Why Haven’t Loan Officers Been Told These Facts? This Business Can Get Fairly Strange
From MSN
A retired lawyer who bought a $5.5 million Cape Cod mansion that was in danger of toppling into the ocean says he shouldn’t have to pay his mortgage because he was ‘manic’ when he bought it.
John G Bonomi Jr, 66, purchased the 5,817-square-foot, five-bedroom, seven-bathroom mansion in 2021. It was built in 2010 on top of a narrow coastal bank between Cape Cod Bay and Wellfleet Harbor, reports MSN.
Bonomi bought the home despite well-publicized reports about catastrophic erosion threatening the residence, according to his lawsuit filed in the United States District Court for the Southern District of New York.
The home has since been demolished to ‘prevent it from collapsing into the ocean,’ the complaint said. Bonomi, who owes $3,850,000 on his mortgage, is suing JPMorgan Chase to void the note.
He alleged that ‘no rational person’ would have purchased the home and claimed he was ‘acting under an uncontrollable manic psychosis’ at the time of the sale, the filing said. Chase, in its response to Bonomi’s complaint, has denied the allegations.
National Fraud Enforcement Division (Presto Chango?)
Last month, the LOSJ published an article regarding the establishment of the National Fraud Enforcement Division by the U.S. Department of Justice. Initial assessments indicate that the Division will primarily concentrate on addressing health care fraud and violations of the False Claims Act, rather than focusing on mortgage fraud.
Violations of the False Claims Act are not uncommon in the mortgage industry. This Act establishes liability for various forms of false or fraudulent conduct. Specifically, it applies when someone “knowingly presents or causes to be presented a false claim for payment or approval,” or “knowingly makes, uses, or causes to be made or used a false record or statement that is material to a false or fraudulent claim.”
In addition to federal prosecution under the False Claims Act, the law allows for private action by whistleblowers, also known as qui tam relators. Qui tam is the abbreviation for the Latin phrase “qui tam pro domino rege quam pro se ipso in hac parte sequitur,” meaning “Who sues on behalf of the King as well as for himself.” In these cases, the plaintiff is typically a private citizen, often a current or former employee of the company involved. Settlements under the False Claims Act are usually substantial and serve to encourage whistleblowers to report instances of misconduct by offering them a significant share of the settlement amount. For example:
In a $14.5 million settlement in a whistleblower lawsuit against a lender accused of violating the False Claims Act by improperly certifying loans for insurance through the Federal Housing Administration (FHA). This lawsuit, initiated by a former employee, claimed the lender failed to follow HUD underwriting guidelines and did not maintain an adequate quality control program.
Under the settlement, the United States will receive $12,107,500, which includes $7.23 million in restitution, while the whistleblower will receive $2,392,500. The lender will also pay reasonable expenses and attorney’s fees.
The Act specifies limited circumstances under which violations can occur. Key provisions include the terms “knowing” and “material.” According to the False Claims Act, “knowingly” is defined as having actual knowledge of the information, acting with deliberate ignorance of its truth or falsity, or acting with reckless disregard for its truth or falsity.
In simpler terms, to hold someone liable under the False Claims Act, there must be more than mere negligence or a simple mistake; the wrongdoing must involve a level of awareness or disregard for the truth.
Recently, the LOSJ conducted an unscientific sampling of press releases from U.S. Attorney Offices to assess whether U.S. Attorneys were publicly acknowledging the involvement of the National Fraud Enforcement Division in mortgage lending fraud cases. There are sporadic mentions of the new Fraud Enforcement Division in various fraud prosecutions. However, it remains unclear whether these references serve merely as promotion for the new division or if they indicate the division’s actual involvement in the prosecution or investigation of these cases.
Case in point, an appraisal fraud prosecution form Florida. Note that the multi-agency announcement references the new fraud task force. See the LOSJ article on the new DOJ department here: LOSJ V6 I25
From the U.S. Attorneys Office, Middle District of Florida
Tampa, FL – Armando Martinez (51, Plano, TX) has been sentenced by Chief U.S. District Judge Amos Mazzant, III, of the United States District Court for the Eastern District of Texas to 20 years in federal prison for bank fraud. Martinez previously pleaded guilty. U.S. Attorney Gregory W. Kehoe made the announcement.
