Unlicensed Mortgage Broker Pleads Guilty to Loan Origination Fraud

Mary Armstrong, an unlicensed mortgage broker who operated a nationwide loan origination fraud and kickback scheme from San Diego, pleaded guilty today to five counts of an indictment charging her with wire fraud, money laundering and conspiracy.

As part of her guilty plea, Armstrong admitted to defrauding mortgage lenders by arranging for the sale of $100 million worth of real estate at inflated prices and then transferring the overpayments to bank accounts she controlled.

Through her scam, Armstrong created false loan applications on behalf of straw buyers and arranged for co-conspirators to produce fake documents to support these bogus applications, including W-2 forms, paystubs, bank statements and other records.

Audrey Yeboah, the accountant and tax preparer for Armstrong who pleaded guilty in October 2012 to participating in this scheme, said Armstrong collected over $14.5 million in kickbacks from the fraudulently obtained mortgage loans.

The scheme was carried out by recruiting investors through the Internet and advertisements in the Los Angeles Times offering them the opportunity to purchase homes in Southern California and the state of Washington. In reality, these investors were really straw buyers who were promised $10,000 for each property purchased through this scam.

The defendants—Armstrong, Yeboah, real estate agent Teresa Rose, and Seattle businessman Justin Mensen—were able to secure mortgages for the properties by falsifying loan applications for the straw buyers claiming exorbitant income from phony employers and using invalid W-2s and paystubs to support the claims. These fraudulent loan applications were submitted to lenders in order to obtain 100% financing and avoid having to make any downpayments on the properties.

According to the co-conspirators, who have all pleaded guilty to participating in this operation, they profited on these fraudulently acquired mortgage loans by inflating the purchase price of the homes by at least $100,000 and having the straw borrowers kickback proceeds to them.

In Armstrong’s plea, she admitted that the straw buyers defaulted on the loans, resulting in lenders and secondary purchasers such as Fannie Mae and Freddie Mac to suffer losses of up to $20 million.