Mortgage Fraud Has Increased In 2008 Relative To 2007 Levels

“…occurrences of fraud among loan officers, brokers and other industry professionals actually outpaced 2007 levels by 45 percent in the second quarter of 2008, the most recent reporting period…”

“But we have people in the industry who didn’t get weeded out,” Ms. Butts said. “And now they have fewer transactions on which to make a profit, so they’re just a little more desperate.”

 

MORTGAGE volume may have fallen last year, but not incidences of fraud.

In fact, according to a recent report from the Mortgage Asset Research Institute in Reston, Va., occurrences of fraud among loan officers, brokers and other industry professionals actually outpaced 2007 levels by 45 percent in the second quarter of 2008, the most recent reporting period.

The Research Institute, a consulting firm, does not release specific figures, which it compiles from surveys of lenders that make most of the nation’s mortgages each year.

The report, released in early December, found that 36 percent of the fraudulent mortgage activity involved loan professionals’ misrepresenting borrowers’ incomes, while another 20 percent involved misrepresentations of borrowers’ employment.

Lenders did not specify how much of this activity was simply stretching of the truth by loan professionals on the applications, categorized as “fraud for property,” as opposed to “fraud for profit” schemes, in which bogus loans are taken out to defraud lenders of money. Fraud for property is far more common.

Jennifer Butts, the Research Institute’s director of operations, said the survey results surprised her. Some industry executives had believed that the more unscrupulous mortgage brokers and loan officers had fled the industry or lost their jobs in the recent downturn, once lending standards tightened and loan volumes dropped.

“But we have people in the industry who didn’t get weeded out,” Ms. Butts said. “And now they have fewer transactions on which to make a profit, so they’re just a little more desperate.”

Rachel Dollar, a lawyer from Santa Rosa, Calif., who specializes in mortgage fraud, said that many of the fraud incidents had probably occurred in 2006 and early 2007, when lending restrictions were far more lenient than they are now. “Lenders don’t always discover that until later,” she said, “when they see clusters of foreclosures in areas, which causes a lender to look more closely at the loans.”

Borrowers may also contribute to the trend, because they are often desperate enough to encourage loan officers to help them exaggerate facts on their applications and stretch for a loan for which they may not otherwise qualify.

Ultimately, mortgage fraud affects all borrowers, industry experts say, because lenders will eventually have to recoup their losses through additional fees or higher interest rates. Lenders rarely pursue legal action, they say.

Borrowers should resist any temptation to fudge a mortgage application, or to allow loan officers or brokers to do so, and not simply because it is against the law to submit false information. The real danger to borrowers is that they can end up with a loan they can’t truly afford to repay.

To help keep real estate or mortgage professionals from steering you toward a bigger loan than you can afford, Ms. Dollar suggested hiring your own appraiser during the mortgage process, rather than relying on the word of an appraisal that is ordered by the lender’s representative.

“It’s worth the extra $300 or $400 to have a professional on your side to tell you how much the house is worth,” Ms. Dollar said. “Otherwise, you just don’t know, because the seller, the real estate agent, the loan officer — they all want that loan to close.”

Other, less expensive options include checking Web sites like Zillow.com or

HomeGain.com, for help in determining a home’s value. Or borrowers may also ask another real estate agent for a “broker’s price opinion.”

Foreclosure Consultants Are The New Swindlers, Coming From The Ranks Of Unethical Mortgage Brokers In Many Cases

Until recently, defrauders tried to bilk homeowners out of the equity in their homes. Now, with that equity often dried up, they are presenting themselves as “foreclosure rescue companies” that charge upfront fees to modify loans but often do nothing to stave off foreclosure.

“That’s all I’ve been doing for the last year,” said Angela Rosenau, a deputy attorney general in California, citing more than 300 complaints about fraudulent companies last year, not counting those made to local prosecutors.

 

As home values across the country continue to plummet, the authorities say a new breed of swindler is preying on the tens of thousands of homeowners desperate to avoid foreclosure.

 

The Federal Trade Commission brought lawsuits last year against five companies representing 20,000 customers, and state and local prosecutors have brought dozens more. In Florida, Attorney General Bill McCollum recently sued a company that he said had more than 600 victims.

“There’s no way for the consumer to sort out the legitimate companies,” said Mr. McCollum, who added that he had limited resources to fight what he called “a sheer volume question.”