According to court documents filed with the United States District Court for the Middle District of Florida, Martinez, who had his Florida Appraiser’s license revoked, orchestrated and executed a bank fraud scheme directed at multiple financial institutions by taking over the identity and license number of a legitimate licensed appraiser. Martinez then purportedly conducted onsite appraisals for dozens of properties in Florida. In reality, Martinez paid others to go to the properties and take pictures for appraisals he completed. He then sent the appraisals to the victim lenders, using his computer after having fled the United States to the Dominican Republic. Based on the false and fraudulent appraisals, the financial institutions were fraudulently induced to approve and fund mortgage loans and pay Martinez appraisal fees. As a result of Martinez’s appraisal fraud, more than $65 million in mortgages are impaired or defective. These mortgages were either guaranteed by the Federal Housing Administration or purchased and guaranteed by Fannie Mae and Freddie Mac.
On April 7, 2026, the Department of Justice announced the creation of the National Fraud Enforcement Division. The core mission of the Fraud Division is to zealously investigate and prosecute those who steal or fraudulently misuse taxpayer dollars. Department of Justice efforts to combat fraud support President Trump’s Task Force to Eliminate Fraud, a whole-of-government effort chaired by Vice President J.D. Vance to eliminate fraud, waste, and abuse within Federal benefit programs.
This case was investigated by the Federal Housing Finance Agency Office of Inspector General and the United States Department of Housing and Development – Office of Inspector General. It was prosecuted by Special Assistant United States Attorney Chris Poor.
National Fraud Enforcement Division
BEHIND THE SCENES: PROPOSED TRID CHANGES
On October 15th of this year, it will mark the 11th anniversary of the mandatory TRID implementation. In the spirit of “less is more,” the Trump Administration continues its deregulation efforts, including Regulations Z, X, and B.
Under its legislative obligations, the CFPB must strike a balance between consumer protection and the avoidance of overly burdensome regulations. Such burdensome regulations must not exist without counterbalancing benefits to consumers or financial markets.
Accordingly, the CFPB has undertaken a review of specific consumer protections under TILA and RESPA, notably the TRID rules and regulations related to rescission.
Unduly burdensome regulations are counterproductive on three fronts. 1) Reduced competition; 2) Increased consumer costs; 3) Lesser credit opportunities. Note the U.S. code related to this administrative mandate below.
12 USC §5511. Purpose, objectives, and functions [of the CFPB]
(a) Purpose
The Bureau shall seek to implement and, where applicable, enforce Federal consumer financial law consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive.
(b) Objectives
The Bureau is authorized to exercise its authorities under Federal consumer financial law for the purposes of ensuring that, with respect to consumer financial products and services:
(1) consumers are provided with timely and understandable information to make responsible decisions about financial transactions;
(3) outdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens;
The Relationship Between Legislated Law and Regulations
Federal regulators have statutory obligations to administer specific federal laws. Administration includes two primary objectives. Promulgation and enforcement. These two broad areas of responsibility can be further divided into subcategories.
Promulgate means to formally declare, announce, or proclaim a law, rule, or regulation so that it is publicly known. In the United States, the rulemaking process involves the legislative branch drafting and passing legislation, the judicial branch interpreting and applying the law, and the executive branch carrying out the law. After Congress enacts a statute, administrative agencies may then carry out the law through rulemaking. Agencies promulgate regulations that provide detailed requirements and procedures necessary to implement and enforce the statute. These regulations have the force of law once properly promulgated in accordance with the governing procedural requirements of the Administrative Procedure Act. – Cornell Law School
Enforcement includes examination, surveillance, and sanctions.
Federal law governs administrative rulemaking. Under the Administrative Procedure Act, there are different paths for making rules, but the more widely used procedure is known as “informal rulemaking,” or, more descriptively, “notice and comment rulemaking.” The CFPB’s rulemaking will follow the notice-and-comment path.
First steps will vary; often, the first step in informal rulemaking under the Administrative Procedure Act is filing a Notice of Proposed Rulemaking (NPRM) to elicit stakeholder feedback, also referred to as “public comment.” However, when a regulator is less than fully committed to issuing a new rule or modifying existing rules, and wishes to test the waters before committing to rulemaking, they will issue a Request for Information (RFI) Notice or an Advance Notice of Proposed Rulemaking (ANPRM). The RFI is akin to dipping its regulatory toes in the water, whereas by comparison, the ANPRM is getting in the water up to the knees.
Earlier this month, the CFPB issued an RFI for changes to the TRID and TILA rescission rights.
Public Comment
Robust public participation is vital to the rulemaking process. By providing opportunities for public input and dialogue, agencies can obtain more comprehensive information, enhance the legitimacy and accountability of their decisions, and increase public support for their rules. Agencies, however, often face challenges in involving a variety of affected interests and interested persons in the rulemaking process.
