New York Mortgage Broker Fraud Operation Found Straw Buyers For Own Properties, Inflated And Falsified Income, And Then Obtained Mortgages Which Quickly Went Into Foreclosure

13 12 2008

“…The two falsified documents to make it seem that the straw buyer made $23,000 a month – in fact, he parked cars for $22,000 a year, prosecutors said. The scheme unraveled when Poulard could no longer afford mortgage payments to the now-defunct American Brokers Conduit of Melville. She and Spindel pleaded not guilty…”

How prosecutors say the scheme worked:

1. LaDonna looked for phony buyers for three houses owned by him or his company.

2. LaDonna set the prices for the houses above their real value. The phony buyers used fake documents that say they have sufficient funds to be approved for mortgages.

3. The phony buyers obtained mortgages and completed the home sales in their names. The mortgage lenders paid LaDonna for his properties.

4. The phony buyers received $10,000 to $20,000 for participating in LaDonna’s scam. Only a few payments were made on the homes before they went into foreclosure.

 

http://www.newsday.com/news/local/suffolk/ny-limort125961867dec12,0,2469861,print.story

An ongoing probe into the home mortgage business by the Suffolk district attorney’s office has led to the indictment of a West Islip man on charges of scheming to defraud lenders out of about $2.5 million.

“What we’re seeing in Suffolk County is an explosion of fraud involving, depending on the scheme, every facet of the mortgage process,” District Attorney Thomas Spota said. The probe by Spota’s Mortgage Fraud Unit has resulted in 27 arrests and nine indictments since June.

In the latest case, Louis LaDonna, 39, pleaded not guilty Thursday to 13 counts, including grand larceny. Prosecutors accused LaDonna of inflating the value of houses in West Islip, Babylon and Lindenhurst owned by him or his company, LaDonna Properties.

But LaDonna’s attorney, William Keahon, said the case is weak. “Based upon the documents being given to me by the DA’s office and based on my own investigation, they’re never going to be able to prove what he’s accused of,” Keahon said.

Between 2006 and 2007, LaDonna contacted people who found “straw buyers” to pretend to buy the houses, prosecutors said. The straw buyers received payments of $10,000 to $20,000 for acting as if they were actually purchasing the houses.

“He [LaDonna] engaged appraisers to inflate the values of all of the properties well beyond what they were worth,” Spota said at a news conference.

Using fake documents, the phony buyers overstated their incomes and assets to qualify for no-down-payment mortgages, prosecutors said. When transactions were complete, the lenders – Mortgage-It and First Franklin Financial Corp. – paid LaDonna for the houses. But the lenders only received two or three mortgage payments before the houses went into foreclosure.

LaDonna was released on bail of $750,000 bond and is due back in court on Feb. 4.

Earlier this week, Marie Poulard, 50, of East Quogue, and Frank Spindel, 49, of Miller Place, were arrested on grand larceny charges.

Poulard needed $1.2 million to buy an East Quogue house she couldn’t afford. She and Spindel, her mortgage broker, arranged for a straw buyer to buy the house, prosecutors said.

“This is brokers making this thing work at any cost,” said Maureen McCormack, deputy chief of the economic crimes bureau in Spota’s office.





Mortgage Fraud Investigations And Prosecution Centering On Mortgage Brokers And Title Companies

11 12 2008

“Let’s not lose sight of the fact that there is immense criminal fraud involved in this financial crisis,” said U.S. Attorney McGregor Scott, whose district spans California’s vast Central Valley and is among those most affected by the housing bust. “It’s a profound ripple effect that affects everyone.”

“We are mainly focusing on the mortgage brokers and title companies because they are really at the center of mortgage fraud in this district,” said William Edwards, the acting U.S. attorney for northern Ohio.

In addition to California, large numbers of investigations are under way in Nevada, Florida, Illinois, Arizona, Atlanta and Rust Belt states such as Ohio and Michigan, the areas that have experienced the highest rates of home foreclosure.

 

http://www.google.com/hostednews/ap/article/ALeqM5ieeI0NXfkFVB7LKp1n_hYlEbeagAD95046J80

 

Prosecutors are finding buyers who created fake identities to take out home loans, brokers who paid kickbacks to ensure fraudulent mortgages were approved and lenders who took bribes and forged documents.

