Compliance

After being found guilty of fraud and money laundering charges in connection to participating in a commercial mortgage fraud scheme, Larry P. Nardelli of Tampa, Fla., has been sentenced to 48 months in federal prison and ordered to pay $26.3 million in restitution. According to A. Brian Albritton, U.S. attorney for the Middle District of Florida, Nardelli and his co-conspirators agreed to purchase and immediately "flip" vacant land for double the money by falsely obtaining loans for the land. Nardelli entered into sham contracts that falsely represented to victim banks that the contract proceeds gave him the equity necessary to purchase the vacant land. The banks unwittingly loaned money for approximately 140% of the value of the land. The conspirators then purchased the land and distributed the excess funds among themselves in various amounts. The loans went unpaid. Two co-conspirators, Michael Tringali and closing attorney John Yanchek previously pleaded guilty and have been sentenced. One conspirator, Neil Mohamed Husani is in Jordan, and efforts are underway to extradite him back to Florida for prosecution.

The first of four participants in a foreclosure fraud scheme that targeted mortgage lenders and homeowners has been sentenced to nearly five years in prison. U.S. District judge Deborah K. Chasanow has sentenced Earnest Lewis of Takoma Park, Md., to 54 months in prison, followed by three years of supervised release. The defendant also agreed to forfeit $2.2 million gained from the scheme. According to Rod J. Rosenstein, U.S. attorney for the District of Maryland, Earnest Lewis' brother, Michael Lewis, aired TV ads claiming he could save financially vulnerable individuals' homes from foreclosure. The Lewis brothers and mortgage loan officer Winston Thomas fraudulently promised to help homeowners keep their homes by temporarily using the "good credit" of Earnest Lewis to refinance their homes after they signed their homes over to Earnest Lewis for roughly one year. In the meantime, they could remain in their homes by paying "rent." The victims' bank accounts were directly debited by an account belonging to co-conspirator Cheryl Brooke's company, In the House Technologies. Michael K. Lewis, Brooke and Thomas have all pleaded guilty and are scheduled for sentencing in September.

The Department of Housing and Urban Development has issued guidance to give settlement service providers a better understanding of a RESPA rule that goes into effect January 1, but it doesn't get into the more complicated issues that some lenders and title companies are "grappling with," one expert said. RESPA attorney Phillip Schulman noted that the written responses HUD has provided to frequently asked questions will be "informative and instructive" for those who are not familiar with the Real Estate Settlement Procedures Act rule. However, the new RESPA rule completely revises the HUD-1 settlement sheet and requires lenders to provide a standardized good faith estimate disclosure to mortgage applicants. "For lenders and title guys who have been struggling to put the software together — to be able to complete the revised HUD-1 and GFE — the instructions were lacking," Mr. Schulman said. The K&L Gates Washington partner is hoping HUD will do a second round of frequently asked questions to address some of the more difficult issues.

A real estate company owner who obtained over $4 million in mortgage loans through fraudulent means has pleaded guilty to his role in the scam. Michael I. Striker of Minnetonka, Minn., was the president and sole owner of U.S. Equities of Minnesota, a real estate company that entered into 21 real estate loans with Associated Bank from March 2003 to September 2003, according to Frank J. Magill, U.S. attorney for the District of Minnesota. A co-defendant was a construction loan officer at the bank who processed and approved the loans, which totaled more than $4 million. Striker admitted those loans were approved based on false and misleading information he submitted. In total, Striker obtained more than $724,000 in cash back at the closings on the loans. Although the loans were purported to be for construction rehab projects, Striker admitted he used some of the loan funds for unrelated expenses and debts. Furthermore, Striker paid more than $100,000 in brokerage fees to a mortgage brokerage company even though it did not broker any of the loans. U.S. District Court Judge Joan Ericksen will determine his sentence at a future date.

ComplianceEase has awarded four technology partners its highest certification level in recognition of their ability to help their customers prepare loan data for transmission electronically to state regulators through RegulatorConnect.org, the ComplianceEase automated compliance system selected by the American Association of Residential Mortgage Regulators to help improve oversight of the mortgage business. Lender Processing Services, Lender Support Systems, Mortgage Banking Systems and ProLender Solutions received the Platinum Partner Certifications at AARMR's annual conference in Savannah, Ga. Compliance Ease, a provider of compliance and risk management tools, introduced the certification program earlier this year to help lenders adapt to the new automated residential mortgage examination initiatives introduced by AARMR and the Conference of State Bank Supervisors. The certification requires recipients to provide its users with secure, one-click export of 100% of the loan information necessary for the examinations while also offering up-to-date, seamless loan-level compliance audits through Compliance Analyzer, another ComplianceEase platform.