The companies under suspicion typically charge an upfront fee of up to $3,000 to help borrowers get lower rates on their mortgages from their lenders. But borrowers often cannot afford the fees, the service can be bogus and, in the worst cases, the homeowners lose their chance to renegotiate with their bank or to file for bankruptcy protection because of the time wasted.

There are companies that provide legitimate foreclosure services, but the industry is largely unregulated, making it difficult for homeowners to separate the good from the bad. Some of the fraudulent companies — often run by former real estate agents or mortgage brokers — are local; others are national. Many have official-looking Web sites that suggest that the companies have government affiliations and give homeowners a false sense of security.

“That’s all I’ve been doing for the last year,” said Angela Rosenau, a deputy attorney general in California, citing more than 300 complaints about fraudulent companies last year, not counting those made to local prosecutors.

Experiences like those of Maria Martinez, of Stockton, Calif., are playing out with greater frequency across the country, the authorities say. Ms. Martinez struggled to pay her mortgage last summer. She had no shortage of people offering to help. Fliers for rescue companies filled her mailbox.

At a seminar for troubled borrowers near her home, one company offered a service that promised just what Ms. Martinez needed: for $1,000, the company said it would negotiate with her mortgage company to lower her interest rate.

“I was desperate,” said Ms. Martinez, 57, a clerk at the San Joaquin County Jail. She made an initial payment of $500 and paid another $500 a few weeks later.

Now the house is in foreclosure, and Ms. Martinez is waiting for the sheriff to evict her. She cannot reach the man she paid to modify her loan.

In California and 20 other states, including New York, companies are prohibited from collecting payment until they have completed their services, something Ms. Martinez did not know. In Colorado, the attorney general’s office has closed 15 mortgage rescue companies that charged fees up front.

Carol McClelland, 46, fell into foreclosure on her Chicago home when she lost her job as a waitress in two restaurants. She received a call from a company called Foreclosure Solutions Experts, promising to stop the foreclosure and lower her mortgage payments to around $550 a month, from $1,056, Miss McClelland said.

“She showed me other clients’ files, and they were paying $650 a month,” she said. The charge for the service was $1,300, which Miss McClelland paid in installments, borrowing the money from friends and relatives.

When the loan servicer notified her that the house was still in foreclosure, Miss McClelland said, the representative from Foreclosure Solutions Experts told her that the matter had been taken care of.

“She told me everything was all settled; I don’t have to worry about anything,” Miss McClelland said. “All I had to worry about was getting the rest of the money to her.”

 

Mortgage Broker Pleads Guilty To Forged Income Documents To Secure Subprime Mortgages

 

In November 2005, Lyder engaged in fraudulent activity in order to secure subprime mortgage loans for home buyers without their knowledge. The homebuyers would not have been able to obtain the mortgages otherwise
 
http://www.bizjournals.com/boston/stories/2009/01/12/daily25.html

Dorchester mortgage officer Nicole Lyder pled guilty in Suffolk Superior Court on Monday to multiple charges that she fraudulently secured subprime mortgages for several unqualified home buyers.

Lyder, 34, pled guilty to charges of forgery, larceny of bank credit by false pretenses, uttering a false document, and making or publishing false or exaggerated statements. Following the change of plea on Monday, Suffolk Superior Court Judge Christine McEvoy sentenced Lyder to serve two years in the House of Correction.

In November 2005, Lyder engaged in fraudulent activity in order to secure subprime mortgage loans for home buyers without their knowledge. The homebuyers would not have been able to obtain the mortgages otherwise, according to the Massachusetts attorney generals office, which issued a press release on Tuesday.

Beginning in April 2006, Lyder was employed by Lehi Mortgage Services, Inc. in Quincy, Mass. The attorney general’s office began an investigation into Lyder’s activities after receiving a complaint about Lyder in September 2006. The investigation focused on mortgage loans that Lyder assisted homebuyers in securing from Fremont Investment & Loan of Brea, CA, for two properties in Dorchester, one in Randolph and one in Taunton. Investigators found that Lyder had forged business certificates which contained false information relating to the financial status of the home buyers.

Lyder then submitted those forged business certificates to Fremont Investment & Loan Inc. on behalf of the home buyers. In each of these four home purchases Lyder also exaggerated the home buyers’ financial standing on various other documents submitted to Fremont in support of the loan applications. As a result of this fraudulent activity, Lyder collected thousands of dollars in commissions.