They are the ones who fraudulently overstated property values and borrowers’ incomes, who used illegal means to secure loans that homeowners ultimately couldn’t afford, though they had plenty of encouragement from Wall Street.

That fraud helped artificially inflate home values that have since come crashing to earth. Foreclosures are dragging down property values in neighborhoods across the nation. Lenders, in response, have shut the door on almost anyone without platinum credit, and raised a variety of fees to make up for huge losses.

And the fraud is continuing in new ways as desperate homeowners try to unload mortgages they can’t afford and builders shed surplus properties.

The U.S. Justice Department has formed more than 40 mortgage fraud task forces nationwide as prosecutors and investigators struggle with a flood of mortgage-related criminal cases. The FBI reports that its mortgage-fraud caseload has more than doubled in three years to about 1,600 investigations that have cost lenders at least $4 billion. About 200 FBI agents are assigned to the cases, up from 120 a year ago.

Nationally, federal prosecutors charged 226 people with mortgage fraud between July and the end of October, the latest figures available, said U.S. Department of Justice spokeswoman Laura Sweeney. Another 406 were charged as part of a national mortgage-fraud crackdown between March and June.

In Scott’s California district, prosecutors have filed charges related to housing scams against 53 people in 15 ongoing prosecutions. They have another 15 active investigations against 68 individuals.

They estimate hundreds of millions of dollars have been paid out by banks and other lenders because of mortgage fraud in the Central California district, which stretches from just north of Los Angeles to the Oregon border.

“We’re running out of bodies to handle these cases,” said Scott, calling on Congress to approve more money for investigators and prosecutors. “We’re just being overwhelmed.”

Spokesmen for the FBI and Justice Department said there are no plans to ask Congress for more money. They could not say how much the hundreds of agents and prosecutors are spending to investigate mortgage fraud nationwide.

“We continue to re-prioritize as necessary,” Justice spokesman Ian McCaleb said in an e-mail. “Currently, we have shifted significant resources toward investigating mortgage fraud.”

Paul Leonard, director of the California office of the Center for Responsible Lending, welcomed investigators’ attempts to keep up with newer forms of foreclosure and builder fraud. However, wrongdoing remains so widespread that “I think those agencies have to pick their spots,” he said.

“I wish they had engaged in this earlier,” Leonard said. “I think it’s constructive to sort of root out these evil and malicious scams when they occur … Given the state of the economy, it’s too little too late.”

In addition to California, large numbers of investigations are under way in Nevada, Florida, Illinois, Arizona, Atlanta and Rust Belt states such as Ohio and Michigan, the areas that have experienced the highest rates of home foreclosure.

South Florida has been a particular hotbed of activity for federal prosecutors, who have charged 112 people there with an estimated $176 million in mortgage fraud this year.

“It really is an incredible amount,” said Alicia Valle, spokeswoman for the U.S. Attorney’s office in Miami. “You name it and we’ve got it.”

Florida, California and Illinois combined to provide nearly half the nation’s fraud reports in the second quarter, according to a Dec. 2 report from the Mortgage Asset Research Institute. Nationwide, mortgage fraud reports increased 42 percent from January to March and 45 percent from April to June, compared with their year-ago periods.

“We have a duty to put these people in prison,” said Scott, the U.S. attorney in California.

Michael Cardoza, a San Francisco-area attorney representing one of those charged in central California, said prosecutors should be setting their sights higher.

“It’s amazing to me that the people on Wall Street walk away with millions and millions if not billions of dollars,” said Cardoza. “Now they’re just picking off little people … They’re doing scapegoats is what they’re doing.”

The FBI says about 80 percent of mortgage fraud losses under investigation involve industry insiders who inflated property values or made loans based on fictional information.

The remaining 20 percent is by individual borrowers who lied about their income or job history to qualify for loans. So-called “liar loans,” which require little or no documentation about the buyer’s income or employment.

The larger group is where law enforcement is focused.

