Feds Urge New Lender Record Keeping Requirements

The U.S. Justice Department is urging Congressional leaders to require mortgage lenders and servicers to retain borrower records for up to 10 years, as part of an effort to make it easier to prosecute fraud — alleging that regulators and law enforcement officials have had a tough time pursuing lenders for wrongdoing because of lax recordkeeping. The remarks came from Rita Glavin, acting head of the DOJ’s criminal division in testimony to a hearing of the House Judiciary Committee last week; the DOJ needs settlement statements and other loan documents as part of its investigation into fraud, she said. But the collapse of the mortgage industry has hindered investigations, she contended, as lenders, brokers and even title companies are largely going under at a rapid rate and/or haven’t retained borrower records. In terms of “subprime,” the catch-all that now seems to be synonymous with shady business practices, 5 of the 10 top U.S. originators in the subprime market have since folded or otherwise been acquired. “Requiring those who provide real-estate settlement services to maintain appropriate records for 10 years following the original date of a loan would significantly assist in the investigation of mortgage fraud,” Glavin said. Expanded recordkeeping requirements may be the least of the changes coming to the mortgage industry. In a move that received very little industry press at the time, the Senate Judiciary Committee in March passed legislation designed to expand current bank and financial fraud legislation to encompass nonbank mortgage lenders. And in late March, a bill co-sponsored by House Financial Services Committee chairman Barney Frank (D-MA) would impose a wide range of new restrictions on origination activity, including banning the use of yield spread premium and requiring originators to retain 5 percent of the credit risk tied to any mortgages they originate. See earlier story. Mortgage fraud, of course, isn’t limited to subprime lending — nor is it limited to the activities of lenders. But it’s clearly got the attention of federal authorities. FBI deputy director John Pistol, who spoke at the same hearing with the DOJ’s Glavin, said the FBI has been forced to shift agents into mortgage fraud investigations, pulling from other white-collar crime investigations. The FBI now has more than 250 agents dedicated to mortgage fraud, he said, up from 120 one year ago. President Obama’s proposed budget would provide the FBI with additional funding to invesitgate white collar crimes, he said. More than a few lenders have been lulled into a false sense of security over mortgage fraud due to the de facto death of much of the stated income/NINA lending market, Interthinx vice president Ann Fulmer argues in an exclusive feature in this month’s HousingWire Magazine. Don’t subscribe? Click here to get the best insight in the mortgage industry. Write to Paul Jackson at

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