Compliance

Mark Anthony McBride of East Point, Georgia, pleaded guilty in federal district court to obtaining millions of dollars in fraudulent mortgages and other loans and to a bankruptcy fraud designed to stay foreclosures on dozens of fraudulently obtained properties. According to the information presented in court, immediately after being released from prison in 2001, McBride began a mortgage fraud scheme that continued through 2002, when he had to report for service of another federal prison sentence. As soon as he was released from prison again in November 2006, McBride continued his scheme by completing fraudulent mortgage loans and other extensions of credit in his name, in his aliases, in a number of stolen identities, including those of his children and in the identities of other unqualified borrowers. These fraudulent loans continued until McBride was arrested in September 2008 for violating his supervised release. Dozens of banks and other funded fraudulent loans for McBride. McBride generated mortgage loan proceeds for himself using inflated valuations for properties, securing the loans and sharing those proceeds with his straw borrowers and other conspirators. He was able to retain proceeds from the frauds by filing eight bankruptcy cases in Georgia, Alabama and South Carolina. The last such fraudulent filing was a May 2008 petition in Atlanta, filed in a phony name and stolen Social Security Number. The petition falsely stated he had never filed bankruptcy in the past. Sentencing is scheduled for July 9 before U.S. District Judge Jack T. Camp.

Appraisal management companies have cornered nearly two-thirds of the single-family appraisal market and Rep. Paul Kanjorski, D-Pa., is concerned there is very little oversight of these entities. "We must establish oversight of appraisal management companies. They now touch 64% of written appraisals but are subject to little supervision," Rep. Kanjorski said. The high ranking member of the House Financial Services Committee said he is preparing a "comprehensive" appraisal reform amendment that he plans to offer when the committee meets to mark up a mortgage reform bill. The Appraisal Institute and other appraiser trade groups have warned the committee that the use of AMCs increases costs for consumers. The management firms rely on less experienced and less competent appraisers and keep "half the appraisal fee in most cases," Appraisal Institute president Jim Amorin testified. "One remedy is to direct that appraisal fees be clearly disclosed to borrowers and differentiated from the management or service fees on all relevant mortgage loan documents," Mr. Amorin said.

Appraisal management companies have cornered nearly two-thirds of the single-family appraisal market and Rep. Paul Kanjorski, D-Pa., is concerned there is very little oversight of these entities. "We must establish oversight of appraisal management companies. They now touch 64% of written appraisals but are subject to little supervision," Rep. Kanjorski said. The high ranking member of the House Financial Services Committee said he is preparing a "comprehensive" appraisal reform amendment that he plans to offer when the committee meets to mark up a mortgage reform bill. The Appraisal Institute and other appraiser trade groups have warned the committee that the use of AMCs increases costs for consumers. The management firms rely on less experienced and less competent appraisers and keep "half the appraisal fee in most cases," Appraisal Institute president Jim Amorin testified. "One remedy is to direct that appraisal fees be clearly disclosed to borrowers and differentiated from the management or service fees on all relevant mortgage loan documents," Mr. Amorin said.

Patrick M. Singletary, Robert D. Singletary and Peter J. Russo, all from Jacksonville, Florida, have been sentenced on charges related to a mortgage scheme to defraud the Federal Housing Administration of $2.5 million. Patrick Singletary was sentenced to 18 months in federal prison and ordered to forfeit $1 million. Robert Singletary and Peter Russo were each sentenced to serve one year in federal prison. Robert Singletary was ordered to forfeit $1 million and Russo was ordered to forfeit $500,000. All three defendants had pleaded guilty in October 2008. According to court documents, the defendants submitted false documentation to obtain FHA-insured loans for buyers of single-family properties in Jacksonville between 1997 and September 2004.

