Compliance

Eugene Lockhart, Jr., a former player with the Dallas Cowboys, has been charged, along with eight others, with running an alleged mortgage fraud scheme in the Dallas area from 2001 through 2005. In addition to Mr. Lockhart, the following defendants named in the indictment include: Lendell Beacham; William Randolph Tisdale, Jr.; Hubert Jones, III; Patricia Ortega Suarez; Suzette Switzer Hinds; Michael Anthony Caldwell; Donna Lois Kneeland; and Bryan J. Moorman. According to James T. Jacks, U.S. attorney for the Northern District of Texas, the indictment alleges that the defendants, who were involved with several real estate entities, ran a scheme in which they located single-family residences for sale in the Dallas area -- including distressed and pre-foreclosure properties -- and negotiated a sales price with the seller. Prosecutors say they created surplus loan proceeds by inflating the sales price to an arbitrary amount more than the fair market value of the residence. The defendants, who were unavailable for comment, allegedly recruited straw borrowers and caused the loan applications for each straw borrower to include false financial information. The alleged scheme involved 54 fraudulent residential property loan closings resulting in the funding of $20.5 million in fraudulent loans.

A federal jury in Kalamazoo, Mich., found Patricia L. VanderZwaag and Daniel Lee VanderZwaag, both of Holland, guilty of charges related to filing fraudulent mortgage loan applications. According to Donald A. Davis, U.S. attorney for the Western District of Michigan, the defendants, who owned Mad Jac Corporation, also known as B & J Towing, provided false documentation and information to mortgage companies to obtain loan proceeds. Patricia VanderZwaag also used false information and documentation, including the Social Security Number of another person, to obtain a mortgage loan from National City Bank. She then transferred $16,000 of one of the mortgage company loans to another bank to launder the funds. Immediately after the return of the guilty verdicts, Chief U.S. District Court Judge Paul L. Maloney remanded both Vanderzwaags to the custody of the U.S. Marshal until sentencing. A date for the sentencing hearing has not yet been set.

Edward J. Safdie of Madison, Conn., was sentenced to 51 months in prison for conducting a fraud scheme in which he received funding from multiple sources to purchase a Chester, Conn.-based inn. According to Nora R. Dannehy, U.S. attorney for the District of Connecticut, Safdie submitted false documents to Acorn Capital overstating his personal wealth to receive a $1 million loan to secure financing to purchase The Inn at Chester. He then told Citizens Bank, also submitting false documents to the lender, that the $1 million loan from Acorn was his own and that he was using the funds for a downpayment on the inn. Operating through 318 Main LLC, Safdie purchased the inn for $2.4 million. On the same day, he caused 318 Main LLC to sell the inn to Quantum 318 LLC, which he also controlled, using $3.5 million in loan proceeds obtained from Citizens Bank. He then used the proceeds from the Citizens Bank loan to pay back the original $1 million Acorn loan. Thereafter, Safdie convinced Acorn to provide him with a $2 million revolving loan facility, of which he drew down $1.1 million. He continued to provide fabricated brokerage account statements to Acorn. Using the inn as security, Safdie refinanced the Inn and, through the refied mortgage, received $4.5 million from Beal Bank. Safdie then used most of the funds to repay the fraudulently obtained Citizens Bank loan. After failing to repay the Beal Bank loan, Beal Bank foreclosed on the inn.

Mario Tolisano and Celestino Orta, both of Bronx, N.Y., have been charged with allegedly bilking three people out of more than $1.3 million in a scam involving selling property the defendants neither owned nor were authorized to sell. According to Bronx district attorney Robert T. Johnson, the defendants, who were unavailable for comment, allegedly offered to sell various properties to two real estate investors, which Mr. Orta allegedly falsely claimed he had either bought or was in the process of buying. The investors allegedly examined the real estate and agreed on a purchase price of $710,000, to be paid up front. Later, the victims were allegedly offered additional properties in the Bronx, Brooklyn, and Queens, for which they paid another $502,000. The defendants then allegedly approached a third victim, who made a $70,000 downpayment for a vacant lot. The victims eventually filed complaints against the defendants, alleging multiple attempts to schedule closings on the properties were ignored, since the defendants never had ownership of the properties nor had authorization to sell them. Mr. Tolisano was arraigned before State Supreme Court Justice Margaret Clancy, who set bail at $250,000. Arraignment for Mr. Orta, who is currently in custody on an unrelated matter, is scheduled for Sept. 3.

