Compliance

The NAACP has filed separate class action claims against Wells Fargo Home Mortgage, and HSBC Mortgage, accusing the two of discriminatory lending policies that unfairly placed African American in higher cost subprime loans.The civil rights group claims credit-worthy African Americans were steered into subprime mortgages when they could have qualified for prime loans. Wells Fargo provided mortgage brokers with incentives to steer consