Compliance

Joshua Gervolstad, a former mortgage broker from Redding, Calif., pleaded guilty to mail fraud in connection with a mortgage fraud scheme. According to Lawrence G. Brown, U.S. attorney for the Eastern District of California, Gervolstad, who was a mortgage broker, submitted inflated appraisals and false lien documents for use in closing purchase transactions involving five different real properties located in Redding and Lodi. The closing statement for each property contained fraudulent papers requiring the payoff of a lien to an entity called TPG Investments. In each case, the lien did not exist. In reality, Gervolstad controlled TPG Investments and used its bank account to divert mortgage loan funds to himself and others. His scheme caused $1.8 million in fraudulent payouts for liens that didn't exist, affecting mortgages with a total value of $5.4 million. At least three properties were foreclosed on. Gervolstad is scheduled for sentencing on Dec. 14.

Ricky Dean Unruh of Wichita, Ks., and Steven Ray Spencer of Carl Junction, Mo., pleaded guilty in federal court to their roles in a $1.2 million mortgage fraud scheme. According to Matt J. Whitworth, U.S. attorney for the Western District of Missouri, the mortgage fraud schemes involved a total of 20 houses with home mortgage loans ranging from approximately $200,000 to $500,000. The amount of loan proceeds returned to the borrowers ranged from less than $30,000 to more than $100,000. Some of the home purchasers subsequently defaulted on the loans and the homes have been foreclosed or are in the process of being foreclosed. Unruh and Spencer each admitted that they participated in a conspiracy to obtain mortgage loans via false loan applications. The other members of the conspiracy, who have also pleaded guilty, include Charles M. Davis, Scott Allen Kassebaum and Kassebaum's wife, Cheryl Joan Kassebaum. Sentencing will be scheduled after the U.S. Probation Office completes a pre-sentence investigation.

U.S. District Judge J. Frederick Motz sentenced Osman Sharrieff Al-Bari of Washington, D.C., to 78 months in prison, followed by five years of supervised release, for mail fraud arising from the fraudulent purchase of 25 properties in Maryland, the District of Columbia and Virginia. According to Rod J. Rosenstein, U.S. attorney for the District of Maryland, Al-Bari led a scheme in which he, his sister Jamilah Al-Bari, Terrence White, Timothy Reed and others paid straw purchasers to purchase houses for them. Many of the loan applications for the straw buyers misrepresented their income and assets. Al-Bari, White and Reed also created false invoices to claim that their company, Brotherly Investment Group, performed "renovations" on some of the properties. Using these false invoices, the conspirators were "repaid" at closing for the purported renovations. In total, the conspirators received $3.8 million in fraudulent funds. Many of the purchased properties have been foreclosed upon. Al-Bari is responsible for $2.5 million in losses from the scheme. Jamilah Al-Bari, White and Reed have all pleaded guilty to mail fraud in connection with their participation in this scheme and are scheduled for sentencing in the next two months.

Lisa Torres, formerly of Johnston, R.I., pleaded guilty to a $1.7 million mortgage fraud scheme in which she purchased properties that had recently been foreclosed upon, and then used the names of straw purchasers in sham sales to finagle mortgage financing. According to Peter F. Neronha, U.S. attorney for the District of Rhode Island, between October 2007 and June 2008, Torres purchased nine residential properties in Providence. She then enlisted the aid of others, some willing participants, others unwitting dupes, to arrange sham sales of the properties at inflated prices in order to obtain mortgage financing. The loan proceeds went to Torres, the purported seller of the properties, so she profited the difference between what she had paid for the properties, about $1.1 million, and what she purportedly sold them for, about $1.7 million. Torres is currently serving a federal prison sentence for obstruction of justice, conspiracy and making false statements, a case that was prosecuted in U.S. District Court, Massachusetts. She is due to be released on Jan. 26, 2010. Sentencing for the fraud scheme has not yet been scheduled.

