Compliance

The Federal Reserve Board will consider amendments to the Truth in Lending Act placing new restrictions on mortgage broker compensation. "The proposal will include new rules governing mortgage originator compensation," Fed governor Elizabeth Duke said. The proposed rule — which the Fed will take up on July 23 — also includes "re-redesign, consumer tested disclosures and rule changes for closed-end mortgages and home-equity lines of credit," Ms. Duke told a congressional panel. The Fed punted on regulating broker compensation and yield-spread premiums last July when it approved a Home Ownership and Equity Protection Act rule to clamp down on abusive lending practices that led to the subprime meltdown. However, Fed chairman Ben Bernanke directed staff to continue their efforts to address the issue. He noted YSPs that brokers receive from lenders are based on the interest rate, which "on its face seems to be an incentive for steering borrowers into higher price loans."

After pleading guilty to mortgage fraud, U.S. District Judge Sarah E. Barker sentenced Marvin G. Hampton of Noblesville, Ind., to 12 months' home confinement, followed by one year supervised release. Judge Barker also ordered Hampton to pay $262,424 in restitution. According to Timothy M. Morrison, U.S. attorney for the Southern District of Indiana, between 2003 and 2005, Hampton operated a real estate company, Glen Mar Land & Home Corp., which purchased distressed homes in for $5,000-$30,000. Hampton then performed minimal repairs and sold the properties for $60,000-$70,000. He recruited investors to purchase the properties, promising to pay the down payments and giving them $1,500 incentive fees. Hampton set the prices instead of the prices being arm's length transactions. None of these facts were disclosed to the lenders. As additional enticements to the investors, Hampton also promised that he'd find renters and make up missed payments for the first six months. Nearly all the properties are now in foreclosure. Hampton walked away with an average of $20,000 profit on each property.

U.S. District Judge Roger W. Titus sentenced Kurt Fordham of Ft. Washington, Md., to 10 years in prison, followed by five years of supervised release, for his involvement in the Metropolitan Money Store mortgage fraud scheme that falsely promised to help homeowners facing foreclosure keep their homes and repair their damaged credit. Judge Titus also ordered Fordham to pay $13.13 million in restitution and forfeit three residential properties and three vehicles. Fordham aided his wife, Joy Jackson and others with MMS to fraudulently promise to help homeowners avoid foreclosure by convincing them to put title to their homes in the names of straw buyers for a year, during which time MMS promised to improve the homeowners' credit ratings and help them obtain more favorable mortgages. Using the properties, the conspirators applied for mortgages to extract the maximum available equity from the homes and submitted fraudulent loan applications to lenders to obtain inflated loans on the properties. Fordham also served as straw buyer on at least six properties. Nine other defendants have pleaded guilty in this case, including Jackson and McCall.

Prosecutors in New York City have indicted 13 individuals and a mortgage origination company for allegedly perpetrating more than $100 million in mortgage fraud over four years in the metropolitan area. According to Manhattan district attorney Robert M. Morgenthau, AFG Financial Group, Aaron Hand, Eugene Culbreath, Eric Shields, Matthew McDermott, Marc Zirogiannis, Kenneth Law, Kathleen Scanlon, Jeffrey Phelan, Jerry Strklja, Marilyn Mateo, Darlita Bostic, Allyson Hinds and Rajmohan Autar have been charged. In addition, 12 individuals have already waived indictment and pleaded guilty to felonies relating to their participation in the mortgage fraud scheme. According to the indictment, AFG Financial Group, along with a network of co-conspirators and accomplices, allegedly located distressed residential real estate properties in New York City and surrounding counties and then schemed to steal millions of dollars from lending banks in Manhattan and elsewhere using sham sales of those properties. The conspirators, who were unavailable for comment, are alleged to have caused the banks to front millions of dollars to finance purchases of the properties. They then allegedly walked away with most of the cash, leaving behind over-valued properties and worthless mortgage papers.

Mortgage fraud-related Suspicious Activity Reports referred to law enforcement increased 36% to 63,713 during 2008, compared to 46,717 reports in 2007, according to the Federal Bureau of Investigation's 2008 Mortgage Fraud Report. While the total dollar loss attributed to mortgage fraud is unknown, financial institutions reported losses of at least $1.4 billion, an increase of 83.4% from 2007. The report showed that more than 3.1 million foreclosure filings were reported on approximately 2.3 million properties nationally during 2008, up 81% from 2007 and 225% from 2006. As of 2008, the Western region of the U.S. had the most pending FBI mortgage fraud-related investigations. According to the FBI's report, the top 10 mortgage fraud states for 2008 were California, Illinois, Texas, Georgia, Ohio, Colorado, Maryland, Florida, Missouri and New York. Rhode Island, Massachusetts, Pennsylvania and the District of Columbia were newly identified as having significant mortgage fraud problems.

