As a Texas real estate and development attorney, I am concerned that Texas real estate lending suffered some unwelcome notoriety recently when the Dallas Business Journal, quoting an announcement by the online publication, Mortgage Daily, announced that Texas had the fourth highest level of fraudulent real estate loans in the country.
Mortgage fraud in Texas has elicited a strong response from the Texas Attorney General. In July, 2007, the Attorney General announced a judgment against Ameriquest Mortgage Co. in which Ameriquest must return $21 million to Texas residents as restitution for deceptive practices by Ameriquest. The deceptive practices alleged to have been committed by Ameriquest include not adequately disclosing whether loans carried fixed or adjustable rates, charging excessive origination fees and prepayment penalties and using inflated appraisals that qualified borrowers for loans.
The Texas Legislature has responded to the fraud crisis by enacting new rules governing loan officers and mortgage brokers and by requiring loan applicants to sign a notice that they are aware of the severe criminal penalties that apply if they are providing false information as to their identity, income, employment and/or intent to occupy the collateral. These rules are enforced by the The Texas Department of Savings and Mortgage Lending (formerly the Texas Savings and Loan Department).
The primarily vehicle for the fraud, from what I have read so far, is an inflated appraisal by a broker complicit in the fraud. Inflated appraisals were also one of the vehicles for the Texas savings and loan scandal of the 1980s. It seems we just don’t learn. Or maybe the problem is that we learn, but greed wins out anyway!