Compliance

After pleading guilty to facilitating the fraudulent sale of seven residential properties through straw buyers, U.S. District Court Judge Marcia Cooke has sentenced Jose G. Martin to 65 months in federal prison, followed by three years of supervised release. Judge Cooke also ordered a restitution hearing to determine the identity of the victims to be paid by Martin in connection with the $3.2 million in losses that resulted from his participation in the scheme. According to R. Alexander Acosta, U.S. attorney for the Southern District of Florida, Martin was arrested in January 2009 for his involvement in a mortgage fraud scheme that resulted in more than $6.6 million in fraudulent loans and pleaded guilty in April. At closings, Martin submitted fraudulent invoices for construction work on these properties and received hundreds of thousands of dollars as payment for construction work that was never performed. Martin then distributed these proceeds to himself, the straw buyers and other co-conspirators. After closings, Martin and the straw buyers failed to make payments on the mortgages to the victim lenders and the properties went into foreclosure. In one instance, Martin flipped a property in Coral Gables, Fla., three times in two years, more than doubling the price of the property to $1.2 million from $550,000. In the course of the Coral Gables property flips, Martin diverted to himself $450,000 for construction work purportedly performed on this property. In addition, Martin paid off three straw buyers of this property, none of whom ever intended to live in the property or pay the mortgages. Ultimately, the Coral Gables property went into foreclosure, resulting in significant losses to the lender.

Maria Sanchez, a real estate agent and loan officer from El Monte, Calif., was found guilty of fraud and money laundering charges for scheming with her sister to falsify home loan applications. The evidence presented during Maria's trial showed she submitted loan packages to purchase residential real estate in the names of family members. Those applications contained false statements and forged signatures. When the loans were funded, Maria fraudulently obtained more than $1 million in loan proceeds from financial institutions and mortgage lenders. She financially benefited from this scheme by flipping one of the properties, as well as collecting points, fees and commissions from the loan transactions. In three of the deals, Maria's sister Beatriz Sanchez, Los Angeles, was identified as the buyer of the property. Beatriz also has pleaded guilty, specifically to charges that she filed false documents with the IRS. Beatriz is scheduled for sentencing on Aug. 17. Maria is scheduled for sentencing on September 10.

The Federal Trade Commission is seeking public comments on how it should address foreclosure and loan modification scams and whether it needs to engage in further rule making with regard to unfair and deceptive mortgage lending and servicing practices. FTC has taken legal actions to stop several foreclosure rescue scams where consumers have paid fees up-front for bonus services. The consumer protection agency is considering drafting regulations that would ban advance fees for loan modification and foreclosure rescue services. The comment period ends July 15. In a separate "Mortgage Act and Practices Rulemaking," the FTC is soliciting comments on whether it needs to issue regulations to stop deceptive practices dealing with mortgage advertising and marketing, loan underwriting and terms, appraisals and servicing. "The FTC is particularly interested in receiving comments about mortgage servicing," the agency said. The advance notice of proposal rulemaking specially asks if FTC should prohibit or restrict servicers from charging fees that are not authorized under the mortgage contract or servicing agreement, such as late fees. Or charging "estimated" attorney fees or other fees for services not rendered. The comment period ends July 30.

Thirteen New York state residents have been charged with conducting a subprime mortgage fraud scheme involving loans on residential properties in Long Island and the New York City area, totaling more than $10 million. The defendants are: Micah Meyers, Stephen Caputo, Dawn Hughes, Fnu Lnu, Jakob Gearwar, Brian Urraro, Michael Didio, Daniel Hampton, Jennifer Moschitta, Victor Avendano, Adrian Avendano, Janet McGuinness and Liam Leavey. According to the indictment, from 2005 through 2007, the defendants — many of whom were worked at Bridgewater Funding, an Islip-based brokerage firm — targeted residential properties in Long Island and the New York City area that could be flipped or the homeowners were facing foreclosure. Bridgewater says the defendants are former employees who have not worked with the company for three years. The defendants were unavailable for comment. The defendants allegedly convinced troubled homeowners that selling their properties to the defendants would pay off their debts and "save" their homes. To purchase the properties, the defendants allegedly submitted mortgage loan applications that contained false information. The loans exceeded the actual purchase price of the property, producing a "spread" from which the defendants profited.