The SAFE Act is putting nondepository mortgage lenders at a disadvantage to banks when it comes to hiring new loan officers, according to Scott Stern, chief executive of mortgage cooperative Lenders One. The Secure and Fair Enforcement for Mortgage Licensing Act passed by Congress in July 2008 requires LOs joining an independent mortgage company to go through prelicensing and continuing education requirements mandated by the states. "It is a huge barrier to hiring new loan officers," Mr. Stern said, because LOs hired by banks don't face prelicensing and continuing education requirements and don't pay licensing fees. Like stockbrokers, he said there should be one nationally recognized prelicensing course and one nationally recognized continuing education course for all loan officers. "We believe all lenders that meet with consumers should be licensed," the Lenders One CEO said. Mr. Stern is forming an advocacy group called the Community Mortgage Lenders of America that has membership commitments from 140 mortgage banking companies and community banks. He has lined up BuckleySandler LLP to serve as regulatory counsel for the new trade group and the Glaser Group to be its Washington lobbying arm.

Jerald Allen Teixeira, a former loan officer from Bakersfield, Calif., has pleaded guilty to wire fraud in connection with a scheme to defraud mortgage lenders. Teixeira was formerly a loan officer at Tower Lending, a mortgage brokerage company that was affiliated with Crisp & Cole Real Estate and was owned by Crisp & Cole's owners. As part of his plea agreement before U.S. District Judge Oliver W. Wanger, he agreed to cooperate in the government's ongoing investigation. According to Lawrence G. Brown, U.S. attorney for the Eastern District of California, Teixeira admitted that he and others executed a scheme to defraud lending institutions by submitting materially false and fraudulent statements in mortgage loan applications and related documents to obtain loans from the lenders for borrowers' purchases of real property. Teixeira also obtained loans to finance the purchase of approximately 11 real properties with a total purchase value at the time of $4.4 million. In order to qualify for these loans, he knowingly made misstatements or omitted relevant information. Teixeira is scheduled for sentencing on March 22, 2010.

An Indianapolis man was sentenced to 30 months in prison, followed by three years of supervised release, for participating in a large city-based mortgage fraud scheme. According to Timothy M. Morrison, U.S. attorney for the Southern District of Indiana, Jerry J. Jaquess admitted that, through his real estate company Homevestors LLC, he and others entered into contracts to purchase 186 duplexes in the Windsor Village neighborhood on the east side of Indianapolis. On each of the properties, Jaquess entered into a land contract immediately preceding the closing showing that Homevestors was purchasing the property for $50,000. Prior to finalizing the purchase agreements, Jaquess caused three of the Windsor Village properties to be listed on a Multiple Listing Service showing a list price of $120,000. Jaquess did not own the properties at the time they were listed. A few days after these properties closed, Jaquess and his associates were responsible for these three sales at $120,000 apiece to be placed on the MLS, showing these properties as comparables on appraisals to be prepared for all of the remaining Windsor Village properties, thus making it appear that each of those properties were worth $120,000. Jaquess attended the closings as the seller and took the downpayment checks to the closings. He signed the loan closing documents on behalf of Homevestors, including false HUD-1 Settlement Statements. After closing, Jaquess received checks to Homevestors for the amount of the fraudulent loan proceeds. In addition to the prison time, Chief Judge David F. Hamilton ordered Jaquess to pay more than $820,000 in restitution.

First American CoreLogic, Santa Ana, Calif., is offering current and potential clients a "2X mortgage fraud guarantee." The guarantee claims users will identify twice the level of potential fraud using First American CoreLogic's fraud detection technology than when using technology from any other fraud solutions vendor, or the trial period will be free. The guarantee states lenders will save twice as much in fraud losses and that the savings will be at least twice as much as the cost of the solution. First American CoreLogic will work with clients to develop either a production trial or retrospective testing program for measuring its patented pattern-recognition anti-fraud technology. If the fraud-detection technology doesn't identify a minimum of twice the loss savings over products from its competitors and deliver a 200% return on investment during the measurement time period, the cost of scoring the loans will not be charged.