“We are mainly focusing on the mortgage brokers and title companies because they are really at the center of mortgage fraud in this district,” said William Edwards, the acting U.S. attorney for northern Ohio.

U.S. Attorney Joseph Russoniello is setting the bar at $400,000 or more in his San Francisco-based district, where home values are among the nation’s highest.

“We could be looking at thousands of potential cases,” Russoniello said. “We’ve been looking at a number of cases that run the gamut from simple mortgage fraud to collusion involving brokers, appraisers … bait and switch, predatory rescue operations.”

His mortgage-fraud task force contracted with a financial analyst in October to help sort through the transactions. Russoniello expects to soon announce “a significant number” of indictments.

Nevada has the nation’s highest foreclosure rate, and now a corresponding amount of mortgage fraud complaints are flooding law enforcement agencies, said U.S. Attorney Gregory Brower. A special telephone hot line has fielded more than 1,100 calls since it was set up in April, said Nevada FBI spokesman David Staretz.

Brower has had to shuffle attorneys to handle cases like the one Nevada prosecutors say involved 432 fake buyers for 227 properties worth more than $107 million. At least 143 of the homes are now in default, costing lenders more than $17 million. Five Las Vegas brokers, mortgage agents and loan officers have pleaded guilty and six are awaiting trial.

“It’s certainly a contributor, if not the contributor, to some of the economic downturn we’re seeing,” Brower said. “It will be a while before the dust settles.”





Fannie Mae And Freddie Mac Executives Focus On Profits And “Outright Greed” Have Cost Taxpayes “Hundreds Of Billions Of Dollars”

10 12 2008

“The CEOs of Fannie and Freddie made reckless bets that led to the downfall of their companies,” said House Oversight and Government Reform chairman Henry Waxman, a California Democrat. “Their actions could cost taxpayers hundreds of billions of dollars.”

“Outright fraud and greed wasn’t isolated to just Wall Street,” Mr Issa said. “Fannie and Freddie shared in this disgrace as it drove much of the poor decision-making that have led us to where we are today.”

 

http://www.theaustralian.news.com.au/business/story/0,28124,24779115-20142,00.html

 

Republicans struck an even harsher tone. California’s Darrell Issa said the two government-sponsored enterprises, or GSEs, were “a primary cause, if not the primary cause” of the collapse of the housing market.

Lawmakers cited thousands of documents collected by the committee that Mr Waxman said “show that the companies made irresponsible investments” that destabilised the firms and forced the Government to put the companies in conservatorship in September.

Specifically, the panel released a June 2005 presentation made by former Fannie CEO Daniel Mudd that suggested the firm should move away from the traditional mortgage market in order to take advantage of the growing sub-prime and non-prime loan businesses.

“If we do not seriously invest in these ‘underground’ type efforts and the market changes prove to be secular, we risk: becoming a niche player; becoming less of a market leader; becoming less relevant to the secondary market,” the presentation slides said.

Fannie, the slides showed, could “meet the market where the market is” by accepting higher risk and more volatile earnings.

Mr Waxman said: “Their own risk managers raised warning after warning about the dangers of investing heavily in the sub-prime and the alternative mortgage market. But these warnings were ignored.”

Mr Mudd, along with other former executives from the two firms, defended their decision to expand into non-traditional mortgage businesses. Richard Syron, the former Freddie CEO who was forced out when the Government took over the firms in September, cited the legal and regulatory mandates the firms had to meet because they are congressionally chartered.

“We had obligations to Congress and to the public to promote our chartered purposes of increasing affordability, liquidity and stability in housing finance, which included some very specific low-income housing goals,” Mr Syron said.

Franklin Raines, the former Clinton-administration official who served as Fannie chief executive before leaving the firm in late 2004 following an accounting scandal, said Wall Street firms caused the housing crisis, not the GSEs. He blamed the crisis on the entrance of many new investors into the mortgage-backed securities (MBS) market, whom he said were “not natural holders of 30-year obligations”.

“When the market began to drop, these players panicked, drove down the prices of MBS, and dried up the liquidity of the market,” Mr. Raines said.

He noted that in 2004, the firm’s share of the secondary mortgage market dropped sharply as the firm was restricted from buying or guaranteeing riskier Alt-A mortgage loans, which required little or no verification of borrowers’ income.

