Compliance

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.

Wells Fargo Home Mortgage says it is ready to implement the new RESPA disclosure rule and urged the Department of Housing and Urban Development to stay with the Jan. 1 effective date. "We have already programmed the mandated RESPA changes into over 40 computer systems and have no choice but to proceed with implementation of the new forms on the Jan. 1 effective date," WFHM co-president Michael Heid says in a letter to HUD. As previously reported, HUD has decided to stay with original effective date despite pressure from Congress and major trade groups to postpone the change. "We fully appreciate that there are challenges involved in transitioning to the new RESPA rule, but I want to personally assure all mortgage professionals that we will continue to make every effort to assist them throughout this process," said HUD assistant secretary David Stevens. "Even after Jan. 1, HUD will continue to help lenders, brokers and other settlement service providers in complying with the rule," he added.

The House Financial Services Committee has approved an amendment to the Consumer Financial Protection Agency bill that eases some of the regulatory burden on community banks and makes the measure easier for midsize and small banks to accept. For banks with $10 billion in assets or less, consumer compliance examinations and enforcement authority would be delegated to the banks' primary regulator. CFPA examiners would still examine larger banks. The amendment, sponsored by Reps. Brad Miller, D-N.C., and Dennis Moore, D-Kan., also applies to credit unions with less than $1.5 billion in assets. The Independent Community Bankers of America welcomed the Miller/Moore amendment. It "recognizes that community banks are responsible lenders that didn't cause the financial crisis," ICBA president Camden Fine said. However, ICBA has concerns about the new regulatory agency's broad rulemaking authority to ban abusive lending products and practices. The bill only gives the federal banking regulators an advisory role in the process. ICBA wants the banking regulators to have more authority in approving consumer protection regulations, possibly joint rulemaking authority, according to ICBA's top lobbyist Steve Verdier. "The rulemaking authority ought to be cut back to where the agency [CFPA] is implementing statutes written by Congress or the rulemaking should be assisted by the prudential regulators. They would understand the safety and soundness implications," Mr. Verdier said. The committee's markup of the CFPA bill resumes on Tuesday (Oct. 20) afternoon.

The Los Angeles and Miami areas saw the most reported fraud for the first half of 2009, according to the Financial Crimes Enforcement Network's updated Suspicious Activity Report Activity Review. According to FinCen's updated SAR report, Los Angeles and Miami each saw 6,300 SAR subjects. Following these, the urban areas with the largest number of mortgage fraud SAR subjects were New York with 4,500, Chicago with 3,200 and the District of Columbia with 2,200. Ranked by total reported subjects, the top 10 states included California, Florida, New York, Illinois, Georgia, Texas, Arizona, Michigan, Virginia and New Jersey. From Jan. 1 to June 30, filers submitted 32,926 mortgage loan fraud SARs, less than a 1% increase over the 32,660 SARs filed in the same period in 2008.

A federal grand jury in West Palm Beach, Fla., returned a 15-count indictment against eight individuals who have been allegedly involved in making false statements to banks to obtain mortgage money to purchase five properties in Wellington, Fla. . The defendants include licensed mortgage brokers, title agents and straw buyers. According to Jeffrey H. Sloman, acting U.S. attorney for the Southern District of Florida, the indictment alleges that the defendants and straw buyers engaged in a scheme which resulted in property being sold twice in one day and nearly doubling the value of that property during that one day. A total of more than $8.5 million in mortgage money was obtained through this alleged scheme. The defendants charged in this alleged scheme are Rony Alberto Aguilar-Hecker, Reinaldo Perez-Sanchez, Pablo Atouro Aponte-Torres, Fabio Salazar, Roger Omar Nunez-Murillo, Idalmis C. Arias, Ericson Perez and Juan Carlos Lopez. At press time, they could not be reached for comment.

After a five-day trial, the owner of USA Properties, William E. McKanry of Warrenton, Mo., was convicted of multiple conspiracy and fraud charges involving the multimillion-dollar sale of 12 local properties. Sentencing has been set for Dec. 22. According to Michael W. Reap, acting U.S. attorney for the Eastern District of Missouri, William E. McKanry, along with his son, William C. McKanry, who owned and operated USA Title, sold 12 real estate properties in Missouri through Paula Enders, a licensed mortgage broker operating through the brokerage company Foundation Mortgage. On the applications, Enders falsified that the source of the downpayments, settlement charges and subordinate finances were to be made by the buyer of these properties, when they were actually made by William E. and William C. McKanry, the sellers of the properties. All closings were made at USA Title and documents falsely showed the buyer as making cash payments that were actually made by the McKanrys. Since the closing on the 12 properties, 11 ended up in foreclosure and were resold for a loss. William C. McKanry pleaded guilty in June to related charges and is scheduled for sentencing Oct. 15. Enders pleaded guilty in December 2008 and is scheduled for sentencing Oct. 22.

