Why Haven’t Loan Officers Been Told These Facts?
FinCEN Proposes New Residential Real Estate Reporting Regulation, Renews Real Estate Geographic Targeting Orders

Another threat to affordable homeownership from the when will it end category. As it turns out, money launderers are buying up a significant portion of our residential real estate market. So that’s what’s going on.

First, it was Airbnb’s damaging effects on housing availability and residential communities. Then fractional homeownership companies and real estate investment trusts were sucking up entire neighborhoods and relentlessly driving up house prices.

Okay, remember the Breaking Bad days, when the primary criminal threat to housing was that drug dealers might abuse residential homes for temporary meth labs, polluting the home and neighborhood with dangerous toxins. Occasionally, one of these labs would catch fire or explode. It always made the evening news. Now, the FinCEN and other stakeholders are sounding the alarm over drug dealers and terrorists storming the gates of planned unit developments across the heartland.

But this latest threat is more than another post-COVID fresh can of crazy. Presumably, there are drug cartels, international terrorists, and criminal masterminds gobbling up urban and suburban homes as a means to launder illicit profits. A Canadian study estimated that money laundering through residential real estate may have increased home prices by 7% in some Canadian markets.

The U.S. federal government alleges that this matter is very real and that criminals compete with the middle class for the scant homes on the market. Remember the good old days of insane housing inflation with the real estate agent writing the counteroffer on the hood of their car? That ain’t nothing. In today’s environment, it might be something like this, “Mr. Buyer, you’ll need to offer $50,000 over the asking price, and throwing in an anti-tank missile wouldn’t hurt.”

Maybe it’s time to rethink things. After all, do criminals have a right to housing, too? Imagine Acme Realty holding a 10K “Run From The Law” fundraiser, joining hands with marginalized criminals to find suitable housing in our community. Indeed, the business has hit a rough patch.
It goes without saying that these criminal cash deals exacerbate what is already a paltry mortgage demand.

The Monsters are Due On Mainstreet

We’ve all had to deal with neighbors we’d prefer were not. But this could get weird if there is a significant laundering problem. What if this information reaches mainstream media and finds traction among everyday homeowners? Imagine homeowners wondering if the new neighbor might be a 21st-century Bonnie and Clyde or a Russian oligarch playing Hide the Potato behind the tennis courts. “Did you meet the new neighbor Clyde? He says he is from California and is into real estate.” “I saw him unloading several large wooden crates the other day.” “He said he liked Cuban cigars.” The monsters are due on Main Street.

The U.S. Treasury Fights Back

“Illicit actors are exploiting the U.S. residential real estate market to launder and hide the proceeds of serious crimes with anonymity, while law-abiding Americans bear the cost of inflated housing prices.” – FinCEN Director Andrea Gacki

Under the BSA reporting requirements, the Financial Crimes Enforcement Network (FinCEN) is taking a firm stance on money laundering in residential finance. Settlement agents or title companies are obligated to report specific cash deals. This could prompt criminals to change their tactics, potentially leading to an increase in mortgage-based transactions as a means to avoid detection. Yay! What might be an indicator you have one of these money laundering deals? The application is for a $100,000 loan, purchase price is two million. Earnest money deposit, two kilos of cocaine. Puts a new spin on environmental concerns.

This is a global problem. Like any enterprise, mom-and-pop operators and Fortune 500 types are laundering money. Even state actors are complicit. Consequently, many of these money-launder buyers are quite shrewd and highly resourceful. See the link to the EU Report on money laundering in residential real estate across the pond.

FINCEN Background

FinCEN was created in 1990 to support federal, state, local, and international law enforcement by analyzing the information required under the Bank Secrecy Act (BSA), one of the nation’s most important tools in the fight against money laundering. The BSA’s recordkeeping and reporting requirements establish a financial trail for investigators to follow as they track criminals, their activities, and their assets. Over the years, FinCEN staff has developed its expertise in adding value to the information collected under the BSA by uncovering leads and exposing unknown pieces of information contained in the complexities of money laundering schemes.

