Fraud and Prevention

Stories on this page:

LTC Circulates Draft RFP for National Database to Track Mortgage Fraud

Ohio Rental Property Owner Pleads Guilty to Mortgage Fraud Scheme

LTC Circulates Draft RFP for National Database to Track Mortgage Fraud

By James Comtois
April 15, 2008

Within both the industry and law enforcement, there is increasing concern that mortgage fraud perpetrated against residential mortgage bankers has grown considerably over the past several years with significant consequences to lenders as well as to taxpayers, consumers and communities.

In order to further combat fraud, Lender Technologies Corp., a wholly owned subsidiary of the Mortgage Bankers Association, has circulated a draft Request for Proposal regarding the creation of a national database to help prevent and detect mortgage fraud.

According to the RFP, the mortgage lending industry has determined that there is value in developing and deploying a national Real Estate Fraud Prevention Database system to help mitigate the risk of fraud in residential mortgage loans. "The purpose of the FPD project is to develop and operate a system which facilitates the sharing of key data to improve a system subscriber’s ability to identify and prevent mortgage fraud at the point of origination," it states.

The RFP also states that the resulting system will not determine fraud but rather "flag circumstances that subscribers may want to investigate further due to data inconsistencies or the receipt of loan data that matches data contained in subscriber inputted incident reports."

"Fraud against mortgage lenders is a growing problem, one that affects all lenders and consumers," said Kieran Quinn, chairman of the MBA. "We are eager to explore new technologies to help track fraud and share information that will allow lenders to better protect themselves, as well as consumers, taxpayers and communities, from the costs of mortgage fraud and that is why we are lending our support to efforts to develop a national fraud prevention database."

At the request of an industry group made up of several of the largest residential mortgage lenders as well as Fannie Mae and Freddie Mac, and as part of ongoing efforts to combat mortgage fraud, LTC is exploring the creation of a national database which will use technology to provide an early warning system for potential fraud.

LTC is seeking comment on the draft RFP from the vendor community and other interested parties to assure that the specifications in the draft RFP are sufficient to elicit viable, comparable proposals.

"Information is truly the lender's best defense against mortgage fraud," said Richard Wohl, president of IndyMac Bank and member of MBA's board of directors. "Preventing fraud before it occurs is the most important step we can take, and the industry, along with seeking support of its regulators, is eagerly pushing this innovative national anti-fraud information sharing database forward so we can do just that."

The primary focus of this project is to develop a database and process to facilitate the sharing of key data that will improve a mortgage lender's ability to identify and stop fraud at the point of origination.

The project described in the RFP presents a very powerful opportunity for the mortgage industry to prevent fraudsters from harming both lenders and honest homeowners.

The RFP is in follow-up to the Request for Information that was circulated to the industry last fall. The draft RFP is now posted for industry review and comment.

Ohio Rental Property Owner Pleads Guilty to Mortgage Fraud Scheme

By James Comtois
April 15, 2008

After obtaining more than $2.6 million in mortgage loans through a mortgage fraud scheme, an Ohio rental property owner has pleaded guilty to related charges, according to the U.S. attorney’s office for the Southern District of Ohio and the Cincinnati division of the FBI.

Donald F. Green of Columbus pleaded guilty in U.S. District Court before Judge Algenon L. Marbley to one count of income tax evasion, one count of conspiracy to commit bank fraud and wire fraud, and one count of bank fraud in connection with his role in a mortgage fraud scheme that fraudulently secured more than $2.6 million in mortgage loans in 2003 and 2004.

According to a statement of facts filed with Green's plea agreement, Green bought houses usually in need of substantial repairs in distressed neighborhoods in Columbus in 2003 and 2004 at or near their true-market value.

In 2003, Green developed a working relationship with Jonathan L. Boyd, a loan officer at Summer Tyme Mortgage. Boyd would recruit straw buyers to purchase Green's properties, using fictitious income numbers in order to increase their apparent creditworthiness.

The court documents also say that Boyd arranged for inflated appraisals of many of those properties by Darneil Gaither. The conspirators used false information to fraudulently obtain approximately $2.6 million in mortgage loans.

In 2004, Green sold similar houses to other straw buyers through a scheme set up by codefendants Aryeh Schottenstein, Jeffrey Lieberman and Shawn Griffin in an investment program with Stillwater Capital Partners. Stillwater paid Griffin substantial amounts of money to renovate these properties provided by Green, but Griffin failed to follow through on any renovations.

Green received so-called consulting fees on several of these deals yet failed to report this income on his tax returns.

Additionally, Green gave his tax preparer schedules of fictitious improvements made on many of the properties in order to reduce his capital gains profits and therefore his taxes on the sale of the properties.

By not reporting all of his income, Green fraudulently avoided an additional tax due and owing of $100,333 for 2003 and $130,043 for 2004.

Green and the others were indicted in August 2007. Charges are still pending against Boyd and Gaither. Schottenstein, Lieberman and Griffin have pending plea agreements.

Income tax evasion and conspiracy are each punishable by up to five years imprisonment, complete restitution to the IRS and the victims, and the costs of prosecution. Bank fraud is punishable by up to 30 years imprisonment and a fine of up to $1 million plus restitution.

The IRS and FBI investigated this case. Assistant U.S. attorneys Daniel A. Brown and Deborah Sanders are prosecuting.