Jonathan Boxman, an owner and operator of New York-based real estate title insurance companies, was charged in federal court in Brooklyn with defrauding his companies' clients of more than $1.7 million. According to Benton J. Campbell, U.S. attorney for the Eastern District of New York, Mr. Boxman — who was unavailable for comment — controlled a real estate title insurance company in New York and other title abstract companies. Through his companies and bank accounts, Mr. Boxman received fees for recording mortgages and deeds, which, in turn, he was supposed to remit to the county where the deed or mortgage was recorded. However, instead of paying the fees to the counties, he allegedly transferred the money to accounts he controlled and used it to pay his companies' operating expenses and to cover thefts from prior victims of his scheme. As a result of his alleged scheme, several mortgages and deeds were never recorded.

Dyck-O'Neal of Arlington, Texas, a national debt collection agency, has been slapped with a cease and desist order by regulators in Georgia for engaging in loan brokering/lending activities without a license or obtaining the proper exemption. At press time the company had not returned a telephone call about the matter. Among its many services, Dyck-O'Neal purchases and serves as a collection agent on first and second mortgage liens.

After being convicted of 51 counts of conspiracy, fraud and money laundering in connection with a mortgage fraud scheme, Harold Stafford of Sumner County, Tenn., has been sentenced to eight years in prison, followed by three years of supervised release. His co-defendants, Miles Jackson Black and Jeffrey Dunn Hathcock, also from Sumner County, were each sentenced to a year and a day in prison, followed by five years of supervised release. All three defendants were ordered to jointly pay $1 million in restitution and a special assessment of $5,100. According to the U.S. attorney's office for the Middle District of Tennessee, Stafford engaged in a scheme that involved the purchase of 22 luxury homes in Hendersonville, Gallatin and Goodlettsville through unqualified straw buyers. Stafford, Black and Hathcock caused the submission of false mortgage loan applications to lenders that overstated the straw buyers' income, falsely stated that the homes would be the straw buyers' primary residences and failed to disclose other recent home purchases by the same straw buyers. All of these mortgage loans ended in default and foreclosure, resulting in losses to mortgage lenders, after foreclosure, totaling $2,214,700.

Beazer Homes USA Inc., Atlanta, has agreed to pay the United States $5 million, plus contingent payments of up to $48 million to be shared with victimized private homeowners, to resolve allegations that it and Beazer Mortgage Corp. were involved in fraudulent mortgage origination activities in connection with federally insured mortgages. The settlement resolves the following allegations: that, when Beazer Mortgage Corp. made Federal Housing Administration-insured mortgage loans for homes built by Beazer Homes, the companies fraudulently and improperly required purchasers to pay interest discount points at closing but then kept the cash and failed to reduce interest rates; that it provided cash gifts to home purchasers through certain charities so purchasers could come up with minimum required down payments, with assurances the gifts would not have to be repaid, and then increased home purchase prices to offset the amount of the gifts; that it obscured which of its branches made defaulting loans to avoid FHA detection of excessive default rates; and that it ignored stated income requirements in making loans to unqualified purchasers. Beazer Homes operates in at least 21 states.

After pleading guilty to wire fraud and money laundering charges in September 2008 in connection to organizing a large mortgage fraud scheme, Ronald Luczak of Cape Coral, Fla., has been sentenced to 22 years in federal prison and ordered to pay $5.9 million in restitution to his victims. According to court documents, between September 2005 and December 2006, Luczak and his company obtained more than $30 million worth of mortgages on at least 37 Cape Coral properties. His company recruited 33 straw buyers and reported on the mortgage applications that the straw buyers were purchasing the properties and falsely inflated the properties' values, fraudulently reported the purported buyers' incomes and occupations, provided false schedules of real estate and assets supposedly owned by the buyers and falsely stated that the buyers intended to use the properties for their primary residences. Luczak and the company received more than $5.8 million from the scheme. Luczak's wife, Lisa Luczak and Sandra Mainardi, a New Jersey loan processor, previously were sentenced to 46 months each for their part in the scheme.