A former employee at the now defunct Taylor, Bean & Whitaker faces charges he allegedly stole more than $1.6 million from the company by depositing the funds into accounts he controlled at Navy FCU of Virginia. Victor Cedeno, who was a loss mitigation negotiator in the loan resolution management department at the Ocala, Fla.-based company allegedly deposited checks made out to Taylor, Bean & Whitaker into this account from July 17, 2008, until as recently as Aug. 10 of this year, according to a criminal complaint filed by the U.S. Attorney's office. A spokesman for the U.S. Attorney office said Mr. Cedeno is still being sought by authorities. He could not be reached for comment. The scheme allegedly began July 16, 2008, when Mr. Cedeno opened an account at Navy Fed's branch in Winter Park under the name, "Tailor Bean W." The name "Tailor Whitaker" was listed as primary account holder. A total of 58 checks worth $1.6 million were allegedly funneled into the "Tailor Bean W." account.

James Whitaker, a former Orchard Lake, Mich., resident, pleaded guilty before U.S. District Judge Bernard A. Friedman to filing fraudulent bankruptcy petitions to defraud his mortgage lender and forestall foreclosure on his mortgage and take possession of his property. According to Terrence Berg, U.S. attorney for the Eastern District of Michigan, in 2007 Whitaker's mortgage holder, Deutsche Bank, began foreclosure proceedings on a $970,000 mortgage Whitaker had obtained on the residence he occupied. However, he held title to the property in his sister-in-law's name. When the bank began eviction proceedings to take possession of the property, Whitaker had a bankruptcy petition preparer file several bankruptcy petitions in his sister-in-law's name to halt eviction action. By doing this, the value of the property substantially decreased. Sentencing for Mr. Whitaker is scheduled for Nov. 17.

Some 41 people and four companies have been indicted for engaging in a massive mortgage fraud scheme to purchase 453 homes using $44 million worth of fraudulent loans. The state charges are the result of an 18-month investigation by the Cuyahoga County Mortgage Fraud Task Force in conjunction with the Ohio Organized Crime Investigations Commission. Ohio attorney general Richard Cordray singled out Uri Gofman of Beachwood, Ohio, as the scam's ringleader, saying he enlisted family, friends and others to invest in his real estate company, Real Asset Fund, with promises of profit. Mr. Gofman's alleged enterprise began with seed money from an investor who transferred funds from a bank account in Latvia. The scheme involved using straw buyers to purchase homes, falsely claiming home improvements were performed on houses in order to refinance them and then selling houses to unqualified buyers with the assistance of real estate agents, mortgage brokers and title companies. The defendants, who were unavailable for comment, allegedly siphoned off more than $31 million in profits from their criminal enterprise. Eventually, 358 of the homes fell into foreclosure. The Cuyahoga County Mortgage Fraud Task Force was formed in December 2007. To date, 289 defendants have been indicted on mortgage fraud charges involving $111 million in loans on 812 homes, 616 of which are now in foreclosure.

