Radius Capital Corp. and its president, Robert DiGiorgio, have been charged by the Securities and Exchange Commission with securities fraud for allegedly making false and misleading statements related to the company’s issuance of mortgage-backed securities guaranteed by Ginnie Mae.
According to the complaint, Radius and DiGiorgio offered and sold 15 Ginnie-Mae guaranteed mortgage-backed securities to investors from December 2005 through October 2006 that totaled approximately $23.5 million.
The Florida-based company, which is now inactive, represented to Ginnie Mae and investors that the residential loans underlying the securities were, or would be, insured by the FHA. In order to receive the guarantee from Ginnie Mae, the loans needed FHA approval.
The SEC alleges that both the company and the individual misrepresented the insurability of the underlying loans by never applying for FHA insurance for the majority of the uninsured loans.
The SEC claims that more than 100 of the 154 underlying loans were not, and could not be, FHA insured. According to the complaint, the uninsured loans did not have the ability to be insured because the borrowers failed to meet FHA’s debt-to-income, credit history, employment history, and other underwriting requirements.
In October 2006, the complaint says that Radius defaulted on its pass-through payments to the investors holding the mortgage-backed securities. This resulted in Ginnie Mae paying investors the remaining principal balance on every uninsured loan that was in default, which resulted in losses of several million dollars.
Another problem was that investors who held the company’s securities lost interest income due to the high rate of pre-payment of principal as the loans went into default.
With the complaint, the SEC seeks an injunction for the company and its president from offering mortgage-backed securities. They face civil penalties.