Lisa Lievanos of Fontana, Calif., has been convicted of charges related to her being a straw borrower in a mortgage fraud scheme that fraudulently collected more than $1 million in loan proceeds. Lievanos is the fourth defendant in this case. Angela Cotton, who ran a bogus title company, pleaded guilty and is scheduled for sentencing on June 15. Terral Toole pleaded guilty and is scheduled for sentencing on June 1. Miles Davis, a loan processor, pleaded guilty and was sentenced to three years of probation, including six months of home detention. The evidence presented at Lievanos' trial showed that Cotton found properties in Rancho Cucamonga and, with the assistance of real estate professionals and people such as Lievanos who agreed to sell their personal information, fraudulently "purchased" one of the properties and obtained a $635,000 loan. A second loan involved a refi of Lievanos' residence, which netted the defendants $526,500. In the loan application, Lievanos included false employment information, income information, occupancy declarations, and rental agreements relating to her financial condition. On the loan applications, the four defendants allegedly included false employment information. Cotton established fraudulent escrow companies to complete the fraudulent sale transactions. As a result of the scheme, banks suffered losses of nearly $2 million. U.S. District Judge Florence-Marie Cooper has scheduled sentencing for Lievanos for July 13.

With foreclosure rescue schemes and short sales scams on the rise, the Portland office of the FBI and the U.S. attorney's office for the District of Oregon are expanding their efforts to identify and prosecute mortgage fraud in the state by establishing special Internet and phone tip lines to handle reports of mortgage fraud. The Oregon Mortgage Fraud Working Group, which has been operating since 2007, will handle the investigations. The majority of the Oregon Mortgage Fraud Working Group investigators are working major cases involving multiple suspects, multiple borrowers and millions of dollars in fraudulent loans. The Oregon Mortgage Fraud Working Group also focuses on emerging crime trends that are associated with the growing tide of foreclosures, such as foreclosure rescue schemes and short sales. People are urged to report any mortgage fraud activity or information by visiting Portland FBI's website at http://portland.fbi.gov, calling the phone tip line at (503) 273-5813, or emailing mortgagefraudtips.portland@ic.fbi.gov.

Peter Affatati of Coral Springs, Fla., has been sentenced to 156 months in prison in federal court in West Palm Beach for his role in a multi-million dollar mortgage fraud scheme. Affatati was also ordered to pay restitution in the amount of $8.8 million. Affatati was charged with and pled guilty to orchestrating a $40 million mortgage fraud scheme that involved more than 50 residential mortgages, most of them in South Florida. Affatati used straw buyers to purchase the residential properties. Affatati used his title company to falsify the staw buyers' employment, income and asset information to qualify them for large mortgages from institutional lenders. Upon the funding of the mortgage, he diverted a large portion of the proceeds for his personal benefit. Affatati was also charged with defrauding a victim in North Carolina by selling to the victim fictitious securities in the amount of $390,000. The mortgage lenders suffered actual losses after the properties were foreclosed upon of more than $8 million.

Despite the pleas of mortgage bankers, the government sponsored agencies have no intention of lowering their guarantee fees, their representatives said at the Mortgage Bankers Association's National Secondary Market Conference in Chicago. "No," said Donald Bisenius, Freddie Mac's senior vice of single-family credit guarantee business, when asked by MBA chairman-elect Rob Story whether the GSEs are considering such a move. Thomas Lund, executive vice president of single-family mortgage business at Fannie Mae, said the current fee structure strikes a balance between providing liquidity to the mortgage market and protecting taxpayers from footing the bill for loans that go sour. Mr. Lund also pointed out that the guarantee fees charged by the GSEs are "still far below" those charged in the jumbo market by non-agency investors. Even though the overall credit profile of borrowers has improved, Mr. Bisenius told the meeting, the fees need to remain at their current levels because "the housing market is very, very fragile. Prices at best are flat, and still falling in many places. We need to balance against that risk." On a more positive note, the two GSE spokesmen also said that once their companies, which are in federal receivership, get up to speed on their purchase of conforming jumbo mortgages, the current 150 basis point spread in pricing "should shrink dramatically."

