications of equity finance is that it modifies that dormant asset and enables the homeowner to move it into another asset, making it more flexible." In addition to helping individual homeowners, Cinelli believes the use of equity has tremendous positive ramifications, not only for homeownership but for the broader economy and the financial services industry. "It's a fairly simple concept, although there is some complexity involved in the completion of the transaction," he explained. "It's something that should have been done many years ago, and we're looking forward to changing how finance is done for the improvement of all market participants." Editor's Note: Mortgage Markets Today is run by DS News' parent company, the Five Star Institute. Mortgage Markets Today is an indepth talk radio resource featuring expert guests, quality topics, and timely insights on the secondary market, federal compliance standards, real estate, and mortgage lending. Catch it on the Web at radio.thefivestar.com or download podcasts of the broadcasts from iTunes. SIGTARP Continues Fraud Crackdown The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) aimed its laser sharp focus on eradicating foreclosure fraud and a California man running a foreclosure rescue scam. Christy Romero, SIGTARP, and Melinda Haag, U.S. attorney for the Northern District of California, announced Walter Bruce Harrell, 72, of Montara, California, was sentenced to 10 months in federal prison and three years of supervised release on eight counts of bankruptcy fraud and two counts of making false statements in a bankruptcy proceeding. Documents show that Harrell operated a scheme in which he offered to postpone foreclosure proceedings in exchange for a monthly fee. Harrell accomplished this by instructing homeowner clients to deed fractional interests in their properties to other individuals whom Harrell paid to file bankruptcy petitions in court. Once the bankruptcy petitions were filed, Harrell would notify the creditors—which included multiple TARP banks—that the properties were part of an active bankruptcy proceeding. Because of the automatic stay provisions of the U.S. bankruptcy code, the creditors were prevented from proceeding with foreclosure. Instead, they were required to file motions to lift the automatic stays in bankruptcy court. Although these motions were invariably granted, Harrell's actions caused delays in the foreclosure process and caused the creditors to incur additional costs. "Today's sentencing makes it clear that foreclosure rescue schemes will not be tolerated and can result in time in federal prison," Romero said. "Harrell promised distressed homeowners that as long as they paid him monthly, he would prevent foreclosure on their homes. He sold false hope to those who needed hope the most. He committed bankruptcy fraud and defrauded banks holding the mortgages." Harrell pleaded guilty to filing bankruptcy petitions in furtherance of a scheme to defraud creditors owning mortgages and to making false statements in a bankruptcy petition. "The integrity of evidence received by our bankruptcy courts is critical to the courts' ability to function effectively," Haag said. "This office will vigorously prosecute people who intentionally submit false and misleading information in federal bankruptcy proceedings." CoreLogic, Urban Institute Form Strategic Alliance CoreLogic and the Urban Institute have formed a strategic alliance to power further economic and social policy research. CoreLogic's data will be used to power the research conducted by the Urban Institute's newly formed Housing Finance Policy Center. According to an announcement from CoreLogic, the principal goal is to enable the Housing Finance Policy Center to enhance its analytical work. In support of that objective, the Urban Institute will produce datadriven reports, policy analyses, and white papers to inform public policy. "We believe this is a real win-win relationship," said Faith Schwartz, SVP of the government solutions group at CoreLogic. "The Urban Institute is a prominent and wellrespected research organization. We couldn't be happier to work with them."

• Cover