Mortgage Fraud… A Must Read:

The real estate boom market in recent years helped create more opportunities for illegal activity, with much of it undetected until home loans started going bad. In recent months, delinquencies and foreclosure rates have skyrocketed.

Colorado Mortgage Fraud Case Decided in Court

No Sympathy for Lenders Glenn Puller and Cindy Ingram are on their way to federal prisons for mortgage fraud. At a sentencing hearing last week, Puller received one year and Ingram received two years in prison for their separate roles as straw buyers in a massive Colorado mortgage fraud scheme in Aurora. “I apologize to the lenders,” Ingram told the court. Puller said the same. But what that even necessary? Lenders make money lending, even when borrowers never pay it back.

The industry runs on loan volume, not loan quality. A mortgage company sells the loans it makes to Wall Street investment banks, which sell them to investors. This is why Puller and Ingram were able to get loans to acquire multiple homes at inflated selling prices of around $600,000 apiece.

Puller and Ingram are among seven defendants accused of taking $2.1

million out of 17 phony home sales, mostly in the Villas at Cherry Creek, a

gated community bordering Cherry Creek State Park. The scheme began with Ronald Fontenot and Torrence James, who met in federal prison and became Colorado mortgage brokers once released. Puller and Ingram were among their dupes paid to pose as buyers and sign bogus documents.

Among the lenders they defrauded was New Century Financial, whose

stock has been in a free fall. As the Irvine, Calif.-based company cranked out loans across the country, its stock hit $66 a share in December 2004. On Friday, New Century’s stock closed at $3.21. The previous Friday, New Century disclosed that federal prosecutors and securities regulators were investigating accounting errors and stock sales at the company.

Mortgage lenders still prosper. Last year, lenders made $600 billion in subprime mortgages, comprising 20 percent of all mortgages made. More than half of these loans have adjustable mortgage rates. That means borrowers with shoddy credit histories have increasingly received loans whose monthly payments are steadily rising with interest rates.

This is why foreclosures are on the rise in Colorado and across the nation.

“The market deals with this in a very merciless way,” said Guy Cecala, publisher of Inside Mortgage Finance, noting the plunging stocks of subprime lenders. “New Century is going to be put out of business.

… Investors are talking with their feet.”

The founders, who sold millions worth of their stock, do not seem punished to me. Meanwhile, the real losers are shareholders who didn’t sell their stock, and homeowners, whose home values rise and fall in a mortgage market with lax underwriting standards.

Former federal prosecutor Anthony Accetta, now a Denver-based fraud investigator, has helped shut down several mortgage companies for fraud over the years. “The guys at the top know exactly what’s going on,” Accetta said of his experience. “They want the lending standards reduced so they can make as many loans and collect as many fees as they can. … They are the ultimate beneficiaries of the crime. And the crime is making false statements to get a mortgage loan.”

Another subprime market leader, Countrywide Financial, recently reported that 19 percent of its bad credit home loans were more than 30 days delinquent. That’s nearly one out of five going bad. The company also said it made $41 billion worth of subprime mortgages last year and $46 billion in 2005. Before news of Countrywide’s widening subprime delinquencies broke, its CEO, Angelo Mozilo, sold $140 million in stock over the past 14 months, The Wall Street Journal reported last week. Mozilo, who

co-founded the company 38 years ago, defended a 19 percent delinquency rate. “That means 81 percent of these subprime borrowers are making their payments on time,” he told the Journal. “That 81 percent never would have had the opportunity to own a home.” Countrywide also was among lenders Puller and Ingram apologized to in court.

Arizona Mortgage Insiders Convicted of Fraud

A group of former housing counselors, loan officers and an escrow agent has been indicted on fraud and conspiracy charges in one of the biggest real estate fraud cases in Arizona since the housing crash of the late 1980s.