In what is being hailed as practically warp speed for legislation, all but two states have now acted to implement provisions of the federal Secure and Fair Enforcement for Mortgage Licensing Act. Signed by President Bush on July 30, 2008, the SAFE Act gave states one year to pass laws requiring the licensing of loan originators according to national standards and start participating in the National Mortgage Licensing System. As of Aug. 8, 48 states and the District of Columbia have done so. California is expected to comply this month or next, leaving Minnesota as the lone holdout. The states have been aggressive, Bill Matthews, president of the Conference of State Bank Supervisors' subsidiary which runs the NMLS, said at the American Association of Residential Mortgage Regulators' annual conference in Savannah, Ga. "You tell me anytime in history that all states have acted so quickly? This is a huge lift," he said. AARMR Secretary Rod Carnes of North Carolina's Department of Banking and Finance, agreed: "I think this speaks volumes for the states." Mr. Matthews said CSBS is now in the process of adding "functionality" to meet the SAFE Act's other requirements, including a streamlined renewal component and consumer access.

A federal jury has convicted Lila Rizk of Trabuco Canyon and Kyle Grasso, formerly of Santa Monica, of conspiracy, bank fraud and loan fraud charges for their roles in a scheme that led to more than $40 million in losses at federally insured depositories. According to a report in The Orange County Register, Grasso, a real estate agent, also was convicted of three counts of money laundering. The duo were part of a scheme that obtained inflated mortgage loans on luxury houses, with Grasso earning commissions and other payments and Rizk, an appraiser, earning fees. Donald Marks, an attorney for Rizk with Marks & Brooklier in Century City, said, "We are very disappointed in the jury verdict. We think our case was very defensible. We think we raised reasonable doubt, and we think she is not guilty. We will continue fighting on her behalf." Mr. Marks said he would appeal the verdict. A lawyer for Grasso was not immediately available for comment. Eight others involved previously pleaded guilty.

A former Florida appeals court judge who pleaded guilty to defrauding a bank that loaned him money to purchase a residence in Hawaii is awaiting assignment of a sentencing date. According to A. Brian Albritton, U.S. attorney for the Middle District of Florida, Thomas E. Stringer of Tampa pleaded guilty to one count of bank fraud before Magistrate Judge Mark A. Pizzo. Stringer falsified his mortgage application for the residence by claiming that he had borrowed none of the money he was using for the downpayment, when in fact he had borrowed funds from a third party. The U.S. intends to seek forfeiture of $222,362, the amount of the proceeds from the fraud. A sentencing date has not been set.

Allied Home Mortgage Capital Corp., Houston, has entered into a consent order with the Georgia Department of Banking and Finance over allegations it transacted business in the state with a person who was unlicensed or unregistered. Back in June, the Department sought to revoke Allied's license and served cease and desist orders on company co-owners Jim Hodge and Kathy Hodge. This consent order settles those charges. The order calls on Allied to provide "an appropriate level of supervision" to its employees, perform background checks on new employees no later than 10 days after hiring and give $1,000 to State Registry LLC, to support the Nationwide Mortgage Licensing System. State Registry LLC is a subsidiary of the Council of State Bank Supervisors, which operates NMLS along with the American Association of Residential Mortgage Regulators. A call to Allied for comment was not returned by press time.

Colonial BancGroup Inc. said it is the target of a U.S. Department of Justice criminal investigation relating to its mortgage warehouse lending business. The Montgomery, Ala., company said it is cooperating with the investigation which concerns accounting irregularities on more than one year's audited financial statements and regulatory financial reports. The company also revealed it has provided documents to the Special Inspector General for the Troubled Asset Relief Program and the Securities and Exchange Commission. A Justice Department spokesman said the agency is not commenting on Colonial. Colonial also said its bank subsidiary received notice that the Alabama State Banking Board will meet on Aug. 12 at which time Colonial Bank will be asked to consent to the appointment of the Federal Deposit Insurance Corp. as receiver or conservator if and when the state regulator deems necessary. This news wraps a bad week for Colonial as it reported the death of its recapitalization deal with Taylor, Bean & Whitaker, a $606 million second quarter loss, and a raid by the TARP IG on its warehouse office in Orlando as well as the abrupt closing of TBW.