The Administrative Procedure Act (APA) recognizes the value of public participation in rulemaking by requiring agencies to publish a notice of a proposed rulemaking (NPRM) in the Federal Register and provide interested persons an opportunity to comment on rulemaking proposals. Other statutes, including the Federal Advisory Committee Act (FACA) and Negotiated Rulemaking Act, describe other means to engage representatives of identified interests in the rulemaking process. In many rulemakings, however, agencies rely primarily on notice-and-comment procedures to solicit public input. Although the notice-and-comment process generates important information, agencies can sometimes benefit from engaging the public at other points in the process and through other methods, particularly as they identify regulatory issues and develop potential options before issuing NPRMs. – ADMINISTRATIVE CONFERENCE OF THE UNITED STATES
FROM THE CFPB
This notice requests information from the public about potential regulatory changes that may reduce regulatory burdens and promote access to mortgage credit, as appropriate and consistent with applicable law. The Consumer Financial Protection Bureau (Bureau or CFPB) seeks to reduce unwarranted regulatory burdens to ensure that creditworthy borrowers can access mortgage credit. Specifically, the CFPB is requesting information on industry and consumer burdens related to the integrated mortgage disclosures under the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) (TILA-RESPA integrated disclosures or TRID), the right of rescission, and reverse mortgage disclosures.
Section 2 of President Trump’s Executive Order 14393 states, in part, that the CFPB “shall consider, as appropriate and consistent with applicable law:
(i) proposing amendments to Regulation Z that tailor the following requirements for smaller banks: ATR and QM requirements (including potentially a broader QM safe harbor for portfolio loans) and the requirements of the Truth in Lending Act, Public Law 90-321 (TILA), Real Estate Settlement Procedure[s] Act, Public Law 93-533 (RESPA), and TILA-RESPA Integrated Disclosure (TRID) rules;
(ii) replacing TRID timing rules with a materiality-based standard that preserves consumer clarity and reduces closing delays; [and]
. . . .
(vii) exempting rate-and-term refinancing (including cash-out refinancing) from rescission rights.” (5)
Materiality-Based Standard
Materiality revolves around the importance of information in a given legal context and its potential impact on the rights, obligations, or decisions of the parties involved. – Cornell Law School
Materiality, as the term is used today in accounting and law, has its roots in the U.S. securities markets. Specifically, the U.S. Securities and Exchange Commission (SEC) administers various investment banking rules that, by design, protect investors from misrepresentation. Under SEC rules, materiality-based disclosures ensure that financial statements only include information that could reasonably influence the economic decisions of a prudent investor.
When applied to consumer disclosure under the TILA, the thrust of materiality centers on the enabling elements related to the informed use of consumer credit.
Reviewing public comments helps stakeholders gain perspective. Some comments are quite insightful while others are less so. If you would like to comment on the TRID or rescission rules, see the link below.
In response to the CFPB’s request for information (RFI), a significant percentage of the comments received so far highlight concerns that Appraisal Management Companies (AMCs) are causing appraisal costs to rise. Many appraisers express dissatisfaction with AMC regulations, which, in reality, have little to do with the TRID rules. However, several commenters believe that if the TRID rules mandated disclosure of how appraisal fees are allocated, it could pressure AMCs to reduce their profit margins. To see all the RFI responses, go to the link CFPB RFI Comments. Here are some examples of the RFI responses received to date.
APPRAISAL COSTS
We must restore transparency to the “appraisal fee” — for consumers, lenders, and appraisers alike. The fee needs to be fluid again, with the appraiser’s portion clearly separated from the AMC’s portion.
Since 2017, when the 0% tolerance fee rule took effect, Appraisal Management Companies — which now control 70%+ of all U.S. appraisal orders — have engaged in active fee suppression. The TILA should allow a range in the appraiser fee and should clearly state the hold back portion that is paid to the AMC.
A consumer might pay $800 for an “appraisal” under their loan disclosures, while the appraiser actually performing the work receives only 40-60% of what the AMC charged.
Because this fee appears on paperwork simply as “Appraisal Fee,” consumers reasonably assume the appraiser receives the full amount. It should be noted that the AMC does not benefit the consumer, it benefits the lender. The AMC fees should actually be paid for BY THE LENDER.
Our profession has seen this system abused through vendor agreements and engagement letters that prohibit appraisers from discussing their fees, require them to omit invoices from reports, and even demand revisions to strip out compensation information already included. These practices are deceptive and harmful to consumers.
The system in place is abusing the appraiser profession at every step of the process; additional fees are being stripped from the appraiser through monthly portal fees, upload fees, Qc fees, technology fees, some are even charging the appraiser for a credit card fee (for the borrower!) This has quite frankly gotten out of hand. The stripping from the appraisal fees has led to appraisers no longer willing to perform reports under these conditions.
Some say that there is a shortage of appraisers, when in reality, there is a shortage of appraisers willing to or able to work for such suppressed fees.