Industry insiders who commit fraud are being blacklisted as quick as a Nolan Ryan fastball, panelists at the New England Mortgage Bankers Conference in Providence, R.I., said. Freddie Mac now has nearly 2,000 names on its exclusionary list, while the Department of Housing and Urban Development's Office of the Inspector General suspended or disbarred more than 1,000 people from dealing with the Federal Housing Administration last year alone, they reported. "I'd like to say there are just a few bad apples in our industry," said Kathy Cooke, Freddie Mac's fraud investigation manager. "But there are a lot of bad apples, and they make the entire industry look bad." Michael Motulski, assistant regional inspector for audit in HUD's six-state New England region, said "fraud for housing" constitutes 20% of the cases investigated by the HUD inspector general, while "fraud for profit" accounts for 80%. But in all cases, an industry professional is involved, he added, either by assisting a borrower in the latter or being one of the perpetrators in the former. Mr. Motulski, who works civil cases, said that in addition to the administrative actions taken against appraisers, brokers, realty agents, closing attorneys and other industry insiders, the IG's office made 1,524 arrests in fiscal 2008, gained 1,180 indictments and earned 969 convictions. "We go after folks," he said. "Up to and including monetary penalties, we get people out of our programs." As far as industry insiders are concerned, fraud has changed from a matter or opportunity to one of desperation, added Diane DeChellis, the special agent in charge of the New England region's IG office. "It's not just lifestyle anymore," she said. "It's almost a survival thing right now."

Following months of development a group of Fortune 100 executives have launched Working Equity Inc. and its signature insurance product, which is aimed at providing homeowners with a form of future home value protection. The product, Equity Protection, is tied to the First American CoreLogic Inc. Index. It is priced two ways: as lifelong protection for 1% of the home's value, or as a monthly payment option at $20 for every $100,000. Working Equity Inc. co-founder Craig Schmeizer told MortgageWire the company is in the process of negotiating with five major insurers he would not disclose, who are expected to serve as reinsurers. "Reinsurance is helpful in the event the market has a significant shock, but the nature of the product does not create risk of that to our business for ... years. We do fully manage the primary risk on the product. We actually retain and manage the risk as an insurance company would. We only use reinsurance as a supplement to our ability to support risk." He added, "Our reserves, such as the fees and premiums we collect, are maintained in a reserve managed by Merrill Lynch, so it is managed by a third party." Mr. Schmeizer said the insurance provides homeowners the type of protection available to lenders through mortgage insurance. Anyone can purchase it independent of his or her mortgage, he said. The concept was originally introduced in military housing where it has been successfully used for years, he said.

Kevin Carey, a former Somerville real estate attorney from Middleboro, Mass., pleaded guilty in Middlesex Superior Court to charges related to making false statements on mortgage applications and using the funds secured from the loans for his own purposes, rather than paying off existing loans. According to Massachusetts attorney general Martha Coakley, while practicing as a real estate lawyer in Somerville and Medford, Carey engaged in a scheme called "mortgage stacking" on four residential properties he or his family members owned. The scheme involved serially refinancing the loans on these properties, without paying off the existing loans. Carey was also the agent for a New England title insurance company, which allowed him to issue title insurance policies on mortgage transactions he processed. Sentencing is scheduled for Nov. 6.

Three individuals, including a New York City police officer, have been arrested in connection with a mortgage fraud scheme. Oneika Carthon of Brooklyn; Joe D. Green of Jamaica, Queens; and Samantha Girard of Roosevelt, N.Y., have each been charged with bank fraud. Ms. Girard has been an NYPD officer since March 2000. She has been on modified duty since February 2007 and was recently suspended. According to Rose Gill Hearn, commissioner of the New York City Department of Investigation, a police probe uncovered a fraudulent deed for a house in Brooklyn, which, together with other false documents, was allegedly used to obtain funds that were distributed to the three defendants, who were unavailable for comment. This supposed deed claimed to have transferred ownership from the original homeowner, who was deceased, to a man unknown to the former homeowner's family. There were irregularities in the deed, including the incorrect spelling of the deceased man's name and a signature that did not match his known signature. The defendants then allegedly obtained two mortgages using false income information totaling $600,000 to supposedly finance the purchase of the Brooklyn home. At closing, Mr. Green allegedly presented a phony stipulation indicating that a civil action contesting the property transfer had been discontinued. At the closing, $511,500 from the two mortgages was allegedly distributed to the three defendants. The complaint alleges that only three payments were ever made on the mortgages. The loans are now in default. The U.S. Attorney's office for the Eastern District of New York is prosecuting the case.