Interthinx has integrated its fraud prevention system with MortgageDashboard's loan origination system. The integration enables MortgageDashboard to offer customers an interface with automatic screening for potential fraudulent activity, according to the Agoura Hills, Calif.-based company. BenchMark Mortgage was recently introduced to MortgageDashboard's expanded loan origination system.

The Department of Housing and Urban Development issued guidance that opens the door for FHA-approved lenders to provide short-term loans — with restrictions — to borrowers who are eligible for the $8,000 first-time home buyer tax credit. Borrowers must still come up with the required minimum 3.5% down payment using their own funds. But after that, they can use the short-term liens to increase their down payments, cover their closing costs or buy-down their mortgage rate. Calling the tax credit advance "another step towards accelerating the housing market," HUD secretary Shaun Donovan told the National Association of Home Builders' annual spring board meeting in Washington that the initiative is a "real win for everyone." The NAHB estimates the advance will lead to 160,000 more sales — 101,000 to first-time buyers and 59,000 to move-up buyers who are selling their current residences to first-timers. Tax credit loans made by state and local housing finance agencies, government agencies and certain nonprofit groups can be used to cover the minimum 3.5%. However, non-profits that receive fees from sellers cannot provide downpayment assistance under this program. HUD didn't want to do anything that would allow "these seller-funded schemes back in," a senior HUD official said. The department has issued a mortgagee letter (2009-15) with guidance on acceptable interest rates and fees. "We are putting in place the necessary safeguards and consumer protections, and if monitored the right way, tax credit loans can be used efficiently and safely," secretary Donovan said.

A Detroit man who obtained numerous fraudulent mortgage loans, pleaded guilty before Judge Julian Abele Cook, Jr., to related fraud and conspiracy charges. According to Terrence Berg, U.S. Attorney for the Eastern District of Michigan, Myron L. Hooker conspired with others to obtain money from lending institutions, banks and individuals through fraudulent means. Hooker obtained fraudulent mortgage loans on numerous properties in the Detroit metropolitan area and arranged to have the illegal profits from those loans split between himself and his co-conspirators. Beginning in January 2003, Hooker orchestrated the fraud by coordinating the activities of loan officers, straw buyers, collusive sellers, real estate appraisers and closing agents. He obtained falsely inflated appraisals on real estate and paid straw buyers to act as purchasers of the property. To bolster the straw buyer's creditworthiness, he provided false income and asset documentation. Relying on the falsely inflated appraisals and fraudulent documentation, lenders approved the loans, most of which subsequently went into default, leaving them with losses in excess of $1 million. Sentencing is set for Aug. 20.

A trio of men have pleaded guilty to charges related to a $12.6 million mortgage fraud case involving 25 upscale residential properties in Missouri. Steven M. Salas of Hacienda Heights, Calif.; James F. Simpson of Lee's Summit, Mo.; and Willie Charles Cadenhead of Grandview, Mo., are among nine of 17 indicted defendants who have pleaded guilty to a scheme to buy and sell 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. According to the U.S. attorney's office for the Western District of Missouri, in the scheme, buyers created shell companies for the purpose of receiving kickbacks from Emerick (who pleaded guilty in April) of up to $125,000 on each house. During the course of the conspiracy, mortgage lenders approved loans for 25 homes totaling more than $12.6 million. From that total, buyers received approximately $2.3 million without the lenders' knowledge. Sentencing for the defendants will be scheduled after the U.S. Probation Office completes a pre-sentence investigation.