§310. Financial Crimes Enforcement Network

This statute establishes FinCEN as a bureau within the Treasury Department and describes FinCEN’s duties and powers to include:

  • Maintaining a government-wide data access service with a range of financial transactions information
  • Analyzing and disseminating information in support of law enforcement investigatory professionals at the Federal, State, Local, and International levels
  • Determining emerging trends and methods in money laundering and other financial crimes
  • Serving as the Financial Intelligence Unit of the United States
  • Carrying out other delegated regulatory responsibilities

The Currency and Foreign Transactions Reporting Act of 1970, its amendments, and the other statutes relating to the subject matter of that Act, have come to be referred to as the Bank Secrecy Act (BSA). The BSA authorizes the Department of the Treasury to impose reporting and other requirements on financial institutions and other businesses to help detect and prevent money laundering. Specifically, the regulations implementing the BSA require financial institutions to, among other things, keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA is sometimes referred to as an “anti-money laundering” (AML) law or jointly as “BSA/AML,” and is codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1960, 31 U.S.C. 5311-5314, 5316-5336, and includes notes thereto.

Money Laundering In Residential Real Estate Driving Up Prices
Time For Another Regulation

[“The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking to combat and deter money laundering in the U.S. residential real estate sector by increasing transparency.]

The proposed rule would require certain professionals involved in real estate closings and settlements to report information to FinCEN about non-financed transfers of residential real estate to legal entities or trusts. FinCEN’s proposal is tailored to target residential real estate transfers considered to be high-risk for money laundering, while minimizing potential business burden, and it would not require reporting of transfers made to individuals.

“Illicit actors are exploiting the U.S. residential real estate market to launder and hide the proceeds of serious crimes with anonymity, while law-abiding Americans bear the cost of inflated housing prices,” said FinCEN Director Andrea Gacki. “Today marks an important step toward not only curbing abuse of the U.S. residential real estate sector, but safeguarding our economic and national security.”

The proposed rule describes the circumstances in which a report would be filed; who would file a report; what information would need to be provided, including information about the beneficial owners of the legal entities and trusts; and when a report about the transaction would be due. Data from the reports would assist the Department of the Treasury and its law enforcement and national security partners in addressing vulnerabilities that leave the U.S. residential real estate market exposed to abuse by illicit actors.

The proposed rule is consistent with the Bank Secrecy Act’s longstanding directive to extend anti-money laundering measures to the real estate sector and builds on the success of FinCEN’s Real Estate Geographic Targeting Order program, which has demonstrated the need for increased transparency and further regulation of this sector nationwide. Under the proposed rule, persons involved in real estate closings and settlements would continue to be exempt from the anti-money laundering compliance program requirements of the Bank Secrecy Act.

In The Meantime – FinCEN Issues GTOs

For several years, FinCEN has issued geographic targeting orders to title companies. The orders require the title companies and their minions (agents) to report cash transactions of 300K or more unless you are in Baltimore. Baltimore has a threshold of 50K. This order is “geographic” because it targets specific locales that the Treasury must suspect represent an unusual risk for residential real estate involved in money laundering. Conversely, the geo-specific order may pilot a more permanent and global solution, such as the proposed regulation.

From FinCEN

WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) today announced the renewal of its Geographic Targeting Orders (GTOs) that require U.S. title insurance companies to identify the natural persons behind shell companies used in non-financed purchases of residential real estate.

The terms of the GTOs are effective beginning April 19, 2024, and ending on October 15, 2024. The GTOs continue to provide valuable data on the purchase of residential real estate by persons possibly involved in various illicit enterprises. Renewing the GTOs will further assist in tracking illicit funds and other criminal or illicit activity, as well as continuing to inform FinCEN’s regulatory efforts in this sector. FinCEN renewed the GTOs that cover certain counties and major U.S. metropolitan areas in California, Colorado, Connecticut, Florida, Hawaii, Illinois, Maryland, Massachusetts, Nevada, New York, Texas, Washington, Virgina, and the District of Columbia.

The purchase amount threshold remains $300,000 for each covered metropolitan area, with the exception of the City and County of Baltimore, where the purchase threshold is $50,000.

