Compliance & Regulation

Forty-one defendants, including LaSalle Title Co., are facing federal charges relating to various mortgage fraud schemes in five separate cases in Chicago. In some of the schemes, the defendants face charges that they allegedly falsely inflated the values of dilapidated homes in urban areas. In other schemes, defendants are charged with deals involving million-dollar condominiums in a Chicago high-rise and homes in affluent suburbs. According to Patrick J. Fitzgerald, U.S. attorney for the Northern District of Illinois, 37 individuals and four businesses, including LaSalle, which closed on allegedly fraudulent loans, are facing charges relating to five mortgage fraud cases involving more than $48 million in fraudulently obtained mortgages in the Chicago area, including two in the suburbs of Wheaton and Glenview. The various lending companies suffered millions of dollars in losses after the loans went into default and the properties were foreclosed upon. No one from LaSalle could be reached for comment.

A former National Football League and University of Georgia football player has been charged with fraud and money laundering in connection with his real estate ventures. According to Edmund A. Booth, Jr., U.S. attorney for the Southern District of Georgia, Arthur James Marshall, Jr., has been charged with eight counts of defrauding three banks in obtaining loans for seven different properties in Columbia and Richmond Counties. The indictment also charges Mr. Marshall with two counts of mail fraud for deceiving a mortgage lender and a homebuyer regarding the sale of two different properties. The indictment further charges Marshall with 11 counts of money laundering involving over a million dollars that he obtained from those fraudulent transactions. Mr. Marshall played in the NFL for five years as a wide receiver with the Denver Broncos and New York Giants and played at Georgia from 1988 to 1991. An initial appearance on these charges has not yet been scheduled. Mr. Marshall was unavailable for comment.

Taylor, Bean & Whitaker Mortgage Corp., Ocala, Fla., will pay $9 million to settle a dispute with 13 states and Washington, D.C., over how the wholesale lender handled certain nontraditional mortgages. Taylor, Bean, which is awaiting regulatory approval to buy Colonial BancGroup Inc. in Montgomery, Ala., also agreed to modify loans for certain customers and to hire an independent firm to review nontraditional mortgages originated in 2006 and 2007. The settlement resolves claims that Taylor, Bean altered applicants' incomes and assets to provide nontraditional mortgages. The mortgage lender did not admit wrongdoing as part of the settlement, which was reached with regulators in Arizona, Florida, Georgia, Idaho, Illinois, Louisiana, Maryland, Massachusetts, Mississippi, New Jersey, North Carolina, Pennsylvania, and Vermont.

After pleading guilty to carrying out a mortgage fraud scheme involving three San Antonio and Spring Branch, Texas, residential properties, three financial institutions and more than $1 million in foreseeable losses, Fred DeGuzman of San Antonio, Texas, was sentenced to 75 months in federal prison, followed by five years of supervised release and ordered to pay $1.67 million in restitution. In February, Fred's wife, Veronica DeGuzman, was sentenced to 75 months in federal prison after pleading guilty to the same scheme. Fred DeGuzman, using an alias, and Veronica DeGuzman contacted individual sellers of residential property and entered into agreements to purchase the property for an inflated price, with the excess of the stated price over the actual sales price being returned to a corporation owned and controlled by the defendants. Using the alias, as well as falsified employment and income information, Fred and Veronica DeGuzman applied for and obtained 100% financing. After one or two mortgage payments, the mortgage went into default causing losses to the lenders.

A federal jury found Rosario Divins of San Antonio, Texas, guilty of engaging in a fraudulent foreclosure prevention scheme. According to John E. Murphy, U.S. attorney for the Western District of Texas, testimony during the three-day trial revealed that Divins illegally collected more than $100,000 in cash from individuals in desperate financial situations who responded to her mailing offering to stop their residential foreclosures. Divins continued to implement her scheme despite three separate sanctions from the U.S. Bankruptcy Court for the Western District of Texas ordering her to stop misrepresenting herself and making false promises to her clients. Before the hearing adjourned, U.S. District Judge Fred Biery revoked Divins' personal recognizance bond and ordered that she be taken into custody until posting a $100,000 bond. Sentencing is scheduled for Sept. 11.

