Kevin Barnes made a lot of money by cheating the system to give homebuyers fraudulent loans that they couldn't afford. Once the FBI knocked on his door, he lost his money, his freedom and became a convicted felon.
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Barnes had worked in the lending industry for about six years when he was convicted on federal charges of mortgage fraud.
"I produced over 1,500 loans over a five-year span with an average of two false statements contained per application," he says.
He was part of a fraud ring that made $124 million in fraudulent loans. Barnes learned his lesson, he says.
He was released from parole in 1997. About 10 years ago, Barnes started Mortgage Fraud Awareness, a consulting company that trains lenders on how to detect and prevent mortgage fraud. He has taught classes to FBI agents and Federal Deposit Insurance Corp. examiners.
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Now, the reformed crook has tips to protect you from fraudsters like the man he used to be.
The interview was conducted at a Mortgage Bankers Association conference on fighting fraud. It has been edited for clarity and accuracy.
What type of mortgage fraud should borrowers be aware of these days?
It's hard to say, because the consumers need to be aware of all of it. They need to be smart to what's going on. When a loan officer or somebody says, "We'll fill this in later, let's just go through this," don't allow them to rush you through. Deal with somebody you know, somebody you trust, somebody reputable. Be careful with somebody coming into the industry. Even big-name companies -- there's an opportunity for bad people to work for those things. Just know who you're dealing with. Go by referral. Referral is probably the best way.
When you committed mortgage fraud, did you tell some borrowers what you were doing?
Some borrowers knew upfront. They knew that they couldn't afford this, and we told them we could make this work for them.
Were they concerned about it?
No, because we made them at ease. We said, "We'll take care of this so it doesn't fall back on you." We never read them that line on Page 4:
Standard residential loan application, Section IX
The consumer should actually get the original residential loan application. The consumer should fill it out because if the consumer doesn't fill it out, Johnny Loan Officer is filling it out with information that might not be relevant to you but relevant to him, to his benefit. And this is the acknowledgment that every consumer should read:
Standard residential loan application
Do you think most borrowers fill out the loan application themselves?
No, I think they are coached on how to fill it out. I believe that the consumer is told, "All I need is your name and address, Social Security number and they will pull the rest of the information from the credit repositories and we will import that information." You need to just do it by hand and keep a copy of it. Because if you have a car loan that you are co-signing for somebody and they don't put that on there, what happens is that's called undisclosed debt and it's illegal, and if the loan officer knows about it and he doesn't put it on there, they hold you accountable, too. So just put it all on there.
Did any of the borrowers that you assisted get in trouble?
No, just the fraud ring. They had no desire to go after them.
Who did you have in the ring?
Credit, appraisers, title, PMI (private mortgage insurance), anybody we needed.
What does a fraudster look like? What does a fraudster act like?
He doesn't. He drives no attention to himself. Do I look like a fraudster? I don't.
With the purchase market coming back, what kind of mortgage fraud do you think we are going to see in the near future?
All of it again; you are going to see income documentation; you are going to see the assets, the down payments; all of it is going to be there. You are going to see every bit of fraudulent bank loans, verifications of employment, income, paystubs, W-2s; you're going to see it all again. You go to the Internet in today's world you can print (false statements of) any of them.
What do you think of the new Consumer Financial Protection Bureau rules? You are saying we will see fraud all over again. Will these new rules at least reduce some of the fraud?
It should. Its ultimate goal is to reduce it. It should keep mortgage companies in check, but the CFPB is an entity; there's one of them and there's 100,000 banks. If (scammers) keep away and don't draw red flags to themselves, the brokers and the mortgage lenders won't be scrutinized by the CFPB. I love the CFPB. I think it's good that they are there. But the fact is they need to be quick to hammer down, make it be known that they are there.
Is there a way to stop mortgage fraud with regulation?
No. Do you stop speeders? You have speed limits. You're always going to have somebody who pushes the envelope. Speed limits don't keep you from going too fast. Shoplifting signs don't stop shoplifters. Murder doesn't stop because it's against the law.
Were you ever afraid of being caught?
You become invincible, you think. You think you've got it all planned out. At the end it got sloppy, not on my end but on the other people's ends, so that's when I walked away.
How long did you do it for?
I was in banking for a long time, but the fraud ring was probably five years.
Do you regret what you did?
Absolutely, we make terrible choices. Those choices don't define who we are today. If I opened up every person's closet in that room (points toward adjoining conference room), I would find skeletons. I'm just one of the people who steps up and talks about it. I don't want to see the newbies coming into the industry or even the old people make those terrible choices because we live with our choices.
Why did you do it?
Money. It's about money. And you also get the mentality that you are helping people. Because if you wanted a nice home and you are a neighbor of mine and your husband said, "I really wanted to get this for my wife. Kevin, I can afford it," then you know what? I'd say, "We're going to help you out." And that's how it is. It gets out of control because if everybody comes to you, how do you tell them no?
Any other tips for consumers?
Keep your eyes open. Pay attention. If it sounds too good to be true, it is too good to be true. Pay attention when somebody asks you to sign a document and they'll fill in the rest -- don't sign it. Say, "You know what, give me a copy of it, I'll handwrite it and fill it in."
Look at the final documentation before it's submitted. If you've got a foreclosure going on, pay very close attention. Do not deed your house to somebody else. Don't make payments to anyone other than the bank that originated your loan.
Make sure you get all the documentation when you are making payments. Do not send your payment to somebody else. Do not let them tell you they are going to rent it back to you or you can live in it and it will become yours. Just don't.
You mentioned giving out your mother's maiden name is a common mistake. Why?
The maiden name is the information that's the connecting point for everybody because whenever you are asked for a password -- "What's your mother's maiden name?" -- with that information I can find anything. I always tell people not to use the maiden name. Use your father's middle name. Something you'll remember but nobody will think of.