Compliance

Michael Chou, a San Francisco mortgage broker, pleaded guilty in federal court to wire fraud conspiracy in connection with a scheme to defraud mortgage lenders. According to Joseph P. Russoniello, U.S. attorney for the Northern District of California, Chou admitted that, in a scheme that began in 2003 and continued through April 2009, he defrauded mortgage lenders and financial institutions by providing false information on loan applications. Working out of an office in San Francisco, Chou and his colleagues assisted individuals who wanted to obtain mortgages for residential properties in Northern California and elsewhere. As a part of this scheme, Chou routinely transmitted fraudulent loan applications to mortgage lenders that inflated the borrowers' creditworthiness. In addition, the loan applications were supported by forged documents that purported to verify the borrowers' employment, income and assets. Chou and others used a network of co-conspirators who posed as the borrowers' employers to falsely verify the employment and income information listed on the loan applications. As a result of Chou's participation in this conspiracy he illegally earned $360,800, which he agreed to forfeit. Eleven other individuals have been charged in connection with the case. Chou, who is currently not in custody, is scheduled for sentencing on March 19, 2010.

U.S. District Judge J. Frederick Motz sentenced Terrence White of Oxon Hill, Maryland, to 42 months in prison, followed by three years of supervised release for mail fraud from fraudulently purchasing 25 properties in Maryland, the District of Columbia and Virginia using false mortgage and settlement documents. Judge Motz also ordered White to pay $4.2 million in restitution. According to Rod J. Rosenstein, U.S. attorney for the District of Maryland, White and others paid straw purchasers to purchase houses for White and others. White created false mortgage and settlement documents, many of which misrepresented the straw purchasers' income and assets. This scheme involved fraudulent loans worth more than $19 million. More than 10 individuals and banks were harmed. The loss amount foreseeable to White is between $2.5 and $7 million. Many of the purchased properties have been foreclosed upon. Co-conspirators Kara McIntosh and Sabrina Weinberg were sentenced to three years and two years in prison, respectively. Osman Sharrieff Al-Bari was sentenced to 78 months in prison. Jamilah Al-Bari and Timothy Reed have pleaded guilty to participating in this scheme and are scheduled for sentencing in the next two months.

The Department of Housing and Urban Development is threatening to stop Financial Mortgage USA, Honolulu, from making Federal Housing Administration reverse mortgages and allegedly taking advantage of seniors. HUD alleges that the mortgage brokerage firm "duped" seniors into using the proceeds of their FHA reverse mortgages to purchase annuities from an affiliated insurance firm. [Reverse mortgages have an annuity feature depending on the payment plan the senior chooses.] The HUD Mortgagee Review Board is "particularly concerned about one case in which the company steered an 88-year-old borrower into purchasing an annuity which did not mature until she reached her 104th birthday," the department said. The MRB has proposed to permanently withdraw Financial Mortgage USA's status as a FHA-approved lender and fine the company $97,500 for violating FHA rules. The Honolulu lender can request an administrative hearing to contest HUD's actions. Company executives could not be reached for comment.

The incidence of property valuation fraud rose 46% in the third quarter compared to the same period a year ago, according to a new report from risk mitigation firm Interthinx. Interthinx noted that on a sequential basis property valuation fraud jumped 25%. The company, whose software helps lender/servicers track fraud, said it is seeing a continued shift to fraudulent schemes involving short sales, real estate owned inventories and refinancing by borrowers whose equity has been impaired by falling real estate values.