The group is accused of defrauding the Department of Housing and Urban Development of $1.9 million through a pre-foreclosure scam that targeted dozens of first-time Arizona mortgage holders across the Valley from 2001 to 2003, according to a grand-jury indictment filed in federal court late Wednesday.

The indictment comes a year and a half after Eddie Carrillo Jr. of Scottsdale-based Sahara Investments was convicted of fraudulent schemes in a case relating to the pre-foreclosure scam. Carrillo is named as a co-conspirator in the indictment but not one of the five defendants. According to the indictment, Carrillo and the defendants sought out homeowners who had defaulted on FHA loans - and offered to buy their homes.

The group is accused of submitting documents to HUD making it appear the houses were worth less than they were, then turning around and selling the homes for much more. Because HUD insures the mortgages, the federal agency was left to satisfy the debt with the lender.

HUD’s pre-foreclosure program was set up to help struggling homeowners avoid foreclosure by working out a structured deal to get their properties appraised, then sell them to pay off as much of their mortgage as the market would allow. At least 65 homes throughout the Valley were purchased in the scam. Homeowners who sold their homes lost out on any potential equity they could have gotten on a sale.

The investigation into the pre-foreclosure scam began before a recent wave of mortgage and real estate fraud in metropolitan Phoenix housing market. Several other fraud investigations are under way. Mortgage fraud is often hard to prosecute because it typically involves long paper trails, and the people in question can be hard to find because many are not licensed and they tend to move from firm to firm. Legislation has been introduced to make mortgage fraud a felony and, therefore, easier to prosecute.

According to the indictment, the pre-foreclosure scheme linked to Carrillo and the five defendants involved the following fraudulent acts:

• The Wells Fargo loan officers gave Carrillo the names and addresses of borrowers who had defaulted on their FHA home loans.

• The escrow agent supplied Carrillo with information on the Federal Housing Administration properties with equity left. Carrillo and the other defendants then contacted the homeowners and offered to purchase

their properties through the FHA’s pre-foreclosure program. The homeowners sold their homes for less than what they were worth.

• Carrillo and the two housing counselors signed false counseling certification showing the homeowners received the required guidance from a HUD-approved counselor. Vasquez and Felix were HUD-approved

counselors.

• Vasquez negotiated with mortgage firms to purchase the properties and misrepresented himself as a HUD employee. He received $70,000 from Carrillo as part of the scheme. Vasquez left Chicanos Por La

• Felix signed documents listing her as the buyer and seller of the homes to hide that it was really Carrillo. Felix received $102,000 for her part in the conspiracy.

• False appraisals showing inflated values were sent to the Wells Fargo loan officers. Soto accepted $41,000 for his part. Smith got $30,000.

• Peters falsified loan documents so second mortgages and third mortgages on the homes weren’t disclosed. The properties wouldn’t have been eligible for HUD pre-foreclosure program with the additional loans. Peters accepted $23,000 from Carrillo for her part.

Missouri Mortgage Fraud Target of New Task Force

According to the Kansas City Star, Missouri officials on Tuesday announced the formation of a task force to better coordinate efforts to root out and punish mortgage fraud in the state. A key intent of this Missouri mortgage task force is to improve sharing of information between regulators - the Insurance Consumer Affairs Division, the Real Estate Commission and the

Real Estate Appraisers Commission. “Mortgage fraud affects lenders, mortgage brokers, Realtors, appraisers and, most importantly, consumers,” stated Doug Ommen, director of the Missouri Department of Insurance, Financial Institutions & Professional Registration.

Ommen said the task force was one outcome of a major reorganization last fall that allowed for improved sharing of information. “[Regulators] were working on the issue, but they were working on it from their own particular perspective. There was little communication. It became clear we need a group to meet frequently to look at complaints coming in,” he said. The task force will be led by Richard Weaver, deputy director for the Division of Finance.