Mr Raines said Fannie Mae followed “a lot of smart investors” when it decided to take on more risk after 2004, but he argued that Fannie Mae was a late entrant into the market for risky mortgages.

“By the time the GSE began its most significant investments in riskier loans in 2005, the roots of the present crisis had long taken hold,” Mr Raines said. “If anything, Fannie Mae played catch-up to the banks and investment banks who drove the securitisation of the most toxic sub-prime mortgages.”

While Mr Raines said Fannie Mae’s executives were responsible for its decision to dive into to Alt-A mortgages, he questioned why the firm’s regulator didn’t seek to limit its credit risk.

“It is remarkable that during the period that Fannie Mae substantially increased its exposure to credit risk, its regulator made no visible effort to enforce any limits,” he said.

Mr Mudd also took the opportunity to suggest that the Treasury Department and the firms’ regulator, the Federal Housing Finance Agency, didn’t have to take the dramatic step of placing the firms in conservatorship. He suggested that a capital injection like those now being enjoyed by the banking industry through Treasury’s Troubled Asset Relief Program, or TARP, would have been appropriate.

“I made the argument at the time and proposed that more modest government support could be used to encourage private investment capital – basically something more like the program many banks are now eligible for,” Mr Mudd said.

He also said lawmakers and the next administration need to decide on the future role of the GSEs – whether it be as public or private companies.

“Events have shown how difficult it is to balance financial, capital, market, housing, shareholder, bondholder, homeowner, private and public interests in a crisis of these proportions,” Mr Mudd said.

Republican John Tierney grilled Mr Mudd about the documents shedding light on Fannie Mae’s dilemma about jumping into riskier loans.

Mr Mudd explained that the presentation was intended to paint the choice very starkly, suggesting that executives did not actually believe the worst-case scenario would come to pass.

But he also acknowledged that Fannie Mae faced pressures to respond to the explosion in risky lending lest it continue to lose market share to competitors. “We couldn’t afford to make the bet that the changes were not going to be permanent,” he said.

Mr Issa expressed frustration that the four former chief executives declined to pin more blame on Fannie and Freddie for the housing crisis. He said they all “seem to be in complete denial” that Fannie and Freddie had anything to do with this.

He challenged them to agree that if they could go back and change their actions they would ensure the mortgage giants didn’t help finance loans that ultimately proved unaffordable to borrowers.

Without singling out Fannie or Freddie, the former executives agreed that lax underwriting standards had helped cause the crisis.

Mr Mudd said that, with perfect hindsight, the loans should have been better underwritten.
Mr Raines said, “Proper underwriting standards could have averted many of the losses.”





Fannie Mae And Freddie Mac Execs Testify To Congress On Scandals And Failures Of Mortgage Agency Lenders

9 12 2008

 

Four former CEOs of Fannie and Freddie are scheduled to testify Tuesday. One pair, Fannie Mae’s Franklin Raines and Freddie Mac’s Leland Brendsel, were both ousted after accounting scandals. The most recent pair of former top executives, Fannie Mae CEO Daniel Mudd and his counterpart at Freddie Mac, Richard Syron, were removed from their jobs this year after the government takeover.

Fannie and Freddie, which own or guarantee around half the $11.5 trillion in U.S. outstanding home loan debt, long used their lobbying muscle in Washington to thwart efforts to impose tighter regulation.

 

 

 

http://news.yahoo.com/s/ap/20081209/ap_on_bi_ge/financial_meltdown

Lawmakers are poised to trade barbs Tuesday about who deserves most of the blame for the collapse and government takeover of mortgage finance titans Fannie Mae and Freddie Mac.

The two companies, which were seized by federal regulators in September, have become highly charged political targets in the debate over what caused the U.S. housing crisis and the resulting financial fallout.

Four former top executives are scheduled to be grilled at the hearing, which is being led by Rep. Henry Waxman, D-Calif., chairman of the House Oversight and Government Reform Committee, starting at 10 a.m. EST. But there are doubts about whether the hearing will produce any solid conclusions or will just devolve into partisan bickering.