A lawsuit alleging Countrywide Financial Corp. violated the Real Estate Settlement Procedures Act through a mortgage insurance captive reinsurance kickback scheme has been reinstated by a federal appeals court. The suit, Alston v. Countrywide, was originally filed in December 2006. In 2008, a trial court judge dismissed the suit, ruling there was a lack of jurisdiction. But in a new ruling, Judge Maryanne Trump Barry of the U.S. Court of the Appeals for the Third Circuit, said "What is before us for decision turns on a question of statutory interpretation - does or does not the plain language of RESPA Section 8 indicate that Congress created a private right of action without requiring an overcharge allegation? We conclude that it does." The decision also states that the "filed rate doctrine" does not apply because those suing are challenging Countrywide's alleged wrong conduct and not the "reasonableness or propriety of the rate that triggered the conduct." According to the attorneys for the plaintiffs, who are seeking class action status, Countrywide allegedly assigned each loan which lacked a 20% down payment to one of seven private mortgage insurance companies on a rotating referral fee basis. The MI companies allegedly then were required to reinsure the policy with a Countrywide subsidiary, Balboa Reinsurance Co. The plaintiffs claim that between 2000 and 2006, Balboa collected $892 million in reinsurance premiums and paid $0 in claims. Edward W. Ciolko, a partner with Barroway Topaz Kessler Meltzer & Check, the law firm that brought the suit, said "Consumers faced with inherently opaque real estate settlements have the right under RESPA to be compensated if they are subjected to practices such as kickbacks or unearned closing fees. These abusive practices eliminate competition and increase prices over time, and they are what RESPA is specifically intended to address." Barroway Topaz said it has brought similar lawsuits against Washington Mutual, GMAC and Wells Fargo that were on hold pending this ruling. A representative of Bank of America, the current owners of Countrywide said "At this point we evaluating the ruling and will respond in court at the appropriate time."

Five people, feeling they were victims of a loan modification scheme, allegedly took matters into their own hands and as a result, they themselves have been charged with a crime. Daniel Weston of La Cañada, Calif., and Gustavo Canez of Los Angeles, were charged with two counts of torture, two counts of false imprisonment by violence and two counts of second-degree robbery in connection with the beating and torture of the two loan modification agents. Three others were arraigned and pleaded not guilty. Mario Soloman Gonzales of Glendale, Marissa Parker of Sylmar, and Mary Ann Parmelee of La Cañada, were each charged with two counts of torture, two counts of false imprisonment by violence and two counts of second-degree robbery. According to Los Angeles County deputy district attorney Norma Serna, Mr. Weston and Ms. Parmelee, who live in a house in foreclosure, allegedly sought loan mod assistance from the victims but believed that nothing was being done and wanted their money back. The defendants, including Mr. Gonzales and Ms. Parker, purportedly set up a meeting with the victims, where Mr. Weston and Mr. Canez allegedly attacked, detained and tortured them in front of the other defendants. Mr. Canez and Mr. Weston allegedly used a handgun. The victims also were allegedly robbed of their loan paperwork and personal belongings. Mr. Gonzales, Ms. Parker and Ms. Parmelee, a Realtor, had a business relationship with the victims and allegedly funneled loan mod referrals to the two agents. Bail was recommended at $2.1 million for Mr. Weston and $2.8 million for Mr. Canez. Mr. Gonzales, Ms. Parker and Ms. Parmelee are due at Burbank Superior Court on Nov. 2 for a preliminary hearing. The defendants could not be reached for comment.

Karen Axline, a former title agent from Granville, Ohio, was sentenced to four years in prison for her role in a $9 million mortgage fraud scheme involving more than 30 properties in central Ohio. According to Ohio Attorney General Richard Cordray, in the scheme, participants falsified loan applications and documents on behalf of borrowers and made downpayments allowing borrowers to secure loans in which tens of thousands of dollars were laundered through fictitious home contractor companies. Axline operated the now-defunct Granville Title Agency in Granville and colluded with others in structuring many of the transactions to deceive lenders. Axline is one of 13 defendants charged in the scheme. The investigation is still ongoing.

Timothy Lynn Beliveau of Mound, Minnesota, was charged with allegedly swindling 14 investors and their lenders out of more than $2.5 million through a real estate fraud scheme. According to B. Todd Jones, U.S. attorney for the District of Minnesota, the indictment charges that Mr. Beliveau, while owning U.S. Housing & Financial Services, a company that assisted homeowners who were close to losing their homes to foreclosure, and American Alliance Mortgage Group, a mortgage brokerage company, allegedly orchestrated a scheme to defraud vulnerable homeowners and induce investors to purchase distressed real estate from those homeowners at inflated prices. The alleged scheme created a pool of funds Mr. Beliveau then allegedly used to buy boats, motorcycles, a Florida vacation home and other personal items. Mr. Beliveau could not be reached for comment.