The consumer is harmed when the middle man( The AMC/Lender) fails to disclose the true fee the appraiser is willing to complete the report for and is wrongly shown ALL THE FEES even the portion the AMC retains. This is not truth in lending; this is utterly deceiving the consumer.
Appraisers, sustaining their professional careers, are largely unable to bring a class action suit against these practices, since most vendor agreements force them to sign away their litigation rights.
As a result, AMCs have collected over $12 billion in fees from the consumer without adequate disclosure; and undermining the first presumption of compliance under Section 129E.
Many AMCs continue pressuring appraisers to complete assignments for $250-350, a rate that makes it increasingly difficult for firms to hire and train new appraisers. If appraisers were actually paid the amount shown to the consumer for the appraisal fee training/mentoring a new appraiser would once again become feasible.
The 0% tolerance rule and current disclosure requirements need to be reworked to let appraisers compete in a free market.
Without that change, the profession will keep declining, putting mortgage lending itself at greater risk. A healthy, genuinely independent appraisal profession is essential — both to support responsible lending and to protect consumers from deceptive practices.
Misleading Final Disclosure
TRID disrupted the entire real estate process to supposedly make it easier for the Buyers to understand their documents and receive the information on closing costs and interest rates at least 3 days prior to closing. There was also a tolerance for certain items. The 3 day rule is a joke and never followed by any Lenders. They sent out a “initial/dummy” CD that is rarely close to the final.
There is no enforcement for the lenders to comply and things are worse than ever.
Multipoint Comments
1. Redundancy of the 3-Day Right of Rescission and Closing Disclosure (CD) Waiting Periods
Under current TRID rules, a consumer is already mandated to wait three business days after receiving the Closing Disclosure before they can execute loan documents (consummation). For refinance transactions, the consumer is then forced to wait another three business days under the TILA Right of Rescission before the loan can fund.
This back-to-back waiting structure is entirely redundant. The CD waiting period already gives the consumer ample time to review final figures, compare them to the Loan Estimate, and reconsider the transaction before signing. Forcing an additional three-day cooling-off period after signing simply delays funding, increases interest-rate lock extension risks, and causes unnecessary anxiety for borrowers waiting on their funds.
Recommendation: Eliminate the post-consummation Right of Rescission for refinance transactions where an independent TRID-compliant Closing Disclosure has already been acknowledged at least three business days prior to closing.
2. The 7-Day Loan Estimate Waiting Period
The mandatory 7-business-day waiting period between the delivery of the initial Loan Estimate and the earliest possible consummation date frequently acts as an arbitrary barrier. In straightforward transactions—or in highly efficient digital processing environments—loans are routinely cleared to close before this clock expires. This forces borrowers to wait on an arbitrary calendar rule, rather than moving forward when they are fully prepared and educated on their terms.
Recommendation: Transition the 7-day rule to a materiality-based standard, allowing the transaction to proceed to closing earlier if the borrower explicitly consents and final loan terms closely match the initial LE.
3. The Illusion of the “Bona Fide Financial Emergency” Waiver
While Regulation Z technically permits consumers to waive both the CD waiting period and the Right of Rescission in the event of a “bona fide financial emergency,” this mechanism is entirely broken in practice.
Because the Bureau has failed to provide a clear, bright-line definition or a safe-harbor list of “acceptable evidence” for what constitutes an emergency, wholesale lenders universally refuse to accept these waivers. Lenders operate in fear of severe regulatory repercussions or future loan-buyback demands if upon examination later deems the borrower’s evidence insufficient. As a result, consumers facing genuine, urgent financial crises are routinely blocked from accessing their capital.
Recommendation: Provide explicit, objective criteria and safe-harbor examples of what constitutes a “bona fide financial emergency” so that lenders can confidently honor a consumer’s right to waive these periods when facing documented hardship.
4. The Distorting Impact of Zero-Tolerance Regulations
The current zero-tolerance framework on specific settlement charges has created a highly counterintuitive market environment. Because there is zero flexibility for errors in these charges, lenders have responded by artificially inflating estimated costs to “cushion” themselves against potential tolerance violations.
This systematic inflation means that the initial Loan Estimates provided to consumers can be frequently and highly inaccurate (inflated), artificially driving up the perceived cost of credit and causing unnecessary friction during shopping.
Recommendation: Revise the zero-tolerance standard to a reasonable 10% aggregate tolerance for the affected sections. This would give lenders a realistic operational margin, eliminate the practice of cost-cushioning, and ultimately provide consumers with a much more accurate, true-to-life Loan Estimate.
Bizarre (No Kidding, this is an actual comment, hyperlinks deleted)
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Comment Here, Docket “CFPB-2026-0018”
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