The effort takes place against a backdrop of growing concern nationally. Many bad credit mortgage loan providers, who were all-too willing to make risky loans at high interest rates in boom times, are now facing rising defaults threatening their very existence. Recent estimates place the annual losses caused by Missouri mortgage fraud at more than $4 billion, more

than triple the estimates of a year ago. Investigators have rated Missouri sixth nationally in the number of cases involving fraudulent home

mortgage lending. Indictments have been returned in the Kansas City housing market, as well as in St. Louis and Springfield. Search warrants were recently served in Columbia related to a mortgage fraud investigation.

Ommen said he has asked the task force to develop “common-sense Solutions” to stop the fraud that is contributing to rising foreclosures. He said the effort might look at tighter regulation, stricter underwriting, broader licensing requirements and improved education programs. Sen. Charles Shields, a St. Joseph Republican, has introduced a bill that would Criminalize the act of participating in mortgage scams. he Mortgage Bankers Association Tuesday said it had jointly approved with the FBI a mortgage fraud warning notice to be used by its members.

Ommen said a big challenge to stopping fraud is that it usually involves a clandestine web of conspirators that include an unethical mortgage broker, appraiser, investor, real estate agent and lender. “What this group is looking for are ways to identity the problems at an earlier stage,” he said.

Questionable Arizona Mortgage Practices Lead to More Lawsuits

Dozens of lawsuits alleging the gamut of home loan fraud, from cash-back deals to lying about income on loan documents, have been filed against Arizona mortgage firms and individuals during the past few months.

Fraud experts and regulators say the lawsuits are only the beginning as the fallout from mortgage fraud starts to hit the Valley. Cash-back scams may involve getting a Phoenix home loan for more than a home is worth and pocketing the extra money. The deals inflate home values and leave the mortgage lender with losses from loans worth far more than the house itself.

“Banks are going to start forcing mortgage brokers to buy back these bad loans, and mortgage brokers don’t have the money so they are going to go under,” said Richard Hagar, a national mortgage and real estate fraud expert with American Home Appraisals based in the Seattle area.

“This is the beginning of the wave of lawsuits, lost licenses and criminal indictments in Arizona.” Among the lawsuits:

• Phoenix-based Biltmore Bank is suing Security Title of Arizona and a group of others over a cash-back deal. The suit alleges the group worked together to get Biltmore to fund a $1.3 million loan for a home valued at $800,000 and then pocketed the extra cash.

Also named in the suit are Valley appraiser Kittelmann & Associates and Tucson resident Frank Padilla, who was indicted and pleaded guilty last year to fraud and money laundering as part of a $13 million property-flipping scheme. “It was a creative and imaginative scheme these guys engaged in, but how anyone could figure the title firm was at fault as opposed to the lender or the appraisal company picked by the lender doesn’t make

sense,” Security Title’s attorney Michael Rusing said.

• A Lehman Brothers investment trust in New York and Aurora Loan Services in Denver are suing the parent company of First National Bank of Arizona over 38 home loans. They say the bank misrepresented the values of properties, and the income, debt and employment of some of the borrowers. Lehman and Aurora bought the loans as investments and want the bank to buy them back.

• San Francisco-based Transnational Financial Network is suing Phoenix-based Lending House Financial and a Scottsdale investor who purchased 22 Valley homes within days of each other last spring. Transnational funded loans worth nearly $2 million on seven of the homes but says it wasn’t notified the investor was buying multiple homes and his real debt level wasn’t disclosed on mortgage documents.

The investor never made a payment on the houses, which were foreclosed on last year. Most of the homes then sold at foreclosure auctions for tens of thousands of dollars less than the mortgages the investor took out on them. The suit was filed last year in San Francisco. Jeff Matura, the attorney for Lending House Financial, said his client is regulated by Arizona’s Department of Financial Institutions and complies with its guidelines and met all those rules when it handled the Arizona mortgage loans involved in the Transnational suit.