In addition to fraudulently securing subprime mortgages, Lyder also submitted false banks statements to secure an car loan for a $63,000 Landrover that she purchased. In July 2007, Lyder altered a bank statement belonging to one of her former mortgage clients, making it appear as if it were her own bank statement.

“No Income-No Asset” Mortgage Programs Were Abused By Mortgage Brokers And Mortgage Lenders And Targeted Hispanics Borrowers

Another problem was so-called NINA — no income, no assets — loans. They were originally intended for self-employed people of means. But Freddie Mac executives worried about abuse, according to documents obtained by Congress…

The program “appears to target borrowers who would have trouble qualifying for a mortgage if their financial position were adequately disclosed,” said a staff memo to Freddie Mac Chairman Richard Syron. “It appears they are disproportionately targeted toward Hispanics.”

 

http://online.wsj.com/article/SB123111072368352309.html?mod=googlenews_wsj

 

 

 

 

Mortgage brokers became a key portion of the lending pipeline. Phi Nguygn, a former broker, worked at two suburban Washington-area firms that employed hundreds of loan originators, most of them Latino. Countrywide and other subprime lenders sent account representatives to brokerage offices frequently, he says. Countrywide didn’t respond to calls requesting comment.

Representatives of subprime lenders passed on “little tricks of the trade” to get borrowers qualified, he says, such as adding a borrower’s name to a relative’s bank account, an illegal maneuver. Mr. Nguygn says he’s now volunteering time to help borrowers facing foreclosure negotiate with banks.

Many loans to Hispanic borrowers were based not on actual income histories but on a borrower’s “stated income.” These so-called no-doc loans yielded higher commissions and involved less paperwork.

Another problem was so-called NINA — no income, no assets — loans. They were originally intended for self-employed people of means. But Freddie Mac executives worried about abuse, according to documents obtained by Congress. The program “appears to target borrowers who would have trouble qualifying for a mortgage if their financial position were adequately disclosed,” said a staff memo to Freddie Mac Chairman Richard Syron. “It appears they are disproportionately targeted toward Hispanics.”

Freddie Mac says it tightened down-payment requirements in 2004 and stopped buying NINA loans altogether in 2007.

“It’s very hard to get in front of a train loaded with highly profitable activities and stop it,” says Ronald Rosenfeld, chairman of the Federal Housing Finance Board, a government agency that regulates home loan banks.

Regions of the country where the housing bubble grew biggest, such as California, Nevada and Florida, are heavily populated by Latinos, many of whom worked in the construction industry during the housing boom. When these markets began to weaken, bad loans depressed the value of neighboring properties, creating a downward spiral. Neighborhoods are now dotted with vacant homes.

By late 2008, one in every nine households in San Joaquin County, Calif., was in default or foreclosure — 24,049 of them, according to Federal Reserve data. Banks have already taken back 55 of every 1,000 homes. In Riverside, Calif., 66,838 houses are owned by banks or were headed in that direction as of October. In Prince William County, Va., a Washington suburb, 11,685 homes, or one in 11, was in default or foreclosure.

Gerardo Cadima, a Bolivian immigrant who works as an electrician, bought a home in suburban Virginia for $330,000, with no money down. “I said this is too good to be true,” he recalls. “I’m 23 years old, with a family, buying my own house.”

When work slowed last year, Mr. Cadima ran into trouble on his adjustable-rate mortgage. “The payments were increasing, and the price of the house was starting to drop,” he says. “I started to think, is this really worth it?” He stopped making payments and his home was sold at auction for $180,000.

In the wake of the housing slump, some participants in the Hispanic lending network are expressing second thoughts about the push. Mr. Sandos, head of Nahrep, says that some of his group’s past members, lured by big commissions, steered borrowers into expensive loans that they couldn’t afford.

Nahrep has filed complaints with state regulators against some of those brokers, he says. Their actions go against Nahrep’s mission of building “sustainable” Latino home ownership.

These days, James Scruggs of Northern Virginia Legal Services is swamped with Latino borrowers facing foreclosure. “We see loan applications that are complete fabrications,” he says. Typically, he says, everything was marketed to borrowers in Spanish, right up until the closing, which was conducted in English.

“We are not talking about people working for the World Bank or the IMF,” he says. “We are talking about day laborers, janitors, people who work in restaurants, people who do babysitting.”