Mortgage brokers are staging a last-ditch lobbying effort to get Congress to block the implementation of a new appraisal code that applies to all loans sold to Fannie Mae and Freddie Mac. The new code, which goes into effect May 1, prohibits the government sponsored enterprises from purchasing mortgages if loan officers or mortgage brokers are involved in selecting appraisers or influencing the appraisal process. The National Association of Mortgage Brokers claims the GSE code will marginalize brokers and independent appraisers by encouraging major lenders to rely on "unregulated" appraisal management companies. "Please contact your Senators and Representatives today to urge them to stop or delay (for at least 12 months) the implementation of the Home Valuation Code of Conduct, which is de facto regulation, forced on Freddie Mac and Fannie Mae by New York Attorney General Andrew Cuomo," NAMB says in a "Call to Action" emailed to its members on April 16. "Please contact your legislators today at their in-district offices, as Congress currently is in recess." The appraisal management company model is "flawed," NAMB says, and it will produce "poor quality" appraisals at an increased cost to consumers.

Five Florida residents have been arrested for their alleged involvement in a criminal mortgage fraud operation that defrauded several financial institutions of $4.5 million. Emerio Lima, Inocencia Soto, Pedro Fornos and Josefa Herrera, all from Miami, and Stephen Zalka of Parkland, Fla., are facing charges of organized fraud, mortgage fraud and grand theft. They allegedly recruited straw buyers who lent their names and credit to purchase numerous properties. They were told that they wouldn't have to make any mortgage payments, since the properties would be flipped in a few months. The scheme also included a certified public accountant who allegedly provided falsified employment verification letters for the straw buyers. With the straw buyers lined up, HUD-1 statements with inflated sales prices were submitted to lenders for funding. The title agent, acting on behalf of the other co-conspirators, allegedly transferred the funds into a bank account of either a third party or a shell company controlled by one of the co-conspirators. The arrest affidavit identifies nine properties located in Miami-Dade, Broward, Lee and Charlotte counties, which were allegedly used by the defendants to facilitate their scheme. Most of the properties are now in foreclosure. The five defendants were unavailable for comment. According to the Attorney General's Office of Statewide Prosecution, the investigation is ongoing and additional arrests are expected.

The House Financial Services Committee is holding a hearing April 23 on a regulatory reform bill that would restrict nonprime mortgage lending and lender compensation. Committee chairman Barney Frank, D- Mass., originally wanted the committee to mark up and approve the bill (H.R. 1728) before Congress left April 6 for its two-week break. But the chairman agreed to postpone the markup due to objections by committee Republicans and industry groups. Now it appears the committee markup will be April 28 or April 29. The mortgage reform bill (H.R. 1728) requires lenders to retain 5% of the credit risk when they sell single-family loans that are not prime fixed-rate mortgages to investors. Lenders say the 5% is too high and they are looking for some middle on the risk retention issue. H.R. 1728 also restricts yield spread premiums and mortgage bankers are concerned the language is ambiguous and could restrict servicing release premiums.

Kamal J. Gregory of Centerville, Ohio, pleaded guilty in U.S. District Court to charges on an extensive mortgage fraud scheme affecting 210 residential properties, of which 205 are located in Montgomery County, Ohio. The scheme affected 63 investors and led to foreclosure against owners of more than 90% of the properties. Gregory admitted that, while working as a loan officer under between March 2002 and June 2008, he along with 11 other co-conspirators prepared and submitted mortgage loan application packages to lending institutions on behalf of purchasers/investors. The applications made fraudulent claims involving the income of the borrowers and values of the properties involved, most of which were dilapidated. The application packages artificially inflated the properties¹ worth above legitimate fair-market values. Gregory and his co-conspirators created the fraudulent loans as a way of making money for their own benefit. He admitted to participating in 46 separate fraudulent real estate closings. The net fraudulent loan amounts associated with these closings exceeded $4.2 million. Two of Gregory¹s co-conspirators, Julian M. Hickman and Robert Mitchell, have previously pleaded guilty to related charges and await sentencing.

