Mortgage Fraud Has Increased In 2008 Relative To 2007 Levels

17 01 2009

“…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.”

 

http://www.nytimes.com/2009/01/18/realestate/18mort.html?_r=1&pagewanted=print

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.”





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

13 01 2009

 

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

5 01 2009

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

3 01 2009

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.

 

 





Georgia Mortgage Fraud Scheme Included Augusta Lawyer

29 12 2008

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.





Investment Bankers And Predatory Lenders Combined To Make Risky, Deceptive Mortgage Loans To Naïve Home Buyers Who Purchased Homes They Couldn’t Afford

17 12 2008

“…The widespread securitization of mortgages prompted lenders to give virtually anyone a loan that they could resell at a profit while offloading the risk. It also gave them incentive to mislead borrowers about what they could afford, what risks they were undertaking and, in some cases, the terms of the mortgage they were signing. The public face of this racket could well be Angelo Mozilo, co-founder of mortgage giant Countrywide Financial…”

“…though the poster child of mismanagement has to be Richard Fuld, former CEO of the former company known as Lehman Bros. Fuld, who received as much as $480 million in compensation from 2000 to this year, took risks that drove the storied investment house straight into the ground…”

 

http://blogs.usatoday.com/oped/2008/12/whos-to-blame-f.html

 

Investment bankers

In the war on drugs, the top target is always the traffickers. The same principle is true with the massive implosion of credit markets and corporate ethics. In this case, the traffickers were the Wall Street firms that created bundles of subprime mortgages and other toxic financial instruments, then peddled them as low-risk, high-return investments. These securities, and enormous side bets on them, fueled the housing bubble and infected the global financial system.

Nearly all the big investment banks were culpable, though the poster child of mismanagement has to be Richard Fuld, former CEO of the former company known as Lehman Bros. Fuld, who received as much as $480 million in compensation from 2000 to this year, took risks that drove the storied investment house straight into the ground. But he had lots of co-conspirators.

Predatory lenders

Lending is easy when it is someone else’s money. The widespread securitization of mortgages prompted lenders to give virtually anyone a loan that they could resell at a profit while offloading the risk. It also gave them incentive to mislead borrowers about what they could afford, what risks they were undertaking and, in some cases, the terms of the mortgage they were signing. The public face of this racket could well be Angelo Mozilo, co-founder of mortgage giant Countrywide Financial. But many others got into this game, as well. Subprime lending shot up from $130 billion in 2000 to $625 billion in 2005.

Clueless borrowers

It might seem cruel to put blame on people who have lost their homes, or are in jeopardy of it. But hundreds of thousands of homebuyers bought more house than they could afford, or financed investment properties with no clue about what they were doing. It takes two parties to sign a mortgage contract, so some borrowers share responsibility for the housing mess.

 

 





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.