Former U.S. Mortgage CEO Admits to Withholding Funds from Wells Fargo
The former president and chief executive officer of U.S. Mortgage, a loan servicing company based in Nevada, pleaded guilty for his role in a scheme to defraud Wells Fargo of more than $8 million.
Earl Gross pleaded guilty to one count of bank fraud and faces a maximum penalty of 30 years in prison. As part of his plea, Gross agreed to forfeit more than $8.4 million.
According to court documents, Wells Fargo Bank contracted with U.S. Mortgage to service pools of residential mortgage loans held by investors in mortgage-backed securities. Through this agreement, Gross and U.S. Mortgage were obligated to collect monthly payments from the borrowers and forward these proceeds to Wells Fargo.
If a borrower paid off the loan, usually be selling the mortgaged property, the mortgage servicer had to remit to Wells Fargo the full payoff amount.
Furthermore, U.S. Mortgage promised to provide Wells Fargo with monthly reports that described the status of the loans, such as the balance, principal, interest and payment status. In return, U.S. Mortgage received servicing fees for each loan it services.
But an indictment said that from 2004 to 2009, Gross and U.S. Mortgage withheld more than $8 million in loan payoffs that were due to Wells Fargo by submitting bank reports that stated several borrowers were continuing to make monthly payments when they really had paid off the loans in full.
Rather than remit to Wells the full payoff amount as U.S. Mortgage was supposed to, Gross forwarded only what the borrowers’ monthly payment would have been and retained the difference in the servicers bank account.
To deceive the financial institution about the status of the paid off loans, Gross created fake amortization schedules showing that borrowers who sold and paid off their homes were still making monthly payments. Besides withholding the loan full loan payoff amounts from Wells, Gross charged the bank fees to service the mortgage loans that had already been paid off.