Two such borrowers work in Mr. Scrugg’s office. Sandra Cardoza, a $28,000-a-year office manager, is now $30,000 in arrears on loans totaling $370,000. “Her loan documents say she makes more than me,” says Mr. Scruggs.

Nahrep agents are networking on how to negotiate “short sales” to banks, where Hispanic homeowners sell their homes at a loss in order to escape onerous mortgages. The association has a new how-to guide: “The American Nightmare: Strategies for Preventing, Surviving and Overcoming Foreclosure.”

 

 

 

Quick Loan Funding And Daniel Sadek Emerge As “Pirate Swashbucklers” Of Subprime Mortgage Reign Of Deceptive Mortgage Lending; CitiGroup Provided Much Of The Support For His Pillaging

Quick Loan Funding, which Sadek founded in 2002, wrote about $4 billion in subprime mortgages before it collapsed in 2007. Sadek made, and eventually lost, a fortune through Quick Loan. He bought a Newport Coast mansion, a fleet of exotic cars and a condo in Las Vegas where he became a high roller at the blackjack tables.

Mark Goldman, a lecturer in real estate at San Diego State University, said lenders have nothing to gain by giving a break to borrowers who probably won’t repay their loans.

“It doesn’t serve the lender to do a loan modification that’ll result in a default,” he said. Which raises the question: Why did Citi give Sadek more time?

 

http://www.ocregister.com/articles/sadek-citi-loan-2270290-billion-quick

Daniel Sadek was one of the princes of subprime lending in Orange County whose high-risk mortgages helped bring Wall Street to its knees.

This summer, Citigroup, the Wall Street bank that has received this year’s biggest federal bailout, offered to modify its loan terms and help Sadek keep a home after he fell two months behind on his mortgage.

But on Dec. 18, Citi Residential Lending filed a notice of default after Sadek failed to make the new payments on the house at 65 Briar Lane in Irvine, one of at least four residential properties he owns in Orange County

That Sadek even got a second chance with Citi angered industry watchers who complain that banks have done too little, even with billions in federal assistance, to help borrowers facing foreclosure.

“There’s a big irony, when thousands of people are struggling to get affordable loan modification offers from servicers that aren’t responsive, that someone who has perpetrated harm would get a loan modification,” said Paul Leonard, of the Center for Responsible Lending. “It’s incredible.”

Reached by phone, Sadek said he “did not want to be rude,” but he did not want to talk. His attorney, Thomas Borchard, said he was unaware of the Citi loan modification.

“I know he and Quick Loan Funding have a long-standing history with Citi,” Borchard said. “I’d assure you there’s some logical explanation.”

The original mortgage isued by Sadek’s Quick Loan Funding in August 2006, was for $768,000. Under Citi’s loan modification, the principal rose to $800,000, records show. Zillow.com estimates the home is worth $632,500.

The original mortgage was an interest-only loan. Under the Citi loan modification, Sadek’s monthly payments increased almost 50 percent to $6,445 – the interest, principal, taxes and insurance on an $800,000 mortgage.

The latest notice of default said Sadek owed $34,888 as of Dec. 18, indicating he had not made a single payment since the loan modification. The notice says Sadek still has 90 days to catch up with his payments before he will lose the house.

The record is unclear how Citi got authority to modify Sadek’s original mortgage. Citi declined to discuss Sadek’s loan, citing client privacy rights.

Sadek’s original loan – No. 106087598 – was not part of the three Citi mortgage pools. Bank of America, Bear Stearns, Countrywide Home Loans, Lehman Brothers, Merrill Lynch and Morgan Stanley also securitized and sold Quick Loan mortgages.

Filings with the Securities and Exchange Commission show at least $2.3 billion of Quick Loan’s $4 billion mortgages were sold to investors after Wall Street firms packaged them as mortgage-backed securities, collateralized debt obligations and other complex financial instruments.

“In some cases, Citi purchases loans which may have been modified by another servicer,” Rodgers said. “If a loan is owned by an investor, the right to modify is subject to the agreement under which the loan is serviced.”

On the Citi loan modification, Sadek said 65 Briar Lane is “owner occupied” and that he “will suffer a hardship” if the terms of the loan are increased too much.