• Tucson-based mortgage lender First Magnus is suing its former Valley loan officer, Tyson Rondeau, for fraud and negligence. First Magnus claims bad loans are costing it nearly $1 million. Separately, the lender agreed last fall to pay a $200,000 fine after the Arizona Department of Financial

Institutions found a number of violations, including a branch manager making false promises or concealing facts in 10 fraudulent loan transactions.

“This mortgage fraud, particularly cash-back deals, is a big problem,” said Felecia Rotellini of the Department of Financial Institutions, which regulates mortgage lenders, brokers and escrow firms. “Civil actions are a great source of information for us and often confirm something we are already looking into.”

Illinois Mortgage Companies Sued By State

Three Chicago businesses promised to save more than 12 struggling homeowners since 2003, then proceded to scam them out of tens of thousands of dollars in hard-earned home equity. That’s the charge levied by state Atty. Gen. Lisa Madigan, who announced the state is filing a lawsuit as

of yesterday against the individuals responsible for this Illinois mortgage scheme.

The firms - Eyes Have Not Seen Inc.; Creative Financial Solutions; and Mutual Trust Funding, formerly known as Greater Investment Solutions - lured victims by offering to help make mortgage payments, according to the suit, which was filed in Cook County Circuit Court.

The companies then ran a scam that involved persuading the homeowners to

put their home mortgages in someone else’s name, the lawsuit alleges. In 13 complaints filed with Madigan’s office, homeowners said they lost from

$28,000 to $85,000 at the closings arranged by the defendants. “Mortgage-rescue-fraud artists, like these defendants, take advantage of homeowners who are in financial distress,” Madigan said in a statement.

Also named as defendants in the lawsuit are Charles T. White Jr., president of Eyes Have Not Seen; and Debra Gray and Darius K. Monroe, who are identified as agents of the firm. The lawsuit seeks to force the defendants to repay the homeowners and pay fines of up to $50,000 for each violation. Hopefully, this new, statewide crackdown on mortgage fraud will continue and serve as an example for the rest of the U.S.

Pair Charged in Indiana Mortgage Scam

Two men who authorities said lined up properties or investors in a multi-million dollar mortgage-fraud scheme were sentenced to prison, the Fort Wayne News-Sentinel reports. Putting a stop to a fraudulent scheme that affected many in the Indiana housing market, federal judges sentenced John Wagner, 46, to three years and a month in prison and Frankie Lamont Howard, 38, to two years.

Both pleaded guilty to charges of money laundering and conspiracy

to commit mail fraud. Wagner and Howard obtained more than $4

million in fraudulent home loans on houses in low-income

neighborhoods of Indianapolis. Authorities said Wagner recruited investors for Romero Brice, the owner of the Indiana mortgage company, Promise Land Mortgage, with offices located in Indianapolis.

Brice obtained houses at fair market value and then used the investors to buy back the houses at three to four times the price, authorities said. Brice was sentenced on Tuesday to seven years in prison. Prosecutors said Brice obtained at least 83 loans between late 2000 and early 2002 based upon false

documents, with Wagner involved in 53 of the mortgage loans valued at about $2.65 million.

After being apprehended, the full scope of the scam was uncovered and Howard was charged with 31 fraudulent transactions accounting for about $1.65 million. The judges also ordered Wagner and Howard, both of Indianapolis, each to pay more than $1 million in restitution for their mortgage fraud.

Current Market Lends Itelf to New Hampshie Mortgage Fraud

Despite reassurance from some Realtors that the New Hampshire housing market is healthy, others believe it provides an excellent backdrop for mortgage fraud. Below, The Nashua Telegraph explains some of the typical factors that open the door to fraud:

• Buyers trying to get into the market before home mortgage rates climb much higher are tempted to cheat to get what they want.

• Financially strapped homeowners with soaring adjustable rate

mortgages who may be enticed to bend the rules to get out of a bad

situation.

• Desperate sellers unable to find ready and financially able buyers

who are lured by fraudsters who offer them a way out. As long as the market stays in the doldrums, mortgage fraud will continue to thrive, say experts.