Milton H. Ohlsen III, of St. Louis, pleaded guilty before U.S. District Judge Henry Autrey to bank fraud after overstating his income on his home mortgage application. In 2000, Ohlsen originally financed his North Ballas Road residence with two loans totaling $302,000. In 2002, Olsen refinanced with Merrill Lynch Corp. for $307,000, and in 2006 obtained another loan from Merrill Lynch for $150,000 for the same home. In 2007, Olsen again refinanced the home with two loans, one for $470,000 from Countrywide and $175,000 from Guaranty Bank, which paid off the previous Merrill Lynch loans. On both of the June 2007 loans Ohlsen falsified the loan applications to Countrywide and Guaranty Bank, stating that his monthly income was $15,000, when in fact it was substantially less. In August 2007, Countrywide assumed the total line of credit from Guaranty Bank. Shortly after, Ohlsen became delinquent in his monthly payments on the original Countrywide and Guaranty loans. In May 2008 Ohlsen was in default on these loans, and in June 2008, he filed bankruptcy. Separately, Ohlsen also pleaded guilty to an illegal firearms charge. Sentencing is scheduled for August 11.

A federal jury found Richard N. Garries of Newport News, Va., guilty of all 24 charges against him related to an elaborate mortgage fraud scheme. According Dana J. Boente, U.S. attorney for the Eastern District of Virginia, Garries conspired with others to make money through the flipping of residential properties. He brought in buyers through false promises that the properties had been renovated, renters had been arranged for the properties, buyers would not have to spend their own funds and that buyers would be provided with cash back at closing. To secure mortgage loans for buyers, Garries inflated the buyers' income on applications and provided them with money to make it appear they had more funds available to qualify for a loan. At the time of the offense, Garries was on probation from a previous federal conviction for wire fraud for which he received a 25-month sentence. Following his release, Garries made numerous false statements to his probation officer concealing income and assets while on probation. Sentencing is scheduled for late summer.

Dominick Devito has been sentenced to 51 months in prison and ordered to forfeit $1.4 million for mortgage fraud and other charges. According to the U.S. attorney's office for the Southern District of New York, Devito was the leader of a fraudulent real estate investment scheme that purchased multimillion-dollar residential properties around Westchester County , N.Y., from January 2002 through November 2004 and used false and misleading information to obtain loans from banks and other lenders. Devito identified properties for sale, orchestrated the purchase of the properties, and performed construction work at the properties. Devito's co-defendant John Liscio was sentenced in March to 12 months in prison and three years of supervised release and ordered to pay $50,000 in restitution. Devito's other co-defendant, Robert Didonato, was sentenced in April to 18 months in prison and three years of supervised release and ordered to pay $18,000 in restitution and to forfeit $112,000. The last remaining defendant, Louis Cordasco, Jr., is scheduled for sentencing on May 27.

The Department of Housing and Urban Development has kicked 102 lenders out of the Federal Housing Administration single-family program for various violations and the new housing secretary is promising to get tough on lenders that do not meet the highest standards of conduct. "We expect that when they deal with an FHA-approved lender, they're dealing with a lender they can trust," HUD secretary Shaun Donovan said. In one action, HUD's Mortgagee Review Board suspended Hogar Mortgage and Financial Services from making FHA loans for five years and imposed a $151,000 civil money penalty on the Montvale, N.J. lender. The company could not be reached for comment. The Mortgagee Board determined that Hogar committed serious violations of FHA underwriting requirements. Prior to its suspension in late January, the New Jersey lender had originated 680 FHA loans over the previous two years with 19 defaulting or resulting in a claim. The average FHA default and claim rate is 4.43%, according to the FHA's Neighborhood Watch early warning system. The housing bill (S. 896) that President Obama signed on Thursday imposes stricter reviews of lenders seeking to become FHA-approved lenders. It allows HUD to levy CMP against non-approved lenders participating in FHA originations. The new law requires all FHA lenders to use their official names on advertisements as a way to deter and detect deceptive advertising.

President Barack Obama has signed two housing bills that will provide relief for troubled homeowners that need to refinance, and will crack down on mortgage fraud. The Helping Families Save Their Homes Act addresses the "administrative and technical hurdles" that make it difficult for families with underwater mortgages to use the Hope for Homeowners program and refinance into Federal Housing Administration loans, according to the President. "This bill removes those hurdles, getting folks into sustainable and affordable mortgages, and more importantly, keeping them in their homes," he said at a White House signing ceremony. The bill (S. 896) also shields mortgage servicers that modify loans from investor lawsuits. The President also praised the mortgage fraud bill (S. 386), which doubles the resources of the FBI to pursue mortgage fraud and other financial crimes. He noted the bill expands the federal bank fraud and false claims statutes to cover independent mortgage companies and mortgage brokers. "It expands the Department of Justice's authority to prosecute fraud that takes place in many of the private institutions not covered under current federal bank fraud criminal statutes - institutions where more than half of all subprime mortgages came from as recently as four years ago," Pres. Obama said.