Other public records list his home address as 3 Longboat in Newport Coast, where Sadek was interviewed by the Register in April 2007. Borchard said he could not comment on the address discrepancy. Rodgers said borrowers can demonstrate their residence by producing a utility bill.

When a Register reporter visited the Briar Lane house, a woman living there said Sadek was “not here.” But she would not say if he lived there.

Lou Pacific, a real estate and mortgage consultant from Mission Viejo who was a vice president at Quick Loan Funding in 2004 and 2005, said he was surprised by the Citi loan modification, given Sadek’s financial resources and multiple residences.

“The usual way you qualify for a loan mod is if you live in the home and you have a valid hardship,” Pacific said.

Court judgments

Most borrowers would have a hard time getting a hearing from a bank if they were already in default on a million dollars in other debts.

Records on file with the Orange County Clerk-Recorder show that Sadek faces $1.5 million in debts, including:

•State Franchise Tax Board liens totaling $545,922 in taxes and penalties.

•Orange County tax collector liens totaling $8,998.

•Liens from the Newport Coast homeowners association, for $1,588, and The Marquee Park Place Homeowners Association in Irvine, for $7,517, both for monthly association fees.

•Court judgments from Wells Fargo Bank, for failure to make payments on leased

equipment ($603,289) and Wells Fargo ($294,341) for other debts.

No effort to hide

Wells Fargo has placed writs of attachments on Sadek’s Newport Coast home, an undeveloped Newport Coast lot, his condo in Irvine and 65 Briar Lane.

Dennis Fabrozzi, an attorney for Wells Fargo, said such writs would normally be a red flag for banks considering a loan modification. “I would think most banks would pull a preliminary title report,” Fabrozzi said. “Most of the information is online. It’s easy to pull. You could probably do it in about five minutes.”

Borchard said Sadek intends to make good on his debts.

“Mr. Sadek has not filed for bankruptcy. He has not made efforts to conceal, hide or transfer his assets,” he said. “For him, every day is another day of looking to try to resurrect a business interest to repay creditors,” Borchard said.

Sadek’s other troubles were documented before the Citi bailout.

In May 2007, The Orange County Register reported that Sadek took out a $1 million marker from the account of his escrow company, Platinum Escrow, to gamble in Las Vegas.

In June of this year, the state Department of Corporations revoked all of Sadek’s lending and escrow licenses for his failure to safeguard the money and records.

On Dec. 17, the Department of Corporations banned Sadek from the escrow industry for a year and seized accounts totaling $515,000.

Sadek and Citi

Citi’s business dealings with Sadek date to the founding of Quick Loan Funding in 2002.

Citi’s subsidiary, First Collateral Services, gave Sadek a line of credit – known as a warehouse line – to fund his mortgages. As Quick Loan grew – issuing a peak $218 million worth of mortgages in December 2005 – other warehouse lenders gave the company lines of credit. At its peak, the Citi warehouse line was $100 million, Pacific said.

When Quick Loan’s collapse accelerated in the spring of 2007, Citi was the last warehouse lender left, Sadek said during an April 2007 interview at his Newport Coast mansion.

During the interview, Sadek said Citigroup provided a $16 million line of credit to help him market his feature film, “Redline,” which starred his then-girlfriend, Nadia Bjorlin, and his fleet of Ferraris, Porsches and Saleen S7 exotic cars. Sadek said he spent $31 million to make, distribute and publicize “Redline.”

The film earned $8.2 million in ticket sales worldwide, according to Box Office Mojo. Sadek is being sued in federal court by the Cartoon Network for failing to pay $845,000 in advertising for the film.

 

 

Washington Mutual Mortgage Operation Encouraged Fraud And Misrepresentation As Part Of Push To Produce Profits

 

“If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan.”

WaMu pressed sales agents to pump out loans while disregarding borrowers’ incomes and assets, according to former employees. The bank set up what insiders described as a system of dubious legality that enabled real estate agents to collect fees of more than $10,000 for bringing in borrowers, sometimes making the agents more beholden to WaMu than they were to their clients.

WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank’s executives. WaMu pressured appraisers to provide inflated property values that made loans appear less risky, enabling Wall Street to bundle them more easily for sale to investors.

 

As a supervisor at a Washington Mutual mortgage processing center, John D. Parsons was accustomed to seeing baby sitters claiming salaries worthy of college presidents, and schoolteachers with incomes rivaling stockbrokers’. He rarely questioned them. A real estate frenzy was under way and WaMu, as his bank was known, was all about saying yes.