The Senate is expected to vote on a bill next week to expand bank fraud statutes to cover independent mortgage companies and mortgage brokers for the first time.The new definitions for "financial institution" and "mortgage lending business" will ensure that mortgage brokers and mortgage companies are held fully accountable under the federal fraud laws, according to a summary of the bill (S. 386). The Senate Judiciary Committee approved the bill by unanimous vote on March 5. Senate Majority Leader Harry Reid, D-Nev., filed a cloture motion just before Congress left for its two-week spring break to counter any attempt to filibuster or block Senate consideration of the mortgage fraud bill when Congress returns next week. The Fraud Enforcement and Recovery Act also authorizes $165 million in appropriations to fund mortgage fraud investigations by the Justice Department, HUD inspector general and U.S. Secret Service.

After claiming for years that bankers were filing ever more suspicious activity reports in response to regulatory pressure, experts are attributing the latest spike to a dramatic rise in actual financial crime.The number of reports filed by depository institutions last year rose nearly 13% from a year earlier — the largest increase in three years — to 733,529, according to a report to be released next month by the Financial Crimes Enforcement Network. It also was the 12th consecutive year, since FinCen started keeping records in 1996, that SARs hit a new high. "When there are difficult economic times, financial fraud becomes the growth industry," Peter Djinis, a lawyer in Sarasota, Fla., and a former FinCen official told The American Banker. "Financial institutions are clearly paying more attention there. They are now being more liberal in reporting not just active fraud but attempted fraud." Until the financial crisis hit, suspicious activity reports were a top source of complaint from bankers, who called them overly burdensome and of little value to law enforcement officials. After lawmakers criticized regulators in 2004 for failure to enforce anti-laundering laws, the agencies put a new emphasis on SAR reporting. The result was a huge increase in filings.

U.S. District Judge William C. O'Kelley sentenced Andrew John Smith of Cleveland, Ga., to serve three and a half years in prison, followed by five years of supervised release on charges arising from a mortgage fraud scheme. The court also ordered Smith to pay restitution but has not yet set a final amount. According to the information presented in court, in early 2007, Smith was employed as a part-time loan officer at a Buford, Ga.-based mortgage firm when he originated a fraudulent loan for his own residence. An alleged co-conspirator not named in the indictment later recruited Smith to refinance loans with other lenders, as well as to sell foreclosed properties on which construction was not complete to unqualified straw borrowers funded by other lenders, according to court information. Smith's own loan for his residence had been included in the company's portfolio of nonperforming loans facing imminent foreclosure. In June 2008, Smith and his alleged co-conspirator were caught in an FBI sting after Smith had arranged for the sales price of a property to be inflated to $4 million from $2 million. Prior to his arrest, Smith submitted fraudulent documents to federally insured banks to arrange a $3.2 million purchase money mortgage loan to finance the purchase of the property. Smith then allegedly negotiated a side agreement with the sellers who were, unbeknownst to Smith, cooperating with the FBI, for a $2 million kickback to his shell company. Federal agents at the property arrested Smith during a subsequent meeting to negotiate his multi-million dollar kickback for the fraudulent deal. The property was sold for its true market value of $1.8 million immediately upon conclusion of the FBI's sting operation. The FBI's investigation is ongoing.

The Department of Justice is moving closer to forming a national mortgage fraud task force to investigate and prosecute real estate and mortgage related crimes, according to government officials familiar with the matter. The effort, if it comes to fruition, would involve state and local and federal prosecutors working together "to find trends and bring cases," said one government official talking on background. Presently, DOJ has a "working group" on mortgage fraud that is an informal effort and focuses more on mortgage issues and trends, as opposed to specific cases. David Fleck, who recently stepped down as deputy District Attorney in charge of real estate fraud for Los Angeles, said he has talked to DOJ about the task force, but noted that the agency has yet to make a final decision. (Once Lanny Breuer is confirmed by the Senate to head DOJ's criminal division a final decision on the task force is anticipated.) Speaking at SourceMedia's servicing show in Dallas this week, Mr. Fleck noted that Los Angeles has 20 detectives working on real estate fraud related investigations but added that, "We're just scratching the surface."