FinCEN appreciates the continued assistance and cooperation of title insurance companies and the American Land Title Association in protecting real estate markets from abuse by illicit actors.

In a 2008 FinCEN report, Identifies Money Laundering Practices Associated with Mortgage Lending

When an entity uses straw buyers, for example, the money launderer need only find employed individuals willing to accept a fee to allow their identities to be used to apply for residential real estate loans. The straw buyers’ bank account can then be temporarily funded by the money launderer prior to application for the loan. In many cases, the mortgage company will determine that the applicant is employed and has sufficient savings in the bank to qualify for the loan. In instances where the
launderer himself controls legitimate or front companies or has associates that do, it may be possible to also falsify the applicant’s level of income and employment status.

Once the loan is approved and funded, the launderer moves the money out of the straw buyer’s account and may move it into another straw buyer’s account to repeat the process. The loan payments are made by the launderer on a timely basis using illicit funds. As is often reported in SAR narratives that describe money laundering generally, payments may be made in the form of money orders or other negotiable instruments, which in this scenario may bear the name of the straw buyer, or may be in the form of automatic debits from the straw buyer’s bank account, which is controlled by the launderer.

Previous research has indicated that when funds are layered through accounts, an individual not employed by a real estate-related entity may nonetheless work in concert with a corrupt real estate entity to launder illicit funds. A money launderer may convert illicit cash into negotiable instruments, including those purchased by others, which may then be deposited to personal and/or non real estate-related business accounts, and layered through the accounts of complicit residential real
estate-related companies disguised as legitimate payments for real property or real estate-related services. The money may be returned disguised as the sales proceeds of real property or in payment for non real estate-related business goods or services purportedly provided to the residential real estate-related company by the launderer.

See the FINCEN concerns and GTO order at the links below.

FINCEN Rule – Transparency in Residential Real Estate

04/19/24 FINCEN GTO

FinCEN Report, Money Laundering in Residential Real Estate

European Union Residential Real Estate Money Laundering Report


Do you have a great value proposition you’d like to get in front of thousands of loan officers? Are you looking for talent?

BEHIND THE SCENES – CSBS and FHFA Sharing The Dirt On Mortgage Companies

In case you are unaware, the CSBS is the organization Congress charges with running the NMLS. The NMLS is a subsidiary of the CSBS, which is comprised of state regulatory agencies. The CSBS is the Congress’s SAFE Act Plan A. The CFPB is the Plan B should the CSBS or a state drop the licensing and registry ball.

The SAFE Act 12 USC §5101. [In order to increase uniformity, reduce regulatory burden, enhance consumer protection, and reduce fraud, the States, through the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, are hereby encouraged to establish a Nationwide Mortgage Licensing System and Registry]

Supervisory agencies are often siloed from each other and, unless the law compels them to share information, don’t go out of their way to collaborate. Heck, some of these agencies are actually competitors in a sense. However, in the spirit of consumer protection and good stewardship, the FHFA and CSBS have declared that the wall is coming down. “Director Thompson, tear down this wall!” Each agency promises to share its favorite fishing spots with one another. This is a heartwarming kumbaya moment for non-depository mortgage lending stakeholders.

What Am I? From the NMLS Website

The Nationwide Multistate Licensing System (“NMLS” or the “System”) is the system of record for non-depository, financial services licensing or registration in participating state agencies, including the District of Columbia and U.S. Territories of Puerto Rico, the U.S. Virgin Islands, and Guam. In these jurisdictions, NMLS is the official system for companies and individuals seeking to apply for, amend, renew and surrender license authorities managed through NMLS by 67 state or territorial governmental agencies. NMLS itself does not grant or deny license authority.

Fifty-nine state agencies use NMLS for mortgage licensing, while 56 use the system to manage licensing for other nonbank entities (e.g., money services businesses, consumer finance and debt).

NMLS is also the system of record for the registration of depositories, subsidiaries of depositories, and mortgage loan originators (MLOs) under the Consumer Financial Protection Bureau’s Regulation G (SAFE Mortgage Licensing Act – Federal Registration of Residential Mortgage Loan Originators), published December 19, 2011.

