Compliance

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.

U.S. District Judge Michael M. Baylson sentenced Mahn Huu Doan, a.k.a. "Bruce Doan" of Philadelphia, to 151 months in prison, followed by three years of supervised release, for a mortgage fraud and identity theft scheme. According to Michael L. Levy, U.S. attorney for the Eastern District of Pennsylvania, Doan, a self-described real estate investor, would purchase houses, using false or borrowed identities, and using government insured loans, which he secured using fraudulent information. Doan's scheme also involved fraudulent appraisals that inflated the value of the houses for the purpose of reselling the properties for a higher profit. In addition to the prison term, Judge Baylson also ordered Doan to pay more than $5 million in restitution, a $5,000 fine and a $400 special assessment.

The First Magnus Litigation Trust and StoneWater Mortgage have entered into a settlement that will dismiss with prejudice claims against the mortgage company, its related companies, current officers, directors and employees. Under the terms of the agreement, both sides admitted no fault. No other terms were disclosed. The lead counsel for the First Magnus Litigation Trust, Jamie R. Welton, said in a statement "the settlement reached with StoneWater is a good result for the creditors and increases the assets from which they may be paid." Among those who are involved in the settlement is current StoneWater president Doug Lemke. However former First Magnus and/or StoneWater executives Gurpreet S. Jaggi, Thomas W. Sullivan Sr., Thomas W. Sullivan Jr., Clinton W. Gaylord, Gary K. Malis, Dominick Marchetti and Karl F.W. Young are still active defendants in the lawsuit. The suit alleges the seven men stripped $300 million from First Magnus, prior to its filing for bankruptcy, to start StoneWater, which they deny.

Homeowners and mortgage investors would not be the only ones with "skin in the game" if U.S. Housing Secretary Shaun Donovan's plan for revising the nation's consumer protection laws comes to pass. The secretary of the Department of Housing and Urban Development told the NAREE conference that "fairness" would be a "fundamental principle" that the Consumer Financial Protection Agency proposed by the Obama Administration would follow. Under that heading, he said, mortgage brokers would "owe a duty of best execution" to avoid conflicts of interest between themselves and their borrower clients. In addition, yield spread premiums would be "banned outright" and prepayment penalties would be restricted. And to reward responsible lending, loan originators would be required to retain a vested interest in the mortgages they write. Brokers would be paid "over time" based on the continued performance of the loans they originate rather than at the closing table. At the same time, lenders and mortgage aggregators would be compelled to retain a 5% interest in the loans so they would be rewarded for making good loans and penalized for making bad ones. The HUD secretary said neither he nor President Obama had any desire to prescribe exactly how brokers should be paid. But they "have to have a duty" to provide affordable products. "Putting a borrower in a mortgage (the broker) knew from day one that the borrower could not afford cannot be allowed to continue," he told the conference. "There has to be a chain there to tie some responsibility to the mortgage to ensure that this kind of situation doesn't ever happen again." None of what secretary Donovan proposed is new, but it is the first time the proposals have been adopted by a key government official.

The Obama Administration expects Fannie Mae and Freddie Mac to continue playing a key role in housing finance, the government sponsored enterprises' regulator said. While exactly what structure the GSEs will eventually take is still very much up in the air, James Lockhart, director of the recently minted Federal Housing Finance Agency, said they will be reconstituted with a well-defined mission that does not involve excessive risk taking. That's likely to mean the two companies, which are now in conservatorship and under FHFA's wing, will no longer be required to meet affordable housing goals that were prescribed by their old mission regulator, the Department of Housing and Urban Development. "In retrospect," Mr. Lockhart told attendees at the National Association of Real Estate Editors' annual real estate journalism conference in Washington that the goals "caused (Fannie Mae and Freddie Mac) to do things they shouldn't have done." The federal regulator also said the GSEs should operate under "clear demarcation" of their roles in relation to the private sector, and that any risk they undertake should be explicit, at actuarial cost and in conjunction with sound insurance principles. "Clearly," he said, "it was folly to allow the enterprises to legally leverage their mortgage credit by well over 100 to 1."