Federal regulators are seeking information from banks and thrifts on how a new accounting rule on securitized assets will impact their balance sheets and capital levels. Financial Accounting Standards 166 and 167 can trigger consolidation of securitized assets on the balance sheet if a bank controls the servicing or provides support for assets in the trusts. "It will require institutions to bring a lot more assets on the balance sheet," Comptroller of the Currency John Dugan said at a Federal Deposit Insurance Corp. board of directors meeting. As part of the proposed rulemaking, the FDIC is seeking information on what assets will likely be consolidated and how it will impact lending and securitization activities. The proposal also asks whether a phase-in of risk-based capital requirements over four quarters is needed. Comments are due in 30 days. The new accounting rule goes into effect at the yearend. Separately, the FDIC agreed to extend its Temporary Liquidity Guarantee Program until June 30, 2010. This program provides unlimited insurance for servicer accounts and other non-interest bearing accounts.

In a few weeks California will move to implement the federal Secure and Fair Enforcement for Mortgage Licensing Act which means individuals will have to obtain their own licenses if they want to operate as loan brokers. According to the California Mortgage Bankers Association, individual loan officers can no longer latch onto a company license and must obtain their own. A spokesman for the trade group noted the "act should pass here in the next few weeks, which will be a much bigger change than in some other states that already individually license LOs." California also is working on major legislation to reorganize and consolidate all the financial/real estate agencies and departments, and create a new consumer-focused department but no further action is expected until next year.

The Federal Reserve Board is now seeking public comment on a Truth in Lending Act proposal that could completely change the way most mortgage brokers and loan officers are compensated. The proposed rule pushes the industry toward paying originators a flat fee that is stated upfront and cannot be increased due to changes in the interest rate or changes to other loan terms. Consumers can still finance closing costs and origination fees, "provided this does not affect the amount the originator receives for the transaction," the Fed says. If finalized, the TILA proposal will "dramatically alter compensation for all mortgage originators, whether they are loan officers in retail operations or mortgage brokers," said Brian Chappelle, a mortgage banking consultant with Potomac Partners in Washington. Compensation based on loan volume, the performance of loans delivered by an originator or hourly wages is permissible under the proposal. The Fed is specifically seeking comment on whether it should allow compensation based on the loan amount, which is not an uncommon practice. The comment period on the 195-page proposal ends Dec. 24. The Fed also issued a separate TILA proposal that would create an entirely new disclosure regime for home-equity lines of credit and new safeguards for consumers. The comment period on the HELOC proposal also ends on Dec. 24.

Eight individuals have been charged with conducting an alleged Westchester County, N.Y.-area scheme that defrauded four separate families and two mortgage lenders of $1.4 million. Doreen Swenson and Hubert Hall of Tarrytown, N.Y., Mildred Didio of New York, David Reback of Rye Brook, N.Y., Eileen Potash of Fresh Meadows, N.Y., Frank Corigilano of Newtown, Conn., Amerigo DiPietro of Brewster, N.Y., and Wilma Shkreli of Westwood, N.J., have been charged with grand larceny, fraud and conspiracy. According to Westchester County district attorney Janet DiFiore, from December 2004 to January 2007, the defendants, who were unavailable for comment at press time, allegedly victimized four separate families in Croton-on-Hudson, Yorktown Heights, Cortlandt Manor and Mount Vernon along with two mortgage lenders, wherein they induced desperate property owners fearing the threat of foreclosure to deed their homes to "investors" with the promise that they could repurchase their property in 12 to 24 months. The defendants allegedly colluded to strip the property of its equity by obtaining inflated mortgages based on fictitious purchase prices using "show" checks to deceive the banks as to the actual purchase price. The defendants were arraigned in Westchester County Court and all pleaded not guilty. Their next court appearance will be on Sept. 9.

Another defendant in the fraud case involving $12.6 million mortgage fraud scheme that involved 25 upscale residential properties in Lee's Summit and Raymore, Mo., has pleaded guilty in federal court. According to Matt J. Whitworth, acting U.S. attorney for the Western District of Missouri, Jerome Shade Howard of Anaheim, Calif., pleaded guilty before U.S. Chief District Judge Fernando J. Gaitan to his role in a scheme to buy new homes built by Jerry R. Emerick at inflated prices, obtaining mortgage loans for more than the actual sale price by providing false information to mortgage lenders, then keeping the extra proceeds. Howard admitted that he received more than $900,000 in illegal kickbacks as part of nearly $8.5 million in fraudulent mortgage loans. Howard is among 12 defendants who have pleaded guilty to the scheme. Sentencing for Howard will be scheduled after the U.S. Probation Office completes a pre-sentence investigation. Emerick pleaded guilty in April to conspiracy to commit mortgage fraud and wire fraud and to transfer funds obtained by fraud across state lines.