“I think we’re going to get a lot of finger-pointing, which will be totally unproductive,” said Bert Ely, a banking industry consultant in Alexandria, Va.

Fannie and Freddie, which own or guarantee around half the $11.5 trillion in U.S. outstanding home loan debt, long used their lobbying muscle in Washington to thwart efforts to impose tighter regulation.

Washington-based Fannie and McLean, Virginia-based Freddie are the engines behind a complex process of buying, bundling and selling mortgages as investments.

They traditionally backed the safest loans, 30-year fixed rate mortgages that required a down payment of at least 20 percent. But in recent years, they lowered their standards, matching a decline fueled by Wall Street banks that backed the now-defunct subprime lending industry.

Republicans blame Fannie and Freddie, and the effort to promote homeownership under the Clinton administration for sowing the seeds of the financial meltdown. Democrats defend the companies’ role in encouraging homeownership and note that Wall Street banks — not Fannie and Freddie — led a dramatic decline in lending standards.

Both companies have been asked to turn over a long list of documents and e-mail messages concerning the risks they took in their mortgage investments, accounting, and compensation for the companies’ former CEOs.

Four former CEOs of Fannie and Freddie are scheduled to testify Tuesday. One pair, Fannie Mae’s Franklin Raines and Freddie Mac’s Leland Brendsel, were both ousted after accounting scandals. The most recent pair of former top executives, Fannie Mae CEO Daniel Mudd and his counterpart at Freddie Mac, Richard Syron, were removed from their jobs this year after the government takeover.

Freddie Mac last month asked for an initial injection of $13.8 billion in government aid after posting a massive quarterly loss. Fannie Mae has yet to request any government aid but has warned it may need to do so.

The Bush administration and former Federal Reserve Chairman Alan Greenspan long sounded the alarm about the potential threat to the nation’s financial health if the fortunes of the two mammoth companies turned sour.

In an effort to head off stricter regulations, Freddie Mac enlisted prominent Republicans to lobby on its behalf. Internal Freddie Mac budget records obtained by The Associated Press show $11.7 million was paid to 52 outside lobbyists and consultants in 2006. Power brokers such as former House Speaker Newt Gingrich and former Sen. Alfonse D’Amato of New York were recruited with six-figure contracts.

The more vexing questions will come next year, when lawmakers weigh what role, if any, the two companies play in the future.

Options include taking the companies private, morphing them into a public utility or a federal agency, or leaving them as government-sponsored entities that have private shareholders and profits, with tougher regulations.

Separately, in a report to be released Tuesday, a bipartisan commission chaired by former HUD Secretaries Henry Cisneros and Jack Kemp takes aim at the Bush administration for the foreclosure crisis. The report cites the administration’s lax enforcement of fair housing laws and lackluster response for problems that have disproportionately hit poor and minority populations.

Calling the system “broken,” the seven-member panel calls for the creation of an independent agency separate from the Department of Housing and Urban Development to more vigorously enforce fair housing laws.

 

 





Mortgage Fraud Highest In Florida, Followed By California And Illinois

3 12 2008

“…Florida, crowned fraud king in both 2006 and 2007, topped the second quarter ranking with 21 percent of loans reported to contain false information. California ranked second with 15 percent, and Illinois ranked third with 12 percent…”

http://www.miamiherald.com/news/breaking-news/story/796411.html 

Despite more stringent underwriting of mortgages in the wake of record foreclosures, lenders continued to battle the problem of home loan fraud during the second quarter of theyear, with Florida borrowers again submitting more questionable loan applications than borrowers in any state in the nation, according to an industry report released Tuesday.

Reports of suspected mortgage fraud rose 45 percent nationally between April and June compared to the same three-month period a year earlier, according to the Mortgage Asset Research Institute, a mortgage-fraud data clearinghouse. Fraud reports were up 3 percent from the previous quarter.

Florida, crowned fraud king in both 2006 and 2007, topped the second quarter ranking with 21 percent of loans reported to contain false information. California ranked second with 15 percent, and Illinois ranked third with 12 percent.