The extent of mortgage fraud isn’t fully known; the FBI estimates that lenders lost about $1.5 billion to the crime in 2006, but that’s only the crimes reported by federally insured agencies. Investigators predict

the number will increase as fraudsters prey on people with adjustable rate mortgages now facing foreclosure as their rates reset and they can no longer afford their payments.

One common type is borrower fraud: A person lies on a New Hampshire mortgage application about income, the source of the down payment or length of employment. With the high cost of housing and the popularity of stated-income loans, it can be tempting for a person who is desperate to get into a house to fudge the numbers to make the loan work.

Much of the borrower fraud is being tacitly encouraged by real estate professionals who should know better, says Miami-based real estate attorney Oscar Rivera. Too often, he says, mortgage loan originators look at a loan application and suggest to the borrower that a few doctored or falsified documents might qualify them for a better program. This is federal mortgage

fraud.

Sometimes the real estate agent or the lender is the culprit. They’re both paid on commission and may be struggling financially because of the real estate downturn, says Patricia Yamato, president of Florida Association of Mortgage Brokers. But the bottom line is that if the borrower signs a mortgage application and knows the information on it isn’t true, everyone is responsible.

Homeowners who are having financial trouble need to be very careful of cold calls or letters from people who purport to be able to get rid of their debt, says Matt Schwartz, a New Jersey-based CPA and certified fraud examiner.

“Where consumers have to be really careful is if someone comes to them, says, ‘I know you’re having trouble, I can help you out, sign these papers,’ ” Schwartz says. “They’re getting you to sign over your property to them and they sell it.”

One final word to borrowers who are tempted to lie on mortgage Applications: You’re not doing yourself any favors trying to qualify for a house you can’t really afford. Remember: there’s probably another

mortgage out there that you would have qualified for.

“Some people may think the only way they can get into a property is to BS the bank all the way through,” says David Reed, president of CD Reed Mortgage Bankers of Austin, Texas. “There are so many programs out there. I’ve never met a borrower who couldn’t get a mortgage.”

Missouri Mortgage Improprieties Under Investigation

The FBI is investigating alleged mortgage fraud schemes in the Springfield, Mo., area, some of which may be driving a spike in foreclosures on homes sold to unsuspecting buyers at inflated prices. FBI Special Agent Josh Nixon couldn’t comment on specific investigations or the alleged perpetrators, but did say Missouri mortgage fraud activity is on the rise in Springfield as it is across the nation. Missouri now ranks sixth among states with the most serious mortgage fraud problems, according to a new index compiled by the Mortgage Asset Research Institute.

“Mortgage fraud is one of the fastest-growing frauds in the United States, along with identity theft,” said Nixon, who is based in Springfield. “The FBI has received numerous allegations regarding mortgage fraud in this area, and we evaluate every allegation.”

The real estate community is buzzing about the disproportionately high list prices in some areas and an upsurge in Missouri mortgage foreclosures - two signs often associated with mortgage fraud.

Carol Jones Realtor LeeAnn Quinn said a handful of conspicuously priced properties caught her attention several months ago. “They stuck out like a sore thumb,” Quinn said. “I did show a house that I thought might be in that (alleged scheme). It was sold at a certain price, and it was bought a few months later at a higher listing price … quite a bit higher.” Quinn, who hasn’t noticed the trend lately, said less scrupulous real estate agents or home builders may have turned to a number of illicit tactics when the housing market began showing signs of a slowdown last year.

Foreclosures in the Missouri real estate market increased 96.5 percent in 2006, and Quinn said that area real estate agents have filed complaints with the Missouri Real Estate Commission. Complex mortgage loan fraud schemes uncovered by authorities in the Kansas City and St. Louis housing

market have prompted a steady stream of federal indictments in recent years.