The mortgage banking firm Taylor, Bean and Whitaker, which recently ceased making mortgages, originated an estimated $22 billion in Federal Housing Administration-insured loans over the past 24 months, which represents 4.5% of the FHA's total business during that period. TBW was FHA's third largest direct endorsement lender and it approved 119,800 loans over the past two years. However, 7.1% of those FHA-insured loans are 90 days or more past due or in foreclosure, according to FHA's Neighborhood Watch System. The average default rate for FHA loans is 4.6%. Based on a higher than average claim rate and loss severity rate of 40%, FHA could face possible losses of $800 million to $900 million due to its exposure to TBW, one source said. As previously reported, the Department of Housing and Urban Development on Aug. 4 suspended the Ocala, Fla., mortgage banking firm from making FHA loans. Freddie Mac also terminated TBW on Aug. 4. In a recent securities filing, Freddie said approximately 5.2% of its mortgage purchase volume in 2008 came from TBW and TBW accounted for 2.7% of its mortgage purchases during the first half of this year.

Mark M. Mr. Benun of New York has been charged with fraudulently selling a Bronx building for more than $5 million and not disclosing several liens on the property. According to Preet Bharara, U.S. attorney for the Southern District of New York, Mr. Benun and a real estate company operator purchased a commercial property in the Bronx near Yankee Stadium for $9.5 million. Mr. Benun, purporting to be the sole owner of the property, allegedly sold it for approximately $5.96 million to another buyer, who paid $4 million in cash and gave Mr. Benun a note for the remaining $1.96 million. Shortly after the sale, Mr. Benun is alleged to have sold the note for $1.46 million. To establish his apparent sole ownership of the building, Mr. Benun allegedly created false satisfactions of the three mortgages on the property and transferred ownership of his co-purchaser's majority interest in the property to himself. U.S. District Judge Victor Marrero has been assigned to the case. Mr. Benun was unavailable for comment.

The new Federal Housing Administration commissioner said the suspension of Taylor, Bean & Whitaker should send a clear message to the mortgage industry that FHA will not do business with lenders that don't play by the rules. "If you don't operate within our standards — if you don't act transparently and ethically — we won't do business with you," FHA commissioner David Steven said in a recent speech that was just released by the agency. The Department of Housing and Urban Development suspended TBW from making FHA single-family loans on Aug. 4 after it learned the Ocala, Fla.-based lender failed to provide financial statements and did not disclose that it was the target of two separate investigations. Shortly afterwards, TBW ceased originating loans. On Aug. 14, Mr. Stevens told a Housing Renaissance meeting in San Diego that FHA will improve lender monitoring as well as tighten product guidelines and counterparty requirements to "ensure the strength of the FHA Mutual Mortgage Insurance Fund over the long term."

Jake David Abegg Whitman of Mesa, Ariz., pleaded guilty to federal fraud charges related to his participation in a cash-back mortgage fraud scheme involving 19 unimproved residential properties in the greater Phoenix area. According to John J. Tuchi, U.S. attorney for the District of Arizona, Whitman played a leadership role in a conspiracy to obtain mortgage loans that were substantially larger than the actual value of the properties. Whitman owned 10 of the properties and served as branch manager of the mortgage broker Academy Mortgage that processed the loans. Whitman worked with an appraiser to obtain inflated appraisals for the properties and recruited buyers to purchase the properties at the inflated prices. To overcome the buyers' inability to provide the down payment, Whitman secretly supplied the down payment to the buyers and also provided cash back to the buyers at closing. The properties eventually went into foreclosure and cost lending institutions nearly $1 million in losses. Whitman is cooperating with authorities in the prosecution of others. U.S. District Judge G. Murray Snow has scheduled sentencing for Oct. 26.