A group of credit unions whose mortgages were fraudulently sold by defunct U.S. Mortgage Corp./CU National Mortgage to Fannie Mae are lobbying Congress for return of their stolen funds, part of a $140 million fraud by the former owner of U.S. Mortgage. The group of 16 credit unions are asking Congress to direct Fannie Mae, which is now owned by the federal government, to return their mortgages, which U.S. Mortgage President Michael McGrath confessed in June to selling to Fannie Mae without their knowledge or consent. So far, Fannie Mae has rejected legal pleas for the return of the mortgages and is fighting a suit brought by one of the credit union victims, Picatinny FCU of New Jersey. "I don't know what the full story is about what McGrath did with the money but we do know that he sold them to Fannie Mae," said Alfred Scipio, president of Treasury Department FCU, who claims Fannie Mae illegally holds $8.8 million of his credit union's mortgages. "We believe that they bought stolen merchandise and they should return it." McGrath confessed to selling more than $138 million of mortgages his company was servicing for about 30 credit unions and lost almost all of the money on stock trading. Fannie Mae did not respond to requests for comment.

Local, state and national government agencies, nonprofits and other financial institutions gathered in Los Angeles to enter into an alliance that aims to help homeowners protect themselves from loan modification fraud. The "Loan Modification Scam Alert" campaign is the first of a number of other events that will be announced in major cities around the country. Partners include some of the country's largest organizations. NeighborWorks will coordinate the efforts with partner organizations such as the Department of Housing and Urban Development, the Federal Trade Commission, the U.S. Department of Treasury, Fannie Mae, Freddie Mac, and the Lawyers' Committee for Civil Rights Under Law. "As the foreclosure rate grows more and more homeowners are being deceived by scam artists who prey on their fears," said the COO of NeighborWorks, Eileen Fitzgerald. "Knowledge is the best defense, which is why the campaign equips homeowners with the tools they need to minimize their risk."

A top executive at the embattled Lend America says the government is taking action against his firm because an employee in the Inspector General's office at the Department of Housing and Urban Development has a "vendetta" against him. Lend America executive vice president and chief business strategist Michael Ashley made his comments to Newsday, a Long Island newspaper on Thursday night. Mr. Ashley, a defendant in a civil injunction case against the company, declined to name the employee. The injunction was denied on Wednesday, though HUD still has a notice of charges against Lend America, which the firm must respond to within 30 days. Lend America is a nonbank that depends on warehouse lines of credit. It ranks 18th nationwide in terms of GNMA issuance.

After being convicted on charges related to an elaborate mortgage fraud scheme, Richard Garries of Newport News, Va., was sentenced by U.S. District Judge Robert G. Doumar to 240 months in prison, followed by three years of supervised release and ordered to pay $900,000 in restitution. The new sentence is being added on to one already in place for a parole violation. According to Neil H. MacBride, U.S. attorney for the Eastern District of Virginia, Garries conspired with others to make money through reselling residential properties to buyers he brought in through false promises that the properties had been renovated, renters had been arranged for the properties, buyers would not have to spend their own funds and that buyers would be provided with cash back at closing. To secure loans for buyers, Garries inflated their income levels and bank account balances on applications and also provided them with money. Garries then arranged for buyers to use lenders he selected to obtain financing, for which he received a commission. At the time he committed these crimes, Garries was on probation from a previous federal conviction for wire fraud. While on probation, he concealed his income and assets from his probation officer. Garries was ordered in June to serve 24 months for violating his probation. Judge Doumar ordered Garries to serve his 240-month sentence consecutive to the previously imposed 24-month sentence.