Last month, a Kansas City councilwoman and a former Jackson County official were among a group of alleged conspirators behind a scheme to defraud a mortgage lender. The largest mortgage fraud case prosecuted by a U.S. attorney in Missouri was a series of schemes orchestrated by a man who was sentenced to 12 years in federal prison without parole in October. His schemes involved home loans totaling more than $19 million for more than 300 properties.

Buyer Beware: North Carolina Mortgage Scheme Uncovered

A Raleigh, N.C., business owner and a home builder have been sentenced for their roles in a North Carolina mortgage fraud scheme, the U.S. Attorney’s Office said Wednesday.

U.S. District Judge Malcolm Howard on Tuesday sentenced James Thomas

Davis, 56, of Raleigh, to 16 years and 8 months in prison. Davis called himself a real estate consultant and was involved in a mortgage fraud scam involving new homes in Raleigh, Garner and Wake Forest. Davis owned Easy Financial Services and Eagle Investments Club.

Howard also sentenced David Layton, 55, a Raleigh-based residential home

builder, to four months in prison, said Layton’s attorney, Jack O’Hale of

Smithfield. Federal investigators have said Davis would approach home builders who had new properties on the market and offer them for more than the listing price. As part of their illict arrangement, the home builders would agree to let Davis pocket the difference between the asking price and the inflated offer. Davis would seek investors to act as borrowers on mortgage applications, which would falsely state that the investor planned to live in the home. Davis would then recruit renters who didn’t have good enough credit to qualify for a mortgage themselves. They would live in the homes in a “rent-to-own” plan and pay Davis a large down payment and low rent. The scammer used a pyramid-type scheme, seeking money from new renters and investors to cover the difference between the home mortgage loan payments and the monthly rents to keep the scheme going.

Ultimately, when all was said and done, the mortgage lenders foreclosed on the homes, the investors’ credit was ruined, and the renters lost the down payments and place to live, according to investigators. Layton admitted conspiring with Davis to make and use false documents at real estate closings. Last year, a jury convicted Davis of conspiracy and fraud charges.

Minnesota Mortgage Fraud Ring Uncovered; Millions Stolen

The Associtaed Press reports that Minneapolis Federal investigators have uncovered what’s described in court documents as a multimillion-dollar Minnesota mortgage scheme involving real estate prices, in a case that industry leaders believe could have wide implications. The scam, uncovered by the Internal Revenue Service, concerns more than 60 real estate transactions in the state, all of them involving Jill Lehn, a former mortgage loan closing agent in Prior Lake.

Between December 2004 and August 2006, Lehn prepared loan documents

that overstated the purchase price of properties and then concealed

overpayments from home loan lenders, according to the U.S. attorney’s office in Minnesota. In December, she pleaded guilty to one count each of wire fraud and money laundering in U.S. District Court, and is awaiting sentencing. The scam allowed buyers to pocket the difference between the actual purchase price of the property and the inflated mortgage amount. Lehn was the buyer in a half-dozen of the transactions.

In all, buyers netted more than $3 million in fraudulent payments.

Chris Galler, senior vice president of the Minnesota Association of Realtors, said in a letter to members that he expects “a series of arrests” in the next few months resulting from investigations into the Lehn case. “We don’t know how widespread (mortgage fraud) is, because finding one person leads to another and to another,” Galler told the Star Tribune.

Pat Martyn, executive director of the Minnesota Association of Mortgage Brokers, said there’ve been hundreds of complaints of mortgage fraud to organizations statewide. He said it must be addressed by both law enforcement and with a legislative approach. Several bills aimed at reining in mortgage fraud have been introduced this year by state lawmakers.

The FBI has identified mortgage fraud as one of the fastest-growing white-collar crimes in the U.S. Most of the cases involve deals among industry professionals and financial institutions, according to the FBI. Many include misrepresentation of the borrower’s information and inflated appraisals to make up for the lack of a down payment or to generate more cash from a deal.