Former Inland Empire Mortgage Company President Convicted of Fraud
The former president of Mortgage One Corp. in Hesperia, Calif., has been convicted of four federal charges related to a mortgage scheme to defraud HUD and private lenders by fraudulently obtaining federally insured loans and selling those notes to private lenders.
After a nearly four-week trial, John Richard of Hesperia was found guilty of one count of conspiracy to defraud HUD, one count of bank fraud and two counts of subscribing to false income tax returns.
Following the reading of the jury's verdicts, U.S. District Judge Virginia A. Phillips revoked Varner's bond and remanded him into custody after hearing from prosecutors that Varner is realistically facing a sentence of more than 12 years in prison, and after learning that he remained in the real estate industry following his arrest in this case in 2007.
According to Thomas P. O'Brien, U.S. attorney for the Central District of California, Varner was at the center of a scheme that was run out Mortgage One Corp. in Hesperia and M-1 Capital Corp., which was based in Riverside and Rancho Cucamonga. From 1997 until 2002, the two companies were in the business of approving, funding and then selling home mortgage loans, typically obtaining mortgage insurance of the loans from the FHA. Mortgage One and M-1 Capital obtained FHA mortgage insurance for their loans without HUD review due to their status as HUD-approved direct endorsement lenders. They obtained and kept direct endorsement lender status by submitting false documents, including bogus audits, to HUD.
Varner and his co-defendants defrauded HUD by submitting fraudulent loan application documents in order to qualify the loans for FHA insurance. The loans went to borrowers who either did not meet the FHA requirements to qualify for the mortgages and/or were only straw buyers. Mortgage One and M-1 Capital sold the funded loans to banks, such as the FDIC-insured Firstar Bank and Chase Manhattan Mortgage Corp., using the same fraudulent documents.
More than 1,000 of the 3,813 FHA-insured loans approved by Mortgage One and M-1 Capital went into foreclosure and, as a result, HUD and private lenders lost at least $23 million.
Varner was found guilty of filing false tax returns for the years 1999 and 2000 when he failed to report income that he used for personal expenses such as a Corvette, a $153,000 RV, jewelry and more than $150,000 deposited into a personal investment account.
Varner is the 15th defendant convicted in a wide-ranging investigation into fraud related to HUD-backed mortgages. Judge Phillips has scheduled Varner to be sentenced on June 15.