Yet even by WaMu’s relaxed standards, one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer. Mr. Parsons could not verify the singer’s income, so he had him photographed in front of his home dressed in his mariachi outfit. The photo went into a WaMu file. Approved.

“I’d lie if I said every piece of documentation was properly signed and dated,” said Mr. Parsons, speaking through wire-reinforced glass at a California prison near here, where he is serving 16 months for theft after his fourth arrest — all involving drugs.

While Mr. Parsons, whose incarceration is not related to his work for WaMu, oversaw a team screening mortgage applications, he was snorting methamphetamine daily, he said.

“In our world, it was tolerated,” said Sherri Zaback, who worked for Mr. Parsons and recalls seeing drug paraphernalia on his desk. “Everybody said, ‘He gets the job done.’ ”

At WaMu, getting the job done meant lending money to nearly anyone who asked for it — the force behind the bank’s meteoric rise and its precipitous collapse this year in the biggest bank failure in American history.

Interviews with two dozen former employees, mortgage brokers, real estate agents and appraisers reveal the relentless pressure to churn out loans that produced such results. While that sample may not fully represent a bank with tens of thousands of people, it does reflect the views of employees in WaMu mortgage operations in California, Florida, Illinois and Texas.

According to these accounts, pressure to keep lending emanated from the top, where executives profited from the swift expansion — not least, Kerry K. Killinger, who was WaMu’s chief executive from 1990 until he was forced out in September.

 

Between 2001 and 2007, Mr. Killinger received compensation of $88 million, according to the Corporate Library, a research firm. He declined to respond to a list of questions, and his spokesman said he was unavailable for an interview.

During Mr. Killinger’s tenure, WaMu pressed sales agents to pump out loans while disregarding borrowers’ incomes and assets, according to former employees. The bank set up what insiders described as a system of dubious legality that enabled real estate agents to collect fees of more than $10,000 for bringing in borrowers, sometimes making the agents more beholden to WaMu than they were to their clients.

WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank’s executives. WaMu pressured appraisers to provide inflated property values that made loans appear less risky, enabling Wall Street to bundle them more easily for sale to investors.

“It was the Wild West,” said Steven M. Knobel, a founder of an appraisal company, Mitchell, Maxwell & Jackson, that did business with WaMu until 2007. “If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan.”

‘If Ms. Zweibel doubted whether customers could pay, supervisors directed her to keep selling, she said.

“We were told from up above that that’s not our concern,” she said. “Our concern is just to write the loan.”

The ultimate supervisor at WaMu was Mr. Killinger, who joined the company in 1983 and became chief executive in 1990. He inherited a bank that was founded in 1889 and had survived the Depression and the

savings and loan

scandal of the 1980s.

Georgia Mortgage Fraud Scheme Included Augusta Lawyer

Mortgage fraud is now estimated as costing Americans $4 billion to $6 billion annually, according to the FBI.

• In the Augusta area, there have been several prosecutions, including one scheme involving a lawyer. William O. Key Jr. was eventually caught and prosecuted in federal court. He had to surrender his law license after his guilty plea.
• He admitted he schemed with mortgage brokers Robert C. Thigpen and Erich J. Haskell, defrauding banks and the government through the Department of Housing and Urban Development. Mr. Key, in his role as the closing agent, was in on the deals, part of a half-million-dollar loss in foreclosures.

Mr. Key’s illegal dealings went further, according to court documents. He assisted in a huge Atlanta-area mortgage fraud scheme that involved nearly two dozen people. He was able to have his federal prison term trimmed to 12 months by testifying in that case for the federal prosecutor.

Mr. Key might have been involved in fraud long before he appeared on the FBI’s radar, however. Several years before his indictment, fraud allegations were raised in a civil lawsuit against Mr. Key.

A Richmond County Superior Court lawsuit was filed by Theodore Murray and Adie Andrews in 2002. It was dismissed the next year with a confidential settlement agreement. According to the lawsuit, Ms. Andrews owned property in Warren County, Ga., the title of which was free and clear. Mr. Murray bought a $57,992 trailer home to place on the property. He made a $2,000 down payment to the dealer who had sent him to Mr. Key for financing, according to the Superior Court documents.