Net worth requirements for Federal Housing Administration lenders and brokers need to be raised, Mortgage Bankers Association David Kittle said at a House Financial Services subcommittee hearing. Higher requirements, he said, allow for lenders and brokers to be held accountable for their actions. "Specifically, we recommend that mortgage bankers should have a minimum corporate net worth of the greater of $500,000 or 1% of FHA loan volume up to a maximum of $1.5 million. Mortgage brokers should have a minimum corporate net worth of the greater of $150,000 or half of one percent of FHA loan volume up to the minimum for mortgage bankers. MBA supports mortgage bankers and brokers maintaining a bond sufficient to provide reasonable protection to consumers and taxpayers," Mr. Kittle's prepared testimony said. He added MBA supports a permanent increase in the FHA limit to $625,500, and in high-cost area, it should be raised to $729,750.

After pleading guilty to defrauding several mortgage lending companies, a couple from Oak Grove, Minn., has recently been sentenced. Michelle M. Niska has been sentenced to 36 months in prison and three years of supervised release. Robert G. Bock has been sentenced to 10 months of confinement in a halfway house and three years of supervised release. According to their respective plea agreements, Bock and Niska borrowed $593,740 and granted the lender a mortgage on their jointly owned home. Niska filed a document with the county recorder's office purporting to be a satisfaction of the mortgage the defendants had granted to the lender, even though the defendants had not paid off the loan. The couple then sold the home to a third party for $675,000 and admitted that they knew the title company that closed the home's sale should have used the third-party buyer's loan proceeds to pay off the loan, but instead allowed the title company to believe that the loan had been repaid. The defendants then pocketed proceeds from the sale, amounting to $510,000.

Ten people have been indicted in an alleged $3 million mortgage fraud scheme to scam lenders by recruiting straw buyers to purchase homes in Kansas and Missouri. According to Lanny Welch, U.S. attorney for the District of Kansas, Eric M. Rabicoff, Jason L. Rabicoff, Lucas R. Collier, Anthony E. Carollo, Deborah Saulmon, Bora Ly, Anthony "Gabe" Painton Jr., Kong Bun Ly, Rebecca Gelwix and Richard Ngek have been indicted for their alleged roles in the scheme. According to the indictment, in 2006 Eric Rabicoff allegedly devised a scam to defraud lenders by recruiting straw buyers to purchase homes that were for sale by owners. It was part of the alleged scheme to submit false information to lenders so that borrowers received loans for which they were not qualified. The conspirators allegedly submitted false information to lenders about borrowers' employment history, income and rent history and obtained more than $3 million in loans for borrowers who did not in fact qualify for the loans. The defendants were unavailable for comment.

A California law prohibiting home foreclosures for 90 days went into effect this week, but some residential servicers can earn an exemption if they can prove they are modifying loans. According to a report in The Orange County Register, several companies have already filed for an exemption. The state has 30 days to grant an exemption but during this time the servicer does not have to comply with the moratorium. Only mortgages originated between 2003 and 2007 are eligible. According to the California Foreclosure Prevention Bill, the law does not require a servicer to provide a modification to a borrower who is not willing or able to pay under the modification. According to the Register, it's unclear what "able to pay" means. California represents about 20% of all residential debt outstanding in the U.S.

Massachusetts attorney general Martha Coakley's office has entered into a judgment with Valerie Hanserd, an attorney from Brockton, Mass., resolving allegations of her role as a closing attorney in two companion lawsuits that both allege unfair practices with respect to mortgage brokering services. The first lawsuit involved Ms. Hanserd's closing of a loan allegedly obtained by using false and forged documents and the second lawsuit involved allegations relating to her participation in an unfair and deceptive foreclosure rescue scheme. Under the terms of the consent judgment, filed in Suffolk Superior Court, Hanserd must refrain from acting as a real estate closing attorney or title agent for seven years retroactive to April 27, 2007. In addition, Hanserd must pay $80,000 in restitution to victims of foreclosure rescue schemes as well as $35,000 in fees and penalties to the state. The settlement against Valerie Hanserd resolves allegations against her as the closing attorney in both cases.

Bankrupt subprime lender Fremont General Corp. of California agreed to pay $10 million to settle a lawsuit alleging that it engaged in unfair loan practices in Massachusetts. Fremont, once one of the largest B&C wholesalers in the U.S., also agreed not to foreclose on what the Massachusetts attorney general called "unfair loans." In total about 2,200 foreclosures may be prevented, for now. The payment includes $8 million in consumer relief, $1 million in civil penalties, and $1 million in attorneys' fees. In 2007 the state accused Fremont of engaging in predatory and unfair lending practices by funding mortgages to consumers who could not afford them. Fremont denied wrongdoing. Even though Fremont's depository is no longer in business, the holding company continues to trade on the "pink sheets."