Six people have been charged in three separate, unrelated mortgage fraud cases in New Jersey, including two women accused of spearheading a conspiracy to use stolen identities to obtain more than $1 million in unauthorized mortgages, lines of credit and credit cards. State prosecutors indicted Yi Feng Reid, Yu Jane Chen, George Liu and Ji Gang Chen, accusing them of scheming to use the identities of other people to obtain mortgages and other types of loans. In another unrelated indictment, commercial loan broker Ramon Coscolluela was charged with allegedly falsifying five loan applications submitted to Commerce Bank in 2007 and 2008 on behalf of clients who allegedly paid him fees ranging from $1,000 to $6,000. In a third mortgage fraud indictment, Terrance Givens was charged with allegedly lying about his income and employment history on a mortgage application in 2005. The six defendants were unavailable for comment.

Pennsylvania Governor Edward G. Rendell signed a pair of bills to combat mortgage fraud by strengthening communication between homeowners and their lenders and encouraging employees at mortgage companies to report illegal activity. "These bills will provide increased protection for Pennsylvania consumers shopping for a mortgage or refinancing their homes," said Governor Rendell. "They represent a critical step forward in our strategy to combat mortgage lending fraud and abuse in Pennsylvania." The first law, Senate Bill 170, will prohibit a mortgage broker or originator from being the sole recipient of communications from lenders. This will help ensure that consumers receive monthly statements and other notices intended for them by their lenders. The second measure, House Bill 985, will shield mortgage company employees who report illegal activity or take part in an investigation from retaliation through reduced salaries, termination or other actions taken by their employer. Both bills take effect in 60 days.

Alshawntus Beck of Plainfield, Ill., Michelle Parker, Steven Corbett, Kevin Keller, Jimmie D. Johnson and Otis Robinson III, all of Chicago, were charged with allegedly engaging in a $3 million mortgage fraud scheme in the Chicago area. According to Patrick J. Fitzgerald, U.S. attorney for the Northern District of Illinois, the indictment alleges that between February and December 2006, Mr. Beck operated three companies that purported to be in the business of buying, repairing and reselling real estate. Through his companies and with the alleged help of the other defendants, Mr. Beck allegedly purchased several Chicago properties through fraudulent means, including recruiting straw buyers, submitting loan applications and documents with false and fraudulent information and creating false real estate appraisals. The indictment seeks forfeiture of $3 million from the defendants. Arrest warrants were issued for all six defendants, who were unavailable for comment. They will be ordered to appear for arraignment at a later date.

The U.S. Supreme Court has ruled state attorney generals have the right to bring judicial enforcement actions against nationally chartered banks. However, the court also ruled, in the case Cuomo v. Clearing House, that they do not have the right to issue subpoenas for information. The case began when then-New York Attorney General Eliot Spitzer asked a number of national banks to provide nonpublic information about their lending practices as it applied to fair lending laws. The case was pursued by his successor, former Housing and Urban Development secretary Andrew Cuomo. The Office of the Comptroller of the Currency opposed the move, along with the Clearing House Association. The ruling overturns in part two lower court decisions in favor of OCC. In a statement, the Council of State Bank Supervisors said "Statements that state enforcement is an inconsistent 'patchwork quilt' are unfounded and were effectively deemed unconvincing by the Court's decision today. State law enforcement authorities work in concert with officials from other agencies and states to bring enforcement actions that protect consumers." John Cooney, a partner at the law firm Venable LLC and former assistant solicitor general, said "The decision means that national banks will be subject to a greater risk of investigations and enforcement actions by State Attorneys General, unless they can persuade Congress to overturn the decision and grant the OCC express authority to preempt the states from applying their own fair lending and consumer protection statutes to national banks."

An Ohio man has been charged with mail fraud in connection with a scheme to fraudulently obtain mortgage loans. According to William J. Edwards, U.S. attorney for the Northern District of Ohio, from August 2003 through January 2005, Paul R. Tomko of Middleburg Heights, among others, allegedly executed a scheme to defraud lenders in connection with 12 mortgage loans totaling nearly $1.2 million on properties located in the Cleveland area. Mr. Tomko, who could not be reached for comment, also allegedly caused fraudulent loan applications to be processed through mortgage brokers. He's also alleged to have used straw buyers to purchase properties and to obtain financing in their names and cause fraudulent appraisals to be prepared that artificially inflated the properties' true values. The loan application packages that were submitted to the lenders allegedly included false and fraudulent documentation and information. It is further alleged that the lenders sustained significant losses as these mortgage loans went into default and the properties were sold through foreclosure.