Scott Polakoff, a high-ranking thrift regulator, is retiring in the wake of an investigation that found he directed the backdating of a capital contribution to an ailing thrift. After a 22-year career at the Federal Deposit Insurance Corp., Mr. Polakoff joined the Office of Thrift Supervision in 2005 and became the second in command as senior deputy director. When OTS director John Reich stepped down in February, Mr. Polakoff became the acting director. A review of the IndyMac Bank failure sparked an inquiry by the Treasury Department Inspector General into four other backdating cases where capital contributions by holding companies were made to prop up their subsidiary thrifts. The IG audit found in one unidentified case that Mr. Polakoff "directed the regional office to instruct the holding company to contribute capital and backdate the transactions." The August 2008 contribution was recorded in the thrift's second quarter financial filing with the OTS. Mr. Polakoff has been on leave since mid-March. His retirement becomes effective July 3. The Obama administration is recommending the merger of OTS into a new national banking agency as part of its regulatory reform proposal. The new agency would oversee all federally chartered banks and thrifts.

The Senate has confirmed Herbert Allison by voice vote to be a Treasury assistant secretary and run the Troubled Asset Relief Program, which is providing loans and capital to stabilize banks, insurance companies and automakers. The former Fannie Mae president and chief executive also will oversee the Obama administration's loan modification program. TARP is providing funds for incentive payments and to cover some of the costs of the modifications. During his confirmation hearing, Mr. Allison told the Senate Banking Committee there is a "great deal of pressure on everyone" to get the Making Home Affordable program going. He stressed that efforts to reach out and contact troubled homeowners will be critical to its success. "People are fearful about losing their homes; fearful of contacting their bank or servicer to describe their problem — for fear that it is going cause a foreclosure on their house," he testified. Prior to his brief stint at Fannie Mae, Mr. Allison was chairman, president and CEO at TIAA-CREF.

A key Republican lawmaker has given his approval to the Obama Administration's proposal to require mortgage brokers and funding lenders, which sell their loans on the secondary mortgage market, to maintain a certain ownership level in their products. "Keeping some skin in the game has a wonderful cleaning effect," Sen. Kit Bond, R-Mo., said at the National Association of Real Estate Editors' Annual Real Estate Journalism Conference in Washington. The White House plan for the Consumer Finance Protection Agency would require brokers to be paid, in part, over time based on the performance of the loans they originate, and compel lenders to retain an interest in the loans that are packaged into securities and sold to investors. But Marc Savitt, the West Virginia broker who is president of the National Association of Mortgage Brokers, said the idea would never fly, if only because the accounting necessary to follow loans as they are sold and resold would be a nightmare. Mr. Savitt also reiterated NAMB's long-standing argument that brokers do not underwrite mortgages and, therefore, should not be responsible for their failure. If brokers have any part in fraudulent loan applications, he told Mortgage Wire, they can and should be prosecuted under existing federal law.

The Mortgage Bankers Association and its partner, the Warehouse Lending Project, are continuing to push for a warehouse solution that includes Fannie Mae and Freddie Mac and are asking for what they call a "constructive dialogue" with the GSEs and the government. In a letter sent to Treasury secretary Tim Geithner on Friday, the MBA and WLA included a legal opinion from Buckley Sandler LLP that says the GSEs are within their charter authority to buy participations in warehouses lines of credit. The groups have held meetings with both Treasury officials and regulators at the Federal Housing Finance Agency. The MBA/WLP project that residential fundings will total at least $2.6 trillion this year but argue there could be a $630 billion shortfall in origination capacity because of a lack of warehouse credit to non-bank lenders. The two say that depositories cannot pick up the slack, adding that, "independent mortgage banks with local market knowledge are critical to maintaining liquidity and competition in our real estate finance markets."

The 105% loan-to-value ratio limit on Fannie Mae and Freddie Mac's program to refinance underwater borrowers could be raised to increase participation, according to the GSEs' regulator. The Federal Housing Finance Agency is "looking at going significantly higher than 105%," FHFA director James Lockhart said. The 105% ceiling has kept too many borrowers on the sidelines, he told a National Association of Real Estate Editors conference. The GSEs have refinanced 80,000 homeowners under the special program that the Obama administration has promoted to help borrowers who can't qualify for a standard refinancing. The administration unveiled the refinancing program in February and estimated it will refinance at least 4 million homeowners who have loans that are owned or guaranteed by the government sponsored enterprises. The 105% LTV limit theoretically allows Fannie and Freddie to securitize the newly refinanced loans and sell them to the Federal Reserve and other investors. However, raising the LTV might force the GSEs to hold the loans on their books.