Three South Florida residents and a real estate brokerage firm have been charged with participating in a mortgage fraud scheme designed to launder drug money. Garry Souffrant, his wife, Yvonne Souffrant, his brother, Gamaliel Souffrant and Progressive Real Estate of Broward Inc., have been charged in a 59 count indictment, according to the U.S. attorney's office for the Southern District of Florida. The indictment alleges that from 2002 to 2008, Garry Souffrant, Yvonne Souffrant and Gamaliel Souffrant used Progressive Real Estate of Broward to launder millions of dollars in drug proceeds through an extensive mortgage fraud scheme by allegedly assisting drug traffickers in purchasing homes and luxury automobiles, including a 2004 Rolls Royce Phantom. The defendants allegedly arranged for and/or acted as straw buyers on behalf of the drug traffickers, which allowed the traffickers to use their drug proceeds to purchase homes and lease automobiles while concealing the source of the income. The defendants also allegedly diverted several million dollars of mortgage loan proceeds to continue to fund the scheme and for their personal use. The defendants made their initial appearances in federal court on May 18 before Federal Magistrate Judge Ted E. Bandstra in Miami. Defendant Garry Souffrant was ordered detained pending trial. The court set bond for defendants Yvonne Souffrant and Gamaliel Souffrant. All three individuals could not be reached for comment and all phone numbers listed for Progressive Real Estate of Broward have been disconnected.

Issues that arose from the North Carolina Office of the Commissioner of Banks' examination of 2007 originations by a mortgage unit that Beazer Homes shuttered last year have been settled. Under the settlement agreement, Beazer Mortgage consented, without admitting the alleged violations, to the entry of a consent order which provides approximately $2.5 million in restitution to certain borrowers in respect of the alleged violations. This amount was included in the approximately $13 million of expense Beazer previously disclosed it had recognized in the quarter ended March 31 for estimated payments related to governmental investigations, including those involving the unit. Beazer Mortgage voluntarily ceased operations in February 2008. Beazer also has had several related discussions with the U.S. Attorney for the Western District of North Carolina to negotiate a resolution of its separate investigation into Beazer Mortgage issues. The negotiations with the U.S. Attorney are continuing and Beazer said the two parties have not reached an agreement yet. "There can be no assurance that the company can conclude an agreement with the U.S. Attorney on financial or non-financial terms that are mutually acceptable," said the homebuilder in a press release.

The president and majority owner of US Mortgage Corp. and its CU National unit is preparing to plead guilty to fraud and conspiracy charges relating to the transfer of as much as $160 million of credit union mortgages being serviced by the company for Fannie Mae, according to a report in Credit Union Journal. A hearing in the case had been scheduled for May 6 when Michael McGrath was expected to plead guilty to the charges, several sources involved in the case told CUJ, a sister publication to National Mortgage News. The hearing was adjourned and is expected to be rescheduled over the next few weeks. McGrath, whose family controlled the Pine Brook, N.J., mortgage company, allegedly posed as an officer of dozens of credit unions and sold the mortgages to Fannie Mae without their knowledge and without passing on the funds. Several other US Mortgage executives are reportedly in plea negotiations with federal prosecutors. Lawyers for McGrath did not return phone calls seeking comment. The scheme started to unravel when credit union executives inquired about their mortgages, forcing the company to file for bankruptcy in February. Separately, Fannie Mae, which is being sued by the credit unions, has refused to return the mortgages, claiming they have no proof that McGrath was not acting on their behalf when he signed documents transferring the mortgages to Fannie Mae.