Joseph Silvestro and his wife Julie Silvestro pleaded guilty before U.S. District Judge Ortrie D. Smith to their roles in a mortgage fraud scheme. According to Matt J. Whitworth, acting U.S. attorney for the Western District of Missouri, the Silvestros defrauded mortgage lenders by obtaining larger loans from lenders than the actual sale price associated with a particular property. These loans were based on material false and fraudulent representations, and by concealing material facts. The Silvestros arranged for mortgage documents that often included payment of fictitious and fraudulent invoices to their company, Taylor Investments, as part of the settlement statement. The plea agreements cite three properties — two in Kansas City, Mo., and one in Kansas City, Kans. — in which the Silvestros fraudulently claimed invoices for Taylor Investments, ranging from $20,000 to $37,000. The government believes that the loss attributed to the Silvestros totaled more than $567,000, though the defendants have reserved the right to contest the amount of loss at their sentencing hearings, which will be scheduled after the United States Probation Office completes its pre-sentence investigation. Under federal statutes, the Silvestros are each subject to a sentence of up to five years in federal prison without parole, plus a fine up to $250,000 and an order of restitution.

Robert Ratkovich of New Castle, Pa., pleaded guilty before Senior U.S. District Judge Gustave Diamond in federal court to fraud and money laundering charges connected to his scheme to defraud a bank and affordable housing entity. The board of directors of Affordable Housing of Lawrence County hired Ratkovich as a consultant to advise the board of which properties that it should purchase and at what price, according to Mary Beth Buchanan, U.S. attorney for the Western District of Pennsylvania. Rather than do a diligent search, Ratkovich advised the board to purchase seven properties that were all owned or associated with an individual known to the U.S. attorney. To purchase the properties, Affordable Housing of Lawrence County received a loan from First Commonwealth bank to finance the purchase. Ratkovich and others allegedly made misrepresentations to First Commonwealth Bank regarding the financial status of Affordable Housing of Lawrence County and submitted fraudulently inflated appraisals. Judge Diamond scheduled sentencing for Oct. 28.

Howard Edwards and John Foster, both formerly of Rancho Cucamonga, Calif., were sentenced to 20 years, four months in prison and 10 years, four months in prison, respectively, for real estate fraud crimes. The two defendants befriended unsuspecting victims on an Internet chat line. Their personal information was used to obtain loans on luxury cars and real estate in Fontana, Calif. The victims were then liable for these loans. The loan proceeds were transferred to a phony escrow company. The defendants falsified several real estate deeds and forged the signatures and stamps of several notary publics. The defendants then sold a house in Gardena, Calif., without the owner's permission and knowledge for an additional $560,000. The victims, who had been living at the residence since 1971, first found out about it when a lending institution attempted to foreclose on the property. The defendants used the personal information of a man living in Massachusetts to obtain the loans. Edwards and Foster were extradited from Georgia and Illinois, respectively, in 2008. The San Bernardino County District Attorney's Real Estate Fraud Unit investigated, prosecuted and provided the information about this case.

After pleading guilty to a $1 million scheme involving the approval and disbursement of two fraudulent home equity loans, four individuals, including two bank insiders, were sentenced to prison. U.S. District Judge Alan S. Gold sentenced Ramon Puentes to 57 months in prison and five years of supervised release, Jorge Nobrega to 27 months and five years of supervised release and Jorge Arrieta to 22 months and five years of supervised release. Sebastian Kishinevsky, who cooperated with the government and assisted with the investigation, received a sentence of six months in prison, six months of home confinement and three years of supervised release. Judge Gold also ordered Puentes and Nobrega to each pay $796,700 in restitution, Arrieta $470,000 and Kishinevsky $326,700. According to Jeffrey H. Sloman, U.S attorney for the Southern District of Florida, the defendants obtained two fraudulent loans, one from Bank of America and one from Wachovia, for $500,000 each. They submitted the loan applications using the stolen identification information of one of the defendant's mother-in-law and supported by fraudulent documents. Each application listed the mother-in-law as the borrower and a home owned by the mother-in-law as collateral. The Bank of America application was submitted to Arrieta, a personal banker at Bank of America. The Wachovia application was submitted to Kishinevsky, a financial specialist at Wachovia. After the loans were approved, the defendants disbursed and shared the proceeds.

