Compliance & Regulation

Helen Sotiriadis and her daughter Irene Sotiriadis, both of Manteca, Calif., have been arrested on a charge of conducting a mortgage fraud scheme that caused $5 million in losses to lenders. Arrest warrants were issued after the FBI received information that the two suspects may have been intending to flee to Greece. According to Lawrence G. Brown, U.S. attorney for the Eastern District of California, Helen and Irene Sotiriadis are alleged to have recruited as many as 25 members of the Cambodian immigrant community to purchase homes they could not afford in and around Stockton and Modesto. The mother-daughter team allegedly promised the Cambodians that, after one initial high monthly payment, the homes would be refinanced to a payment of $1,500 per month. After the initial monthly mortgage payments of $4,000 came due, Helen and Irene Sotiriadis allegedly refused to return phone calls to the victims. Most of the homes quickly fell into foreclosure.

A New Jersey man responsible for digging up Social Security numbers and other personal data that was used to siphon millions of dollars from phony HELOC accounts at dozens of banks and credit unions has been sentenced to almost 11 years in prison. Yomi Jagunna, 44, pleaded guilty to selling Social Security numbers for $30 apiece to a group that may have siphoned as much as $5 million from financial institutions. Jagunna, who set up a sham collection agency to gain access to the Social Security numbers, was also ordered to pay $3.2 million in restitution. A Nigerian immigrant, he is one of 17 individuals charged in the nationwide HELOC scheme that fooled credit union and bank employees into transferring funds to accounts in at least seven countries, authorities said. Part of the scam involved using sophisticated dodges to circumvent the institutions' attempts to verify the wire transfers with telephone calls. In some cases, they convinced phone company employees to reroute their victims' calls. When the credit union or bank called the victim's home number, one of the suspects' cell phones rang, authorities said. Among the depositories harmed were Bank of America, JPMorgan Chase, Wachovia (now part of Wells Fargo), Navy Federal Credit Union in Virginia, and others.

Nonbank mortgage lenders would be required to register with the Consumer Financial Protection Agency, which would be given the power to conduct financial exams and take enforcement actions, according to a new draft of the House CFPA bill. "Nonbanks will be subject to a level of supervision and scrutiny that is no less burdensome or comprehensive than that governing traditional banks and thrifts and will fully reflect the risks posed by these previously unregulated entities," according to an outline of the CFPA bill. House Financial Services Committee chairman Barney Frank, D-Mass., made several changes to the CFPA bill (HR 3126) he introduced in July, reducing the burden on banks and to ensure critics that nonbank lenders will be a main focus of the new agency. The American Bankers Association said the new draft "provides a more explicit and stronger mandate to focus on nonbanks that were the primary cause of the financial crisis." However, the bill removes federal pre-emption of state and local laws, ABA said, and creates a new agency with extensive new powers that could conflict with bank safety and soundness regulators. "ABA looks forward to working with Congress to improve consumer protections, while avoiding undermining the availability of credit or imposing conflicting and costly regulations," ABA president and chief executive Edward Yingling said.

Reverse mortgage lenders are learning that the Federal Housing Administration is moving quickly to implement a reduction in the loan proceeds that seniors can receive from a FHA-insured Home Equity Conversion Mortgage. National Reverse Mortgage Lenders Association president Peter Bell said FHA is expected to issue a mortgagee letter soon — possibly this week — on the HECM cut that could go into effect Oct. 1, the beginning of FHA's fiscal year. The reverse mortgage program faces an estimated $800 million shortfall due to declining house prices and it appears that congressional appropriators are not going to cover this credit subsidy shortfall. As an alternative (suggested by Congress), FHA is moving to cut HECM loan proceeds by 10%, according to sources. An analysis by NRMLA of the loan production by three large HECM lenders shows 21% of seniors would not be able to pay off their existing mortgage if their loans proceeds were cut by 10%. For seniors that need a HECM to remain in their home, the reduction in loan proceeds means they might have to sell or face possible foreclosure. "This is highly disruptive for the reverse mortgage industry, but more importantly to seniors' ability to access the equity in their homes to pay off their current mortgage," Mr. Bell said. FHA declined to comment.