New Financial Accounting Standard Board rules that go into effect Jan. 1 could force bank issuers and servicers to consolidate "hundreds of billions of dollars" of private-label residential and commercial mortgage securities on their balance sheets, according to industry trade groups. The Mortgage Bankers Association and Commercial Mortgage Securities Association warn that such a consolidation of securitized assets would "artificially increase" bank risk-based capital and loan loss reserve requirements at the worst time - forcing some to raise additional capital. Anything regulators can do to delay implementation "will serve to postpone the pro-cyclical, anti-consumer, anti-affordable housing impacts" of the FAS rules 166 and 167, MBA and CMSA say in a joint comment letter to the federal banking agencies. The groups say FASB is reacting to credit card issuers that provided credit support for their securities to shield investors from losses and prevent rating agency downgrades. They argue, "There is no business case for sponsors to provide credit support" for static pools of securitized mortgages. "MBA and CMSA recommend that the agencies take the time to study the risks inherent in each of the major securitization structures so that the regulatory capital treatment is more precisely aligned with the risk of the reporting bank." Capital One Financial Corp., McLean, Va., is urging the regulators to delay the capital impact of consolidation for six months. The American Bankers Association wants a one-year delay. The banking agencies have suggested a phase-in over four quarters would reduce the costs and burdens.

Kristen Anne Way, a former loan officer from Houston, was found guilty on a variety of charges stemming from her involvement in a mortgage fraud scam. Way was found guilty of conspiracy to commit wire and mail fraud, wire fraud, conspiracy to commit money laundering, engaging in a monetary transaction in criminally derived property and money laundering. According to Tim Johnson, U.S. attorney for the Southern District of Texas, Way was a loan officer at Consumer Direct Mortgage in 2005 and 2006 when she participated in the submission of fraudulent loan applications and packages to residential mortgage lenders across the country. Way and her co-conspirators allegedly misrepresented the credit worthiness of individual borrowers who were recruited to purchase multiple properties to the mortgage lenders. Additional misrepresentations were made regarding the purchase of these properties as primary residences when in fact the borrowers intended to purchase the properties as investments. Fraudulent loans in excess of $24 million were obtained during the entire length of the scheme. Way has been permitted to remain on bond pending her sentencing, which is set for early next year.

The House Financial Services Committee will start a marathon markup session this Wednesday (Oct. 14), voting on two contentious measures that would create the much talked about Consumer Financial Protection Agency and impose a new regulatory regime on derivatives. The committee is expected to take up the derivative bill first. The markup of the CFPA bill (H.R. 3126) could extend into the following week. Committee chairman Barney Frank, D-Mass., has been working with community banks to address their concerns about the new agency. Despite strong opposition from the America Bankers Association, Financial Services Roundtable, American Financial Services Association and Chamber of Commerce, Rep. Frank is expected to have the votes to pass the CFPA bill out of committee. Late last week President Obama said the CFPA will have the power to set "clear rules" for mortgage and credit card lenders and enforce them. The president said the Chamber of Commerce and financial firms are lobbying against the CFPA bill to "maintain the status quo and maximize their profits at the expense of American consumers." He stressed that the new agency will not restrict consumer choice and financial innovation as opponents have claimed.

Twelve individuals, including mortgage brokers, loan officers and attorneys, have been charged with engaging in a scheme to defraud various lending institutions by using fictitious identities and documents to obtain more than $9 million in residential mortgages. According to Preet Bharara, U.S. attorney for the Southern District of New York, the defendants and others purchased dozens of residential properties throughout New York City and Long Island with fraudulent mortgages. These mortgages, which amounted to 100% of the purchase price of the residences, were allegedly obtained using names of fictitious individuals or individuals whose identification information was misappropriated or misused. The defendants, who could not be reached for comment, are charged with providing lenders with false IDs, false employment, income and rental information and fraudulent bank statements. Most of the loans are now in default. The New York defendants charged include: Jeffrey Larochelle, a loan processor from Bay Shore; Eric Finger, an attorney from Mineola; Foriduzzaman Sarder (Jackson Heights); Sakat Hossain (Jackson Heights) and others. One defendant is a resident of Mississippi.

Eric Wayne Moen, a former real estate agent from Park Rapids, Minn., pleaded guilty in federal court to defrauding GreenPoint Mortgage by conspiring to secure a $640,000 mortgage under false pretenses. According to B. Todd Jones, U.S. attorney for the District of Minnesota, Moen conspired with Kevin Ray Winkelmann to falsifying a mortgage loan application in order to secure a loan Winkelmann could use to purchase a house. Moen and Winkelmann generated fraudulent employment verification for Winkelmann for the application when he was not in fact employed. Based on the fraudulent application, GreenPoint wired $642,000 to a title company as part of the real estate closing process. Winkelmann was sentenced in March to six months in prison for his role in the scheme. Sentencing for Moen has not yet been scheduled.