Jamilah Al-Bari of District Heights, Md., pleaded guilty to mail fraud arising from the fraudulent purchase of properties in Maryland and Virginia. According to Rod J. Rosenstein, U.S. attorney for the District of Maryland. Jamilah Al-Bari participated in a scheme with her brother, Osman Sharrief Al-Bari, and others to pay straw purchasers to purchase houses for them using false loan documents. While employed at M&T Bank, Jamilah Al-Bari created false documents purporting to verify assets for the straw buyers. She also sent false verification letters concerning the buyers' income and assets on M&T Bank letterhead to banks and mortgage lenders. She created a fictitious M&T Bank employee and used the fictitious name to sign some of the verification letters. Jamilah Al-Bari prepared false M&T Bank verification forms for straw buyers who purchased five properties in Baltimore and two properties in Virginia. She admitted her involvement in the scheme to M&T Bank investigators before her termination. The loss amount attributable to Jamilah Al-Bari was between $400,000 and $1 million. Most of the purchased properties have now gone into foreclosure. Sentencing is scheduled for Nov. 13. Osman Sharrief Al-Bari, a leader of the scheme, pleaded guilty in August and is scheduled for sentencing on Oct. 5. Co-defendants Timothy Reed, Terrence White, Sabrina Weinberg and Kara McIntosh have all pleaded guilty and await sentencing.

U.S. District Judge Alan S. Gold sentenced Adriana Cruz of Miami to 15 months' imprisonment, followed by 36 months of supervised release, for her role in a mortgage fraud scheme that resulted in the granting of two fraudulent home equity loans totaling $1 million. Judge Gold also ordered Cruz pay nearly $800,000 in restitution. According to Jeffrey H. Sloman, acting U.S. attorney for the Southern District of Florida, Cruz admitted that she and others simultaneously submitted two fraudulent loan applications, each at $500,000, to Bank of America and Wachovia Bank. The applications contained stolen identification information belonging to a co-conspirator's mother-in-law. In each application, the co-conspirators represented the mother-in-law as the purported borrower and pledged her house as collateral. The fraudulent applications were submitted to co-conspirators who worked as loan officers at the banks. When each loan application was submitted, neither bank was made aware of the other pending loan. The purported borrower's signatures were forged and Cruz obtained fake notarizations. After the loans were approved, the proceeds were made available to the co-conspirators. Cruz's co-conspirators previously pleaded guilty and have been sentenced in connection with this case.

U.S. District Judge Deborah K. Chasanow in Maryland sentenced the two final conspirators of the fraud scheme led by Michael K. Lewis that targeted financially vulnerable homeowners facing foreclosure through local television ads. Cheryl Brooke of Upper Marlboro, Md., was sentenced to 46 months in prison, followed by three years of supervised release. Winston Thomas of New Carrollton, Md., was sentenced to 37 months in prison, followed by three years of supervised release. According to Rod J. Rosenstein, U.S. attorney for the District of Maryland, Michael K. Lewis aired TV ads claiming he could help homeowners facing foreclosure improve their credit, save their homes from foreclosure and assist them with bankruptcy. Lewis and Thomas, a loan officer, told the homeowners that the credit of Michael's brother Earnest Lewis would be used to refinance their homes if they temporarily signed their homes over to Earnest. They could remain in their homes by paying inflated "rent" and fees, which were directly debited from their bank accounts to an account Brooke controlled. The Lewis brothers and Thomas lied about the amount of money that the homeowners would receive at settlement, what would be done with any equity in the homes and the need to file for bankruptcy protection and failed to inform the homeowners of the particulars of how the lease/buyback program worked, it is alleged. Thomas also allegedly submitted false financial and employment information to mortgage lenders. After financing was obtained, Brooke filed motions to dismiss the homeowners' bankruptcy cases so that the settlements could take place. Michael K. Lewis and Earnest Lewis were previously sentenced to 78 months and 54 months in prison, respectively.

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.

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.

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.

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.