Bernard B. Kerik, the former New York City police commissioner and commissioner of the New York City Department of Corrections, has been charged with making false statements on a loan application in connection with purchase of a Riverdale, N.Y., apartment. According to Michael J. Garcia, U.S. attorney for the Southern District of New York, Mr. Kerik, who was unavailable for comment, allegedly borrowed part of the downpayment from a Manhattan Realtor, but falsely denied that he had done so to the bank that extended him the mortgage loan for his purchase of the apartment.

The chairman of a key subcommittee is predicting that the House of Representatives will pass a regulatory reform bill this year, including new standards for securitizing mortgages and other assets. Rep. Paul Kanjorski, D-Pa., chairman of the House Financial Services Subcommittee on Capital Markets, Insurance and GSEs, said, "We're coordinating our efforts with the European Community and the United Kingdom to try and come up with similar responsibilities when it comes to securitization." Speaking to reporters at a National Association of Federal Credit Unions conference, he said securitization became too speculative during the subprime crisis. He thinks the business can be rebuilt with less risk and more security. "I think having skin in the game is a good principle," he said, adding that this is particularly true when it comes to mortgage makers. Separate from regulatory reform, Rep. Kanjorski said there are discussions going on within his subcommittee about how to restructure Fannie Mae and Freddie Mac and "how we can better use the Federal Home Loan Bank System."

After pleading guilty in June to charges connected to a scheme to use a stolen identity to buy a home, Shawn Cannon of St. Louis was sentenced to 60 months in prison. According to Michael W. Reap, U.S. attorney for the Eastern District of Missouri, between August and October 2005, Cannon, knowing he would be unable to qualify for a loan to purchase a home using his true identity, used fraudulent information, including a false Social Security number and false payroll information, to obtain a loan from Pulaski Bank to purchase a personal residence in Florissant, Missouri, for approximately $300,000. Cannon failed to make required payments. In December 2008, Cannon filed a Chapter 13 bankruptcy petition in U.S. Bankruptcy Court, again using the false Social Security number.

The Federal Deposit Insurance Corp. closed two subsidiaries of a $3.2 billion-asset banking company in Indiana on Friday, bringing the year's bank failure total to 94. The failures of $2.7 billion-asset Irwin Union Bank and Trust Co., of Columbus, Ind., and $493 million-asset Irwin Union Bank, of Louisville, Ken., will wind up costing the FDIC's insurance fund $850 million. Both institutions were owned by Irwin Financial Corp., located in Columbus. The agency transferred their holdings to First Financial Bank, Hamilton, Ohio. Three years ago Irwin sold its mortgage banking subsidiary, including a $14 billion servicing portfolio.

Effective Oct. 1, 2009, the Social Security Administration will be raising its fees for mortgage and financial companies to authenticate borrower Social Security numbers from $0.56 to $5.00 per verification. This price increase could significantly impair the industry's move to protect itself against identity-based mortgage fraud, according to fraud detection vendor Rapid Reporting. In a letter sent to Michael Astrue, Commissioner of the Social Security Administration by Congresswoman Kay Granger (R-Texas), Rep. Granger says this fee increase could lead to the de facto cancellation of the CBSV (Consumer-Based Social Security Number Verification) program, as it could significantly lead to fewer and fewer lenders using the program. According to that same letter, the decision to increase fees for the CVSB program was made by the Social Security Administration without collaboration with the U.S. Congress. Mr. Astrue denied Congresswoman Granger's initial request for a 60-day delay to evaluate the necessity of this fee increase. On Tuesday, Sept. 22, Congresswoman Kay Granger and key staff, which includes committees of oversight for the Social Security Administration, plan to meet with the SSA to discuss the negative repercussions this planned increase in fees will have on the mortgage industry and the nation as a whole, and intend to re-propose a delay in implementing these fees. Senate Majority Leader Reid, House Speaker Pelosi, House Majority Leader Hoyer and Senators Hutchinson, Harkin, Cochran and Cornyn have been contacted and are expected to support a delay in implementation as well.

The Federal Deposit Insurance Corp. is auctioning off a $2.6 billion pool of performing and nonperforming acquisition, development and construction loans through Keefe, Bruyette & Woods. Offered as a structured transaction, the bid deadline is Nov. 12. The package has been stratified into three different geographic pools: western ($652 million), central ($545 million), and eastern ($1.4 billion). Bidder due diligence starts this week, but final bids are due in mid-November. KBW notes that investors can purchase "sole membership interest in a newly-formed limited liability company" to which the loans are pledged.