The House approved final passage of the Fraud Enforcement and Recovery Act, which will increase the resources of the Federal Bureau of Investigation and other law enforcement agencies to pursue mortgage fraud cases and other white collar crimes. The bill (S. 386) also expands the federal bank fraud and false claims statutes to cover independent mortgage companies and mortgage brokers. Senate Judiciary Committee chairman Patrick Leahy, D-Vt., said the bill will "rebuild" the nation's fraud enforcement capacity and authorizes $245 million over the next two years to hire more than 300 federal agents, 200 prosecutors and 200 forensic experts and support staff. He noted the FBI currently has fewer than 250 special agents assigned to financial fraud cases, which is only a quarter of the agents the FBI had at the time of the savings and loan crisis. "We need to restore our capacity to fight fraud in these hard economics times and this bill will do that," Sen. Leahy said. The fraud enforcement bill, which President Obama is expected to sign, also creates an independent commission appointed by Congress to investigate the causes of the current financial crisis.

Wilbur Ballesteros, a licensed real estate agent from Lanham, Md., pleaded guilty to his role in the Metropolitan Money Store mortgage fraud scheme that targeted D.C. area homeowners facing foreclosure. Ballesteros, the ninth defendant to plead guilty in this case, conspired with others at the Lanham-based MMS to fraudulently promise homeowners help with avoiding foreclosure and repairing their credit, according to prosecutors. The homeowners were directed to allow title to their homes to be put in straw buyers' names for a year, during which time MMS promised to improve the homeowners' credit ratings, help them obtain more favorable mortgages, and eventually return title to them. The homeowners were told that the equity withdrawn from the properties would be used to pay the mortgages and expenses on their homes — and to repair their credit. Using the homeowners' 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 in the straw buyers' names. At settlements, the conspirators imposed numerous fees for services that weren't performed, disclosed or explained to the homeowners. The conspirators also transferred the sale proceeds out of the escrow accounts into their own bank accounts for personal use. Ballesteros served as a closing agent on more than 60 straw buyer properties, securing title insurance, facilitating the real estate settlements and submitting fraudulent closing documentation to the lenders. He allegedly often altered or created multiple settlement statements for some properties to disburse the homeowners' proceeds to himself and MMS employees and was paid more than $100,000 in kickbacks. The total loss attributable to Ballesteros is said to be $16.9 million. Sentencing is scheduled for December.

A few days after the HUD secretary said he will implement a RESPA rule next year, industry groups headed straight to Capitol Hill in an attempt to block it. Seven financial services and settlement services providers groups are backing an amendment that would require HUD to withdraw the Real Estate Settlement Procedures Act regulation. These groups hope Sen. David Vitter, R-La., will offer the amendment to a credit card or a housing bill soon. If adopted, the Vitter amendment would block the RESPA rule and direct the Department of Housing and Urban Development to work with the Federal Reserve Board in developing compatible RESPA and Truth in Lending Act mortgage disclosures. The Vitter amendment is based on an amendment co-sponsored by Rep. Judy Biggert, R-Ill., that the House passed recently as part of a mortgage reform bill (H.R. 1728). HUD is "ignoring" congressional intent in moving ahead with the "flawed" RESPA rule, Rep. Biggert said. "HUD must suspend this rule and work with the Federal Reserve to create disclosures that work for consumers and provide the clearest and most concise information possible," she said. Meanwhile, 12 industry groups have appealed directly to HUD secretary Shaun Donovan to reverse his decision and suspend the RESPA reform, which is set to go into effect January 1, 2010.

A federal judge has found Clarence Lewis III guilty of defrauding residential mortgage lenders following a trial in Houston. Lewis held a mortgage broker license and operated Motown Mortgage Group in addition to holding a real estate broker license and operating Lewis & Associates Realtors. U.S. District Judge Lynn Hughes found Lewis guilty following a non-jury trial. Lewis and his co-conspirators used both companies to defraud residential mortgage lenders by recruiting individuals with good credit to apply for mortgage loans, many of whom were promised money for signing loan documents and attending the real estate closing at the title company where the mortgage notes were signed. Lewis further induced them to act as borrowers by stating he would ensure the notes were paid and that the property was managed until it could be resold. From January 2002 to January 2008, Lewis is alleged to have obtained more than $12 million in fraudulently obtained loans. Sentencing is scheduled for Aug. 17.