Within Florida, the Miami metropolitan area was the biggest fraud hot spot. The most widespread abuses involved beefing up applicants’ financial profiles, including inflating income and assets and gussying up their employment status. Fabricated bank statements were also a problem, the report noted.

The Tampa Bay area ranked second in Florida, where the most common fraud involved inflated appraisals.

MARI analyzes reports submitted from participating lenders to derive its statistics. The Mortgage Bankers Association estimates mortgage fraud has cost lenders more than $1 billion, losses in part due to shoddy review policies during the boom.

Glenn Theobald, chairman of Miami-Dade Mayor Carlos Alvarez’s Mortgage Fraud Task Force, said mortgage fraud reports continued to stream full force into Miami-Dade County’s police department. Since the formation of the task force in October 2007, Theobald said the department had received 2,000 complaints. It has 700 active investigations.

High property values relative to local incomes are still tempting brokers and borrowers to fudge the numbers in order to qualify for loans, Theobald said. Desperate owners facing foreclosure are also looking for ways to game the system through appraisal fraud and other means in order to refinance or sell.

Heightened awareness of fraud on the part of consumers and lenders has also contributed to the increase.

Despite the recent implementation of a new Florida law stiffening penalties for mortgage fraud, Theobald said he expected reports to rise in the next year as lenders more closely vet loan applications to participate in federal refinancing programs tied to the bailout.

 





Five Mortgage Brokers In San Diego Submitted False Applications, Bank Statements, And Income Documentation To Defraud Mortgage Lenders

25 11 2008

“…submitting false loan applications, false bank statements, and false income documentation. In total, the victim lenders funded more than $16 million in loans on properties that have been foreclosed or are in the foreclosure process. These fraudulent loans resulted in actual losses to the victim lenders ..”

“…CFS did not fund loans but received commissions from the lenders when the loans closed. The five individuals were loan officers at CFS; in addition to the commissions, they often received kickback payments when loans closed…”

 http://www.imperialvalleynews.com/index.php?option=com_content&task=view&id=3384&Itemid=2

San Diego, California – United States Attorney Karen P. Hewitt announced that Rafael Santiago and Angel Armendariz pled guilty in federal court in San Diego to conspiring to commit wire fraud. On November 13, 2008, co-defendants Abner Betech, Said Betech, and Aviva Betech pled guilty to conspiring to commit wire fraud as well. These five individuals entered their guilty pleas before United States District Judge Thomas J. Whelan.

According to court documents, Rafael Santiago, Abner Betech, Said Betech, Aviva Betech, and Angel Armendariz admitted to devising a plan to defraud and to obtain money and property by false and fraudulent means, related to mortgage fraud. In 2005, Abner Betech, Said Betech and others founded Creative Financial Solutions, Inc. (“CFS”), a mortgage brokering company formerly located at 707 Broadway Avenue, Suite 1720, San Diego. CFS was in the business of sending loan application packages and other documents to lenders for review and funding. CFS did not fund loans but received commissions from the lenders when the loans closed. The five individuals were loan officers at CFS; in addition to the commissions, they often received kickback payments when loans closed.

These five individuals admitted that CFS obtained mortgage loans for unqualified borrowers by, among other things, submitting false loan applications, false bank statements, and false income documentation. In total, the victim lenders funded more than $16 million in loans on properties that have been foreclosed or are in the foreclosure process. These fraudulent loans resulted in actual losses to the victim lenders including the following: unrecovered loan proceeds, unpaid mortgage payments, the costs of recovering the properties through foreclosure, the costs of maintaining the recovered properties, and the costs of selling the properties after they had been foreclosed.

The sentencing for Rafael Santiago, Abner Betech, Said Betech, and Aviva Betech is scheduled for April 13, 2009, and sentencing for Angel Armendariz is scheduled for April 20, 2009. A sixth defendant, Lucette Montane, remains at large.





Claim That Subprime Loans Expanded Homeownership A “Fraud” As They Were Designed to “Fail”

24 11 2008

“…Carr, of the National Community Reinvestment Coalition, said that in hindsight the claim that subprime loans expanded homeownership was “a fraud.” Subprime loans, with their low teaser rates and expensive prepayment penalties, were “designed to fail.”