There now have been eight convictions in a Maryland case involving a fraud that falsely promised to help homeowners facing foreclosure keep their homes and repair their damaged credit. Kurt Fordham of Fort Washington, Md., pleaded guilty to charges in connection with the activities at Metropolitan Money Store, Lanham, Md. In May 2005, Joy Jackson, Fordham's wife, along with co-conspirator Jennifer McCall, incorporated MMS, which fraudulently promised to help troubled homeowners avoid foreclosure and repair their damaged credit. The homeowners were directed to allow title to their homes to be put in the names of third party purchasers for a year, during which time MMS promised to improve the homeowners' credit ratings and eventually return title to their homes to them. 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 straw buyers' names. At settlements, the conspirators imposed numerous fees and required seller contributions that were far in excess of industry standards and imposed fees for services that were not performed. They also transferred the sale proceeds out of the escrow accounts into the conspirators' business and personal bank accounts and converted a substantial portion of those funds to their personal use. In addition to directing straw buyers to participate in the scheme, Fordham served as straw buyer on at least six properties. As a result of this scheme, the total loss attributable to Fordham is $13.6 million. Fordham is the eighth defendant to plead guilty in this scheme. Sentencing for Fordham if scheduled for July 10. Jackson and McCall also have entered guilty pleas.

Federal and state authorities announced a new joint effort to stop scam artists who target troubled owners struggling to hold onto their homes. "If you prey on vulnerable homeowners," U.S. attorney general Eric Holder said at a press conference, "we will find you and we will punish you." As part of the initiative, the Treasury Department's Financial Crimes Enforcement Network has issued an advisory to help financial institutions spot questionable loan modification schemes and report that information to the authorities. FinCEN, working with other law enforcement agencies and regulators, will identify possible suspects for civil and criminal investigations. "We will shut down fraudulent companies more quickly than before," said Treasury secretary Timothy Geithner, vowing to target "companies that otherwise would have gone unnoticed under the radar." Calling perpetrators of fraudulent rescue schemes "bottom feeders," Federal Trade Commission chairman Jon Leibowitz said five new cases have been brought against companies who "kick people when they are down, sabotaging" their efforts to save their homes. Four of the cases name outfits which use "copy-cat names and logos" to try to trick homeowners into thinking they are working with legitimate government agencies, while the fifth calls itself the "Federal Loan Modification Center" even though it has no federal connection. The FTC also has sent warning letters to 71 additional possible scam artists who promise to stop foreclosures, save people's houses and claim a 97% success rate of doing so. Such companies "will promise" to do these things "but they don't," said Illinois attorney general Lisa Madigan. "All they do is take your money."

Tyler Cassity, the chief executive of Utah Financial Inc., and his wife, Olivia Cassity, have been charged with 18 felony counts for allegedly running a mortgage fraud scheme.According to the Utah Attorney General's Office, the Cassitys prepared their own appraisals using the name of a separate licensed appraiser and substituting photos of more lavish homes as part of those appraisals to inflate the value of the real estate described in those appraisals. They then allegedly used straw buyers to obtain loans far in excess of the true value of the properties. Equity was then allegedly skimmed from the properties in order to gain tax advantages and buy other properties. The alleged scheme may have netted several million dollars. The Attorney General's Office has asked a judge to freeze the assets of the defendants and is seeking criminal forfeiture of their business and their home in Salt Lake City. Prosecutors asked that bail be set at $500,000 for each defendant.

Tyler Cassity, the chief executive of Midvale, Utah-based Utah Financial Inc., and his wife, Olivia Cassity, have been charged with 18 felony counts for allegedly running a mortgage fraud scheme. According to the Utah Attorney General's Office, the Cassitys allegedly prepared their own appraisals using the name of a separate licensed appraiser and substituting photos of more lavish homes as part of those appraisals to inflate the value of the real estate described in those appraisals. They then allegedly used straw buyers to obtain loans far in excess of the true value of the properties. Equity was then allegedly skimmed from the properties in order to gain tax advantages and buy other properties. The alleged scheme may have netted several million dollars. The Attorney General's Office has asked a judge to freeze the assets of the defendants and is seeking criminal forfeiture of their business and their home in Salt Lake City. Prosecutors asked that bail be set at $500,000 for each defendant.