In 2006, the Conference of State Bank Supervisors (CSBS), on behalf of state regulators and in cooperation with the American Association of Residential Mortgage Regulators (AARMR), formed the State Regulatory Registry LLC (SRR), a limited liability corporation, to oversee the development and operations of NMLS as a licensing and registration system for the non-depository financial services industries. NMLS operations began in January 2008.

The CSBS and FHFA Formalize The Sharing of Supervisory Intel

04/10/2024 Washington, D.C. – The Conference of State Bank Supervisors (CSBS) and the Federal Housing Finance Agency (FHFA) yesterday entered into a formal agreement designed to facilitate information sharing with respect to nonbank mortgage companies.

The memorandum of understanding establishes substantive information sharing protocols between state financial regulators and FHFA, improving the ability to coordinate on market developments, identify and mitigate risks, and ultimately, further protect consumers, taxpayers, and the nation’s housing finance system.

“Information sharing between state regulators and federal supervisors is common sense given our shared interest in a vibrant, stable mortgage marketplace,” said CSBS Board Chair Lise Kruse, North Dakota Commissioner of Financial Institutions. “Establishing information sharing opens the door to a more collaborative oversight process that is beneficial to all involved.”

State financial regulators are the primary regulators of nonbank mortgage companies. FHFA is the regulator and conservator of two of the nonbank mortgage industry’s largest and most important counterparties, Fannie Mae and Freddie Mac. While each supervisory agency maintains specific authorities related to the mortgage industry, only state financial regulators have complete prudential authority over nonbank mortgage companies.

“The development of an information sharing framework is an important milestone that will better equip both FHFA and state regulators to oversee our respective regulated entities,” said FHFA Director Sandra L. Thompson. “Improved communication leads to better coordination, which in turn leads to better outcomes for consumers, market participants, and taxpayers.”



Tip of the Week – Avoid Any Appearance of Wrongdoing

HUD Office Of The Inspector General Announces
Mortgage Fraud Enforcement Actions, Q1 2024

Mortgage fraud is serious business. Unbeknownst to most people, numerous federal and local law enforcement agencies specialize in detecting, investigating, and prosecuting mortgage fraud.

Here is a partial list of federal agencies attacking fraud at the macro and loan levels. States have their own resources:

  • The CFPB
  • The Department of Justice
  • The FBI
  • The Federal Reserve
  • The FDIC
  • The FHFA
  • The FHFA OIG
  • FNMA
  • FinCEN
  • The FTC
  • GAO
  • HUD
  • The IRS
  • The National Credit Union Administration
  • The Office of the Comptroller of the Currency
  • The Secret Service
  • The United States Postal Service
  • The VA
  • VA OIG

In a recent report of the most recent quarter, the HUD OIG mentioned these two mortgage fraud enforcement actions:

On January 10, Cabral Simpson, a real estate investor, was sentenced to 20 months in time served, 24 months of supervised release and ordered to pay restitution to HUD in the amount of $1.29 million for his role in one count of conspiracy to commit wire fraud. From October 2012 to March 2016, Simpson and his conspirators engaged in mortgage fraud by creating fake bank statements and fake employee verification records for buyers of properties and transferring money into the buyers’ bank accounts for payment of the deposit for a property. They also induced lenders to issue more than $1 million in loans, resulting in defaults and exposing the lenders and HUD to more than $1 million in losses.

On February 29, Andrzej Lajewski, owner of Highland Consulting Corporation in Chicago, Illinois, was sentenced to 30 months incarceration and 3 years of supervised release for his role in committing
financial institution fraud. Lajewski arranged for the use of straw buyers to purchase properties owned by him and his associates, which caused materially false representations to be made to various financial institutions. This included making misrepresentations on loan applications, bank statements, gift letters, pay stubs, and HUD-1 Settlement Statements. In addition, Lajewski was associated with 8 fraudulent FHA-insured mortgages for which he was ordered to pay restitution to HUD and the FHA in the amount of $1,358,310. The total restitution, which includes other conventional mortgage fraud, was $1,602,050.