Fraud Reports Deluge FBI

Mortgage fraud resulted in losses of $546 million during the first half and are on track to outpace last year, according to newly released government figures.

Statistics compiled by the Federal Bureau of Investigation found that mortgage fraud losses totaled $1 billion in fiscal 2005, more than double the year before.

Meanwhile, financial institutions engaged in mortgage activity filed close to 17,000 "suspicious activity reports" with the FBI during the first half. In 2005, 21,994 SARs were filed.

One multistate fraud case that is gaining national attention involves a combination home-flipping/Ponzi scheme where consumers were enticed into an investment "club" on close to 200 residential properties in Indiana.

According to court documents, word of the investment club was spread though "word of mouth" in churches and "personal contact" in Virginia and North Carolina.

Two national lenders - Countrywide Home Loans of Calabasas, Calif., and Argent Mortgage of Orange, Calif. - were burned in the scheme when they either bought the mortgages in the secondary market or table funded the notes.

Last month, Countrywide chairman and CEO Angelo Mozilo called his company a "victim," noting that "we were defrauded."

This past summer, Countrywide filed a lawsuit against Indiana resident Robert Penn, his company Land Economics, and a host of others, accusing them of creating an enterprise "to defraud mortgage lenders for the financial enrichment of its members."

A spokesman for Argent would only say, "We're investigating a sophisticated scheme to defraud" the company.

According to the Countrywide lawsuit, Mr. Penn and other defendants enticed prospective investors in Virginia and North Carolina into his investment scheme, using their credit and turning them into "straw" borrowers on the Indiana properties. (Mr. Penn was originally from Martinsville, Va., where some of the real estate investors are from.)

"In some cases the straw borrowers did not even understand the paperwork they were signing obligated them in any way for a loan or debt," Countrywide charges.

The properties, which are described as "low income," were, on average, bought for $50,000 and resold for $120,000.

A Kentucky lender called People's Trust Mortgage LLC funded the loans and then resold them to Countrywide through the latter's correspondent division.

People's and a loan officer there, Robert Pollard, and Mr. Pollard's wife (a loan processor), also are defendants in the case. They could not be reached for comment as Mortgage Servicing News went to press.

Some of the borrowers never made any payments on the loans that Countrywide bought. The lender, potentially, is facing millions in losses.

Countrywide accuses Mr. Penn, Mr. Pollard and others of engaging in credit and appraisal fraud, and a host of other financial misdeeds.

The lawsuit was filed in Marion County Circuit Court in Indiana. Argent has yet to sue, but is still investigating the matter.

A source said federal criminal investigators are now looking into the allegations made by Countrywide. The FBI in Washington declined to comment. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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