A federal court late Wednesday denied an injunction filed by the U.S. Attorneys' office in Brooklyn against Lend America, a development that will allow the nonbank — for now — to continue originating FHA loans. "The burden is high to get a judge to shut down a business instantly," said a spokesman for the Department of Housing and Urban Development. Spokesman Brian Sullivan noted that HUD still has a "notice of violations" against the Melville, N.Y.-based company which the company has less than a month to answer. He said HUD will continue to pursue action against the company. Almost all of the firm's production is FHA-backed. In a statement the lender said, "We are obviously pleased with the court's decision. We look forward to continuing our partnership with HUD and our mission of providing affordable financing for those borrowers in need." Earlier this week DOJ and HUD sought a court injunction to ban Lend America from originating FHA loans, accusing the nonbank lender with fraud in regard to $14 million in production. (The company also does business as Ideal Mortgage Bankers Ltd.) The government also sought injunctive relief against company executive Michael Ashley who holds the title "chief business strategist." According to figures compiled by National Mortgage News, Lend America ranks 18th nationwide in terms of GNMA MBS issuance. It services about $850 million in GNMA-backed product. Lend America recently stepped up plans for expansion into correspondent mortgage banking and wholesale that included FHA production. According to Newsday, back in 1993 Mr. Ashley pleaded guilty to three counts of conspiracy to commit wire fraud while employed by Liberty Mortgage Banking of Long Island. Asked about the guilty plea, a spokesman for the company said, "In Michael's eyes all that is in the past."

Barry C. Westergom, a former real estate appraiser from Jacksonville, Florida, pleaded guilty to fraud and conspiracy charges connected to a mortgage scheme. Sentencing for Westergom has not yet been scheduled. According to A. Brian Albritton, U.S. attorney for the Middle District of Florida, Westergom was involved in a scheme in which a co-conspirator, Juan Carlos Gonzalez, negotiated the purchase of higher-end houses and entered into contracts with the sellers of the properties. Westergom was a licensed real estate appraiser and Gonzalez retained him to appraise the properties. Westergom used inappropriate comparable properties and other fraudulent means to appraise the properties. The appraised values were significantly higher than the agreed purchase price and the true market values of the properties. The inflated appraisals were submitted to lenders. Westergom knew that Gonzalez intended to submit the appraisal reports to lenders in support of mortgage loan applications. Gonzalez has pleaded guilty and is sentencing for scheduled on Nov. 9.

The U.S. Attorney and the Department of Housing and Urban Development are seeking a court injunction to ban Lend America, Melville, N.Y., from originating FHA loans, accusing the nonbank lender with fraud in regard to $14 million in product. A spokesman for the company - which also does business as Ideal Mortgage Bankers Ltd. - issued a statement saying it was taken by surprise by the complaint and expects to continue doing business. It added that it plans to "respond more completely once all allegations are reviewed." In a joint statement from the U.S. Attorney for the Eastern District of New York, and the HUD Inspector General's office, the government says Lend America/Ideal "falsely certified" that borrowers met FHA underwriting requirements. Using the civil courts, the government is seeking injunctive relief from both the company and its chief business strategist Michael Ashley. According to figures compiled by National Mortgage News, Lend America ranks 18th nationwide in terms of GNMA MBS issuance. It services about $850 million in GNMA-backed products. Lend America recently stepped up plans for expansion into correspondent mortgage banking and wholesale that included FHA production.

The U.S. Attorney and Department of Housing and Urban Development are seeking a court injunction to ban Lend America, Melville, N.Y., from originating FHA loans, accusing the nonbank lender with fraud in regard to $14 million in product. The company issued a statement saying it was taken by surprise by the complaint and expects to continue doing business. It added that it plans to "respond more completely once all allegations are reviewed." In a joint statement from the U.S. Attorney for the Eastern District of New York, and the HUD Inspector General's office, the government says Lend America/Ideal "falsely certified" that borrowers met FHA underwriting requirements. Using the civil courts, the government is seeking injunctive relief from both the company and its chief business strategist Michael Ashley. According to figures compiled by National Mortgage News, Lend America ranks 18th nationwide in terms of GNMA MBS issuance. It services about $850 million in GNMA-backed products. Lend America recently stepped up plans for expansion into correspondent mortgage banking and wholesale that included FHA production.