Colonial BancGroup Inc., Montgomery, Ala., has confirmed that federal agents affiliated with the special inspector general for the Trouble Asset Relief Program executed a search warrant at the company's mortgage warehouse lending division in Orlando on Monday. The company's statement said it was cooperating with the investigation and is conducting business as usual. There are press reports that federal agents also executed a search warrant on Colonial's former merger partner, Taylor, Whitaker and Bean, a mortgage wholesaler based in Orlando. A call to TBW was not returned by deadline. The raid on Monday (Aug. 3) came on the same day Colonial disclosed that a $300 million investment in the bank by TBW would not take place. The deal was believed to be necessary for Colonial to receive a $550 million capital infuson in TARP funds.

After allegedly preparing fraudulent notes by forging the signatures of borrowers, William Everett Nichols of Alexandria, Louisiana, has been indicted and arrested on federal fraud charges. According to Donald W. Washington, U.S. attorney for the Western District of Louisiana, the indictment alleges that Mr. Nichols, who is the president and sole shareholder of First Fidelity Mortgage Inc., knowingly and willfully conspired to devise a scheme to defraud Sabine State Bank and obtain money to which Mr. Nichols was not entitled. The defendant and others allegedly prepared fraudulent notes by forging signatures of borrowers and notaries public and delivered them to Sabine State Bank as collateral in order to cause the bank to deposit money into an account of First Fidelity Mortgage, which Mr. Nichols controlled. Mr. Nichols was unavailable for comment.

The California real estate commissioner said he would oppose increases in mortgage broker licensing fees that the state Legislature is considering as part of a regulatory reform package. Commissioner Jeff Davi told attendees at the California Association of Mortgage Brokers convention in San Diego he would fight to insure the new regulatory scheme would not drive up the costs for mortgage broker licenses. Higher fees could impact the ability of some brokers to stay in business, he said. The state Legislature is considering a bill to create a financial services regulator that would oversee the mortgage industry and brokers. Right now, mortgage brokers are licensed as real estate brokers.

Standard & Poor's Ratings Services has lowered several of Colonial BancGroup's ratings, citing risks linked primarily to its consent to a cease-and-desist order by its regulators. "The rating downgrade largely results from our view that regulatory risk has increased following the company's announcement that it has consented to an order to cease and desist by the Federal Reserve, its primary federal regulator, and the Alabama State Banking Department," S&P credit analyst Robert Hansen said. S&P noted that the cease-and-desist order states that the "company cannot pay any dividends or make any distributions of interest or principal on subordinated debt or trust-preferred securities without the prior written permission of these two regulators. If Colonial BancGroup is not granted permission by these regulators to make interest payments and subsequently misses an interest payment on its subordinated debt, the company's rating would be lowered [to default level]." The company's counterparty credit rating fell to CC from CCC. Its rating on the company's preferred shares fell to C from CC. And its long-term counterparty credit ratings on its subsidiaries fell to CCC- from B-. All short-term ratings on the company and its primary bank remain at C. All ratings remain on CreditWatch with negative implications.

After running a scheme that enticed victims to participate in a bogus real estate investment opportunity in order to get rid of their personal mortgages, Rodney McGill, a radio talk show host and pastor of New Hope Outreach Center in Jensen Beach, Fla., and his wife, Shalonda McGill, a mortgage broker, have been convicted by a jury in Martin County, Fla. According to the Florida attorney general's office, Rodney McGill used his radio program to advertise a contest to become the "Fabulous Five," five "winners" who would receive advice from the pastor on making millions through real estate investments. At least three victims called the radio station and provided their Social Security numbers and other financial information. The McGills showed their victims the properties that had been "selected" especially for them, but the scheme carefully concealed the fact that the McGills owned each of the properties offered up as potential investments. The McGills also encouraged their victims to lie about their income to obtain the mortgages. The defendants stole more than $1 million from banks, paid down their debts and left their straw buyers with ruined credit. Rodney and Shalonda McGill were arrested in September 2008. They will be sentenced in September 2009.

Reed Kyle Diehl, a former player with the Tennessee Titans from Coto de Caza, Calif., pleaded guilty in U.S. District Court to federal fraud charges related to a scheme in which he collected funds with false promises of high rates of returns on investments in condominium projects in Mexico. According to the U.S. attorney's office for the Central District of California, Diehl fraudulently collected deposits for lines of credit for people who desired financing for construction and development projects in Mexico. Despite paying him sometimes millions of dollars, none of the victims ever obtained a line of credit. Diehl caused losses of more than $5 million. Judge David O. Carter has scheduled sentencing for Sept. 28. Diehl was initially charged and arrested in this case in March 2008. After being freed on bond, Diehl's bond was revoked in January after he attempted to enter into a real estate transaction for a $3.5 million house using a false name and someone else's Social Security number.