Forty-one defendants, including LaSalle Title Co., are facing federal charges relating to various mortgage fraud schemes in five separate cases in Chicago. In some of the schemes, the defendants face charges that they allegedly falsely inflated the values of dilapidated homes in urban areas. In other schemes, defendants are charged with deals involving million-dollar condominiums in a Chicago high-rise and homes in affluent suburbs. According to Patrick J. Fitzgerald, U.S. attorney for the Northern District of Illinois, 37 individuals and four businesses, including LaSalle, which closed on allegedly fraudulent loans, are facing charges relating to five mortgage fraud cases involving more than $48 million in fraudulently obtained mortgages in the Chicago area, including two in the suburbs of Wheaton and Glenview. The various lending companies suffered millions of dollars in losses after the loans went into default and the properties were foreclosed upon. No one from LaSalle could be reached for comment.

A former National Football League and University of Georgia football player has been charged with fraud and money laundering in connection with his real estate ventures. According to Edmund A. Booth, Jr., U.S. attorney for the Southern District of Georgia, Arthur James Marshall, Jr., has been charged with eight counts of defrauding three banks in obtaining loans for seven different properties in Columbia and Richmond Counties. The indictment also charges Mr. Marshall with two counts of mail fraud for deceiving a mortgage lender and a homebuyer regarding the sale of two different properties. The indictment further charges Marshall with 11 counts of money laundering involving over a million dollars that he obtained from those fraudulent transactions. Mr. Marshall played in the NFL for five years as a wide receiver with the Denver Broncos and New York Giants and played at Georgia from 1988 to 1991. An initial appearance on these charges has not yet been scheduled. Mr. Marshall was unavailable for comment.

Taylor, Bean & Whitaker Mortgage Corp., Ocala, Fla., will pay $9 million to settle a dispute with 13 states and Washington, D.C., over how the wholesale lender handled certain nontraditional mortgages. Taylor, Bean, which is awaiting regulatory approval to buy Colonial BancGroup Inc. in Montgomery, Ala., also agreed to modify loans for certain customers and to hire an independent firm to review nontraditional mortgages originated in 2006 and 2007. The settlement resolves claims that Taylor, Bean altered applicants' incomes and assets to provide nontraditional mortgages. The mortgage lender did not admit wrongdoing as part of the settlement, which was reached with regulators in Arizona, Florida, Georgia, Idaho, Illinois, Louisiana, Maryland, Massachusetts, Mississippi, New Jersey, North Carolina, Pennsylvania, and Vermont.

After pleading guilty to carrying out a mortgage fraud scheme involving three San Antonio and Spring Branch, Texas, residential properties, three financial institutions and more than $1 million in foreseeable losses, Fred DeGuzman of San Antonio, Texas, was sentenced to 75 months in federal prison, followed by five years of supervised release and ordered to pay $1.67 million in restitution. In February, Fred's wife, Veronica DeGuzman, was sentenced to 75 months in federal prison after pleading guilty to the same scheme. Fred DeGuzman, using an alias, and Veronica DeGuzman contacted individual sellers of residential property and entered into agreements to purchase the property for an inflated price, with the excess of the stated price over the actual sales price being returned to a corporation owned and controlled by the defendants. Using the alias, as well as falsified employment and income information, Fred and Veronica DeGuzman applied for and obtained 100% financing. After one or two mortgage payments, the mortgage went into default causing losses to the lenders.

A federal jury found Rosario Divins of San Antonio, Texas, guilty of engaging in a fraudulent foreclosure prevention scheme. According to John E. Murphy, U.S. attorney for the Western District of Texas, testimony during the three-day trial revealed that Divins illegally collected more than $100,000 in cash from individuals in desperate financial situations who responded to her mailing offering to stop their residential foreclosures. Divins continued to implement her scheme despite three separate sanctions from the U.S. Bankruptcy Court for the Western District of Texas ordering her to stop misrepresenting herself and making false promises to her clients. Before the hearing adjourned, U.S. District Judge Fred Biery revoked Divins' personal recognizance bond and ordered that she be taken into custody until posting a $100,000 bond. Sentencing is scheduled for Sept. 11.