U.S. District Judge J. Frederick Motz sentenced Kara McIntosh of Bethesda, Md., to three years in prison followed by three years of supervised release for mail fraud in connection with a $19 million mortgage fraud scheme involving properties in the District of Columbia. Judge Motz also ordered McIntosh to pay $3.4 million in restitution. According to Rod J. Rosenstein, U.S. attorney for the District of Maryland, McIntosh admitted in her plea agreement that she and others recruited straw buyers to purchase houses. McIntosh knew the straw purchasers were not planning to live in the properties and could not qualify for mortgages. McIntosh then prepared fraudulent mortgage applications that misrepresented the buyers' income and assets. The scheme involved fraudulent loans worth more than $19 million, investigators said. Many of the purchased properties have been foreclosed upon. Two co-conspirators, Sabrina Weinberg and Osman Sharrieff Al-Bari, have been sentenced to two years and 78 months in prison, respectively. Three other co-conspirators, Timothy Reed, Jamilah Al-Bari and Terrence White, have all pleaded guilty to mail fraud in connection with their participation in this scheme and are scheduled to be sentenced in the next two months.

Six individuals in the New York City area — Manre Ebhomielen, Tyshe Bankston, Merrick Henry, Val Taylor, Jocelyn Joseph and Bernard Lawson — have been charged with defrauding Rochester, N.Y.-based mortgage company Flaherty Funding. According to Kathleen M. Mehltretter, U.S. attorney for the Western District of New York, in an effort to expand its business into the New York City area, Flaherty Funding contacted Queens, N.Y.-based mortgage company Vista Mortgage. Flaherty and Vista agreed that Vista would close its operation and some of its staff would become Flaherty employees, one of them being Ebhomielen who, along with the other defendants, allegedly participated in a scheme to obtain large mortgage loans from Flaherty by submitting false information and documents to the company during the loan approval process. The scheme involved five properties purchased in the New York City area. Ebhomielen, Henry and Taylor have been arrested. They will have their initial appearances in the New York City area and are then expected to appear in Rochester at a later date. The defendants could not be reached for comment.

After pleading guilty in July to wire fraud charges stemming from a $1.7 million scheme to defraud mortgage lenders, homeowners and others, Jason Bloom of Mount Laurel, N.J., was sentenced to 90 months in prison. U.S. District Court Judge Curtis J. Joyner also ordered Bloom to pay $1.7 million in restitution. Michael L. Levy, U.S. attorney for the Eastern District of Pennsylvania, said Bloom, acting as a settlement and title insurance agent, kept money that was slated to pay off existing mortgages. Some of the funds were intended for the city of Philadelphia. Prosecutors also said Bloom sent checks to financial institutions knowing that they were written on insufficient funds.

As part of "Operation Bad Deeds," a joint federal, state and local law enforcement operation targeting mortgage fraud crimes, 41 individuals have been charged in eight separate mortgage fraud cases with allegedly engaging in various mortgage fraud scams that collectively defrauded lenders out of more than $64 million in mortgage loans on more than 100 properties across New York State. Among those charged are six lawyers, seven loan officers, three mortgage brokers, an accountant and a residential property appraiser. According to Preet Bharara, U.S. attorney for the Southern District of New York, 31 defendants were arrested or surrendered to authorities today in New York, Pennsylvania, Ohio and North Carolina. One defendant is expected to surrender to authorities soon. Four of the defendants were previously charged and will appear in Manhattan Federal Court at a later date. Five defendants remain at large. The mortgage fraud scams alleged included property flips, equity stripping and appraisal and loan fraud. In one case, defendants operated a foreclosure rescue scheme, targeting individuals who were on the verge of losing their homes by tricking them into giving up the equity in the properties with false promises that their homes would be saved. The defendants could not be reached for comment.