Robert Andrew Penn and Keven M. Lafavers, both formerly of Indianapolis, were indicted for federal mortgage fraud charges and have a trial date set for this fall. According to Timothy M. Morrison, U.S. attorney for the Southern District of Indiana, Mr. Penn and his numerous business entities, with the assistance of Mr. Lafavers and others, allegedly obtained at least 112 fraudulent loans, totaling $12.6 million. Participants in the schemes allegedly located straw purchasers who invested their good credit, but no money, to be the purchasers of properties at a much higher price than that negotiated with the seller. Seven other individuals were charged earlier this year with allegedly participating with Mr. Penn and Mr. Lafavers in their mortgage fraud crimes. The investigation is continuing. Trial is currently set for both defendants, who were unavailable for comment, before U.S. District Court Judge David F. Hamilton on Sept. 21.

U.S. District Judge Raymond A. Jackson sentenced Kristina Marie Cardwell, a former attorney from Virginia Beach, Va., to 66 months in prison, followed by three years of supervised release for her participation in a mortgage fraud scheme. Cardwell was also ordered to pay $708,339 in restitution. Cardwell also consented to her license to practice law being revoked. According to Dana J. Boente, U.S. attorney for the Eastern District of Virginia, Cardwell worked at law firms associated with co-defendant Troy Aurelius Titus for nearly 10 years. She admitted to purchasing three residential properties in Virginia Beach from entities associated with Mr. Titus. She purchased the properties in her own name and received mortgages on the properties, although she intended for Mr. Titus to retain control over the properties and sell them to third parties at a later time. The funds taken from Cardwell's purchases were allegedly used to cover some of Titus's financial obligations. While applying for the mortgages, Cardwell made false statements about her income, assets and financial liabilities. During the application process, thousands of dollars were moved into Cardwell's bank account to inflate her account balance then moved out of the account. Mr. Titus, who is currently in custody, is scheduled to appear in court on Nov. 10 and could not be reached for comment.

Wolters Kluwer Financial Services, Minneapolis, is offering banks, credit unions and mortgage lenders a "tool kit" aimed at helping them prepare for new Real Estate Settlement Procedures Act requirements. The company said its RESPA Tool Kit offers financial institutions an overview of the Department of Housing and Urban Development's changes. These include revisions to the Good Faith Estimate and HUD-1 and HUD-1A documents, as well as Settlement Cost booklets. The new RESPA requirements are slated to take effect on Jan. 1, 2010. Wolters Kluwer Financial Services provides compliance, content, and technology services.

After being indicted in June on multiple fraud charges, Hayung Peter Jin, a loan broker from Centreville, Va., pleaded guilty before U.S. District Judge James C. Cacheris and faces sentencing later this year. According to Dana J. Boente, U.S. attorney for the Eastern District of Virginia, Jin operated Business Capital and Investments, a loan brokerage business that served primarily Korean Americans in the Washington metropolitan area. Jin was involved in two separate fraud schemes. In one scheme, Jin convinced a former client to sell his home to a South Carolina businessman who had never agreed to purchase the home. Jin then used the businessman's name and Social Security number to obtain financing for the bogus purchase, plus additional home equity loans in the businessman's name. Jin fraudulently obtained $620,000 in financing. In the other scheme, Jin convinced a local businesswoman that he had obtained four borrowers who wanted to borrow $360,000 from her, when in fact the alleged borrowers had never agreed to such an arrangement. Jin forged four promissory notes and gave them to the businesswoman to induce her to transfer the $360,000 under the false promise that Jin would transfer the funds to the four "borrowers." Jin then kept the funds for himself. Sentencing has been set for Nov. 13.