Mr. Key arranged a deal that included false claims that the purchase price was $88,200 and that Mr. Murray made a $29,301 down payment. The government documents also failed to disclose Mr. Key’s connection to the mortgage company that is owned by his wife, according to court documents.

Mr. Murray was put in danger of losing the trailer home if he didn’t pay off the 30-year total loan payment of $267,870. Ms. Andrews was in danger of losing her property because the loan was secured by a lien attached to her property at Mr. Key’s insistence, according to the lawsuit.

“Rogue Builder” Duped JP Morgan Chase Into Making Mortgage Loans In Mortgage Fraud Scheme

“…the suit alleges that Percudani, Chase Manhattan Mortgage, Stroudsburg appraiser Dominick Stranieri and several others engaged in widespread fraud by selling homes in Monroe County at inflated prices through several of Percudani’s companies, including Raintree Homes, Why Rent? and Chapel Creek Mortgage…”

 

 

“…Chase Manhattan Mortgage, a division of JP Morgan Chase, denied the allegations, claiming that Percudani was a rogue builder who duped Chase into making the loans. Chase also argued that after being alerted to the alleged scam, it reduced the principal on more than 200 mortgages in 2002 after appraisers hired by Chase determined many of the homes were sold for as much as $50,000 more than their true value…”

http://www.mcall.com/news/local/all-b3_5chase.6720064dec26,0,5613229,print.story

 

A U.S. District judge has called for an attempt at a negotiated settlement and delayed the trial related to the federal lawsuit that alleges more than 100 home buyers were defrauded by JP Morgan Chase Bank and a Poconos developer.

Originally scheduled for February, Judge Christopher Connor rescheduled the trial to June 1, 2009, after a mediation session with retired Judge Diane M. Welsh was scheduled for Jan. 28.

The mediation was ordered by Connor after he delivered a strongly worded opinion filed in October saying the ”record supports the conclusion that the Chase defendants” aided the alleged scheme by Tannersville builder Gene Percudani to sell homes at inflated prices.

Filed in 2002, the suit alleges that Percudani, Chase Manhattan Mortgage, Stroudsburg appraiser Dominick Stranieri and several others engaged in widespread fraud by selling homes in Monroe County at inflated prices through several of Percudani’s companies, including Raintree Homes, Why Rent? and Chapel Creek Mortgage.

The suit claims that Chase took part in the alleged scam by ignoring its usual underwriting guidelines in approving mortgages for Percudani’s customers, many of whom were people with poor credit from the New York area drawn to the Poconos by an advertising campaign that asked ”Why Rent?” and which offered new homes for as little as $1,000 down and mortgage payments of $685 per month.

But the actual payments were much higher and mortgages far more than the real value of the homes. Unable to sell or refinance their mortgages, many of the plaintiffs were forced into bankruptcy and foreclosure while others suffered financial hardships, according to the suit.

Chase Manhattan Mortgage, a division of JP Morgan Chase, denied the allegations, claiming that Percudani was a rogue builder who duped Chase into making the loans. Chase also argued that after being alerted to the alleged scam, it reduced the principal on more than 200 mortgages in 2002 after appraisers hired by Chase determined many of the homes were sold for as much as $50,000 more than their true value.

After six years of depositions, Connor said testimony from current and former Chase employees indicates that Chase officials knew about the scam, and even established unusual underwriting guidelines to approve the mortgages, many of which didn’t go into default until after they were sold by Chase to the secondary market, chiefly Fannie Mae and Freddie Mac.

A Chase spokesperson could not be reached for comment.

Percudani has denied the allegations. He closed his homebuilding businesses and now operates the Cherry Valley Golf Course near Stroudsburg.

Mortgage Brokers And Mortgage Bankers Pushed Subprime Loans To Borrowers Because There Was No Risk To Lenders As Loans Were Sliced Up And Sold Off Quickly

Subprime depended basically on brokers who did not care whether the borrower could pay his loan because they got paid their commission at closing, on banks that also did not care much whether the borrower could pay since the loan was being sold off, on packagers of loans who cut and sliced the packages of loans so that some could be called AAA rated loans (generally called CMO’s).

http://seekingalpha.com/article/112297-was-subprime-lending-just-as-dishonest-as-madoff?source=email

 

 

