Friday, May 17, 2013

FinCEN: Accountant and Elder Abuse

We have been keeping track of FinCEN's SAR Activity Review – Trends, Tips & Issues virtually from its inception.
In its just issued May 2013 report, FinCEN provides new information regarding two areas of importance:
1) The Suspicious Activity Report (SAR) filing patterns related to elder financial exploitation before and after the publication of FinCEN's Advisory to Financial Institutions on Filing Suspicious Activity Reports Regarding Elder Financial Exploitation ("Advisory"), in February 2011, and
2) An analysis of trends related to SAR filings involving accountants and involving insider abuse within depository institutions.
In this newsletter, I would like to provide you with some insights regarding each of these areas of concern reviewed in the FinCEN report, with a brief review of elder abuse trends and a much more extensive review of suspicious financial activity involving accountants.*
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Elder Abuse - Trends
Accountant Abuse - The Gatekeeper
Sampling the Data
Separating the Wheat from the Chaff
Accountants Abuse - Trends
Conclusion
Library
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Elder Abuse - Trends
A comparison of the filing rates pre- and post-advisory of SARs with narratives containing the two key search phrases “elder financial exploitation” and “elder financial abuse,” shows a very significant increase in relevant filings post-Advisory.
Between March 1, 2011, and August 31, 2012, filers submitted 7,651 total SARs, a 382 percent increase from the 12-month period prior to the release of the Advisory during which filers completed 1,589 relevant SARs. Post-Advisory filing trends showed continued increases in filing incidences. 
SARs generally reported patterns of financial exploitation perpetrated by a relative or caregiver against elderly victims. Narratives most frequently described the perpetrator coercing or cajoling the victim into completing financial transactions that benefited the perpetrator at the expense of the victim.
There are reported instances where the perpetrator reportedly abused a power of attorney over the victim’s account.
Furthermore, so-called "sweetheart scams" were on the rise. A “sweetheart scam” involves the fraudster feigning romantic intentions towards a victim, thus gaining the victim’s affection. The perpetrator then uses the goodwill engendered to defraud the victim. This fraud may impact the victim’s financial accounts and/or identity security, and may even cause the victim to unwittingly facilitate financial fraud against others on the perpetrator’s behalf.
An increased trend in elder financial abuse was noted in the 18 month period after the issuance of the Advisory. Depository Institutions filed 6,026 elder financial exploitation-related SARs in this period. FinCEN determined that institution filers identified “abuse by a relative or caregiver” as the most reported months post-Advisory.
Chart-A-SAR Review-5-2013
Monthly post-Advisory filing numbers indicate that filers continued to increase their submissions of SARs related to elder financial exploitation more than a year and a half after issuance of the Advisory. FinCEN reports that this trend suggests that many filers have incorporated FinCEN’s elder financial exploitation guidance into their AML monitoring programs. Sample narratives showed filers checked “Other” most often as the characterization of suspicious activity when describing suspicious transactions involving elderly customers.
Most narratives described the perpetrator engaged in identity theft, misuse of position or self-dealing, check kiting, counterfeit checks, or embezzlement/theft, to defraud elderly victims. Many SAR narratives revealed that filers were careful to assess suspicious transactions, often questioning an elderly customer if his transactions appeared out of character. These precautions usually spared the filer and the customer any significant losses.
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Tuesday, May 7, 2013

GSEs: Ability-to-Repay and Qualified Mortgages

Yesterday, the Federal Housing Finance Agency (FHFA) announced that it is directing Fannie Mae ("Fannie") and Freddie Mac ("Freddie") to limit their future mortgage acquisitions to loans that meet the requirements for a qualified mortgage ("qualified mortgage" or "QM"), including those that meet the special or temporary qualified mortgage definition, and loans that are exempt from the “ability to repay” ("ATR") requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).
In January, the Consumer Financial Protection Bureau (CFPB) issued a final rule implementing the “ability to repay” provisions of Dodd-Frank, including certain protections from liability for loans that meet the criteria of a qualified mortgage as outlined in the rule.
We have discussed the ability to repay provisions HERE, HERE, HERE, HERE, and HERE.
I would like to call your attention to a few important details.*
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IN THIS ARTICLE
Overview
Eligible for Sale to Fannie and Freddie
Additional Guidance and Notifications
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Overview
Considered historically, the Consumer Financial Protection Bureau (CFPB) issued a final rule on January 10, 2013, implementing the “ability to repay” provisions of the Dodd-Frank. That rule generally requires lenders to make a reasonable, good faith determination of a consumer’s ability to repay before originating a mortgage loan and establishes certain protections from liability for QMs.
The ATR rule takes effect for applications dated on or after January 10, 2014.
It is significant that, beginning January 10, 2014, Fannie and Freddie will no longer purchase a loan that is subject to the ATR rule if the loan:
  • is not fully amortizing,
  • has a term of longer than 30 years, or
  • includes points and fees in excess of three percent of the total loan amount, or such other limits for low balance loans as set forth in the rule.
The FHFA announcement states that "effectively, this means Fannie and Freddie will not purchase interest-only loans, loans with 40-year terms, or those with points and fees exceeding the thresholds established by the rule."
Fannie and Freddie will continue to purchase loans that meet the underwriting and delivery eligibility requirements stated in their respective selling guides. This includes loans that are processed through their automated underwriting systems and loans with a debt-to-income ratio of greater than 43 percent. But loans with a debt-to-income ratio of more than 43 percent are not eligible for protection as QMs under the CFPB’s final rule unless they are eligible for purchase by Fannie and Freddie under the special or temporary qualified mortgage definition. 
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Eligible for Sale to Fannie and Freddie
Just a few days ago, on May 2, 2013, the FHFA directed Fannie Mae and Freddie Mac to limit future acquisitions to loans that:
  • are qualified mortgages under the ability to repay rule, including those meeting the special or temporary qualified mortgage requirements; or
  • are exempt from the ability to repay requirements, such as investor transactions.
Thus, effective for mortgages with application dates on or after January 10, 2014, Fannie and Freddie will not be allowed to purchase any loans if they are subject to the ATR requirements and are either:
  • loans that are not fully amortizing (e.g., no negative amortization or interest-only loans);
  • loans with terms in excess of 30 years (e.g., no 40-year terms); or
  • loans with points and fees in excess of 3% of the total loan amount or such other limits for low balance loans as set forth in the ability to repay final rule.
Fannie will continue to purchase loans that meet the underwriting and delivery eligibility requirements (i.e., existing debt-to-income ratios, loan-to-value ratios, and reserves) stated in the Selling Guide, including loans processed through Desktop Underwriter®.
Freddie will limit future purchases to:
  • Mortgages that are “qualified mortgages” under the final rule, including those meeting the special or temporary qualified mortgage requirements, and
  • Mortgages that are exempt from the ATR, such as investor transactions.
Therefore, effective for mortgages subject to the final rule with applications received on or after January 10, 2014, Freddie will not be permitted to purchase the following:
  • Mortgages that are not fully amortizing (e.g., Mortgages with a potential for negative amortizations or interest-only Mortgages);
  • Mortgages with terms in excess of 30 years (i.e, 40-year fixed-rate Mortgages); and,
  • Mortgages with points and fees in excess of 3% of the total loan amount or such other limits for low balance Mortgages as set forth in the final rule.