“…(in) Orange County, where subprime lending giants New Century, Fremont, Option One and Argent all were based. Subprime accounted for less than 10 percent of all home loans made in the county between 2004 and 2007. But in central Santa Ana – today the county’s foreclosure hotspot – the subprime share topped 40 percent…”

http://www.ocregister.com/articles/subprime-percent-home-2233845-lending-loans

For a few delirious years, subprime mortgages brought fat profits to Orange County lenders – plus Mercedes, Beemers and the occasional Lamborghini for their salespeople.

Subprime loans left a more lasting impact elsewhere, in places like Fresno and Moreno Valley, Florida and Michigan – areas now suffering from massive foreclosures.

A Register analysis shows that subprime loans were concentrated in the less prosperous, less stable corners of the nation. The Register studied 43 million prime and 12 million subprime loans made between 2004 and 2007.

The analysis shows how subprime loans evolved from a niche product, largely confined to Texas and the Deep South, into a nationwide phenomenon. But even as subprime went national, it played a much bigger role in some housing markets than in others. (Click here to see maps of both California and U.S. from 2004-2007).

Consider two cities: During the height of the bull market, residents of New York City got just 3 percent of their home loan money from subprime mortgages. In hard-pressed Detroit the figure was 31 percent.

Now look home, to Orange County, where subprime lending giants New Century, Fremont, Option One and Argent all were based. Subprime accounted for less than 10 percent of all home loans made in the county between 2004 and 2007. But in central Santa Ana – today the county’s foreclosure hotspot – the subprime share topped 40 percent.

A series of maps shows subprime lending spreading year by year from the South to California to the Midwest and Northeast.

The maps are “like you’re looking at X-rays of a cancer patient,” said Jim Carr, chief operating officer of the National Community Reinvestment Coalition, a nonprofit that promotes lending to low-income areas. “(2004) and ’05 is when it went viral.”

Subprime lending mushroomed from less than 10 percent of national home loan volume in 2004 to 20 percent in 2005 and 24 percent in 2006. In 2007 as major lenders failed, subprime fell to 15 percent of national home loan volume.

Subprime’s sudden collapse gave counties that depended on subprime loans a bitter foretaste of the credit crunch. While total home loan volume dropped 21 percent nationwide in 2007, it slumped by 43 percent in Riverside and San Bernardino counties. The crunch was even sharper in parts of the San Joaquin Valley: Home lending dropped 50 percent in San Joaquin and 55 percent in Merced.

Easy credit helped the valley prosper in the first half of the decade. Its urban centers grew twice as fast as the state did. Cotton fields and vineyards gave way to new homes from Bakersfield north to Stockton.

“The subprime lending practices definitely lent fuel to the economy,” said John Mahoney, director of the Real Estate & Land Use Institute at Cal State Fresno. “That single element alone is what expanded this market to unsustainable levels.”

Mahoney has studied the new home market in Fresno for years. Between 2004 and 2006, he said, the number of new housing units produced each year doubled. The median price also doubled.

Easy money was “the primary component that fueled the overbuilding, the overpricing,” Mahoney said. It was “a marketing cycle that fed on itself.”

It couldn’t last. In 2007 home lending volume in Fresno County slumped 37 percent, builders stopped building and the first foreclosure signs appeared.

Mark Boud, an Irvine real estate economist, has studied the valley market. Between February and August, he said, there were 4,133 foreclosures in Fresno and neighboring Madera County – four times more than in the same period in 2007 and 30 times the 2006 number.

Subprime is a big factor in foreclosures, Boud said. He blamed “loose lending standards,” particularly in the new-home market, for the surge in foreclosures.

Carr, of the National Community Reinvestment Coalition, said that in hindsight the claim that subprime loans expanded homeownership was “a fraud.” Subprime loans, with their low teaser rates and expensive prepayment penalties, were “designed to fail.”

Carr looks at the maps showing the spread of subprime year by year and sees a lost chance for regulators.

“As late as 2004 we could have prevented this foreclosure crisis,” Carr said. “They had an oportunity to tighten down on financial institutions whose lending behavior was clear as early as 2002-2003. It was a missed opportunity to get this problem under control.”








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