Subprime is a specific type of transaction more generally called CMO’s (Collateralized Mortgage Obligations) and CDS (Credit Default Swaps). Subprime depended basically on brokers who did not care whether the borrower could pay his loan because they got paid their commission at closing, on banks that also did not care much whether the borrower could pay since the loan was being sold off, on packagers of loans who cut and sliced the packages of loans so that some could be called AAA rated loans (generally called CMO’s). They paid credit rating companies to put triple A ratings which could not possibly be justified with any analysis of the underlying package of loans. Finally, they paid credit insurance companies to give guarantees (Credit Default Swaps) that they would cover any default when the credit insurance companies did not have the financial ability to pay if called on to pay. To make it even better, everyone seems to have had the idea that real estate prices would always go up. Finally, we even had President Bush saying all this was good because we were increasing housing without looking at the inevitable results.

 

1.     Financial Results: There was never a history of the returns. Financial institutions and their sales representatives told everyone that this was an exceptional investment. They talked about a piece of paper that is “triple A rated “and “guaranteed by insurance through Credit Default Swaps.” While Madoff peddled dishonest results, here banks peddled a dishonest idea without any results.

2.     Public Explanation of the process: Salesmen only explained these were triple AAA rated investments “structured so that they could not fail.” Furthermore, there was an insurance guarantee just in case. When it all fell apart, we naturally got the obvious truth that the so called protection never existed in reality. When the problem was obvious, Merrill Lynch (MER) sold these triple A rated bonds with insurance guarantees for 22 cents on the dollar and most people said the real value for Merrill was only 5 cents on the dollar. Madoff’s explanation was no phonier than the banks explanation of the value of Subprime triple A rated with CDS guarantees.

3.     What kept the fraud going? While Madoff had to pay out early investors, this fraud did not even depend on really paying investors off. The only ones who really collected on this were the bankers who earned bonuses or a percent of the profits (which can be 40% of the transactions’ profits) when these subprime loan packages were sold. The finance community had never made so much money on an idea like this. Who was going to say that it would not work? Here is a clear case that the personal greed of the bankers led to their own demise and that of their investors. Probably anyone that wanted to cut back on the system was probably told to shut up. As a former banker, I know the pressures put on people. “X bank is making all that money. What is wrong with you?” If you try to say it is a bad idea, most people get run over by the system. Years ago, former Fed Chairman Greenspan said that he trusted the bankers to protect their own interests. He recently said in congress that he made a terrible mistake in this assumption. And in this simple mistaken assumption, we see a root cause of the problem.

4.     Professional Opinion: The personal interest of bankers led them to tell all their investors that this is a splendid investment. In this case, the professional bankers did a 20 times greater disservice to themselves and their customers than all of the Madoff salesmen.

 

 

 

 

Minnesota Mortgage Fraud Ring Convicted Of Lining Up Straw Buyers, Originating Fraud Mortgages, And Then Selling Properties At Inflated Prices

“…Shinon Lindberg would allegedly recruit “straw buyers” for pieces of real estate. They had a third accomplice, a mortgage broker who would secure fraudulent loans, and then Scott Rosenlund would use his company 10Spring Homes to buy and sell the properties at inflated prices…”

http://www.myfoxtwincities.com/myfox/pages/News/Detail?contentId=8104640&version=2&locale=EN-US&layoutCode=TSTY&pageId=3.2.1

Two men were found guilty Thursday in a big mortgage scam that’s made headlines for a year. Prosecutors say they defrauded banks and investors all over Hennepin County.

Shinon Lindberg and Scott Rosenlund allegedly masterminded the largest mortgage fraud case in Minnesota‘s history. They were found guilty Thursday of racketeering and seven counts of theft by swindle.”We’re seeing too many schemes. This is one time the bad guys got caught and they’re doing time,” says Mike Freeman, Hennepin County

Attorney.

Shinon Lindberg would allegedly recruit “straw buyers” for pieces of real estate. They had a third accomplice, a mortgage broker who would secure fraudulent loans, and then Scott Rosenlund would use his company 10Spring Homes to buy and sell the properties at inflated prices.

For instance, court documents show that one parcel of land was bought and sold the same day for a $100,000 mark-up.

Deals like this were done time and time again over three years, eventually bilking banks and unwitting investors out of more than $100 million.

Freeman says the properties were scattered all over southwest Hennepin County, and investors never saw any of the money they were promised.

Rosenlund and Lindberg will be sentenced in February. They face up to 100 months in prison.