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.”





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

30 12 2008

 

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.

 

http://www.nytimes.com/2008/12/28/business/28wamu.html?_r=1&hp=&adxnnl=1&adxnnlx=1230591825-HlE0eyNm%20w8Xjj6qqNdoOg&pagewanted=print

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

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.





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

27 12 2008

“…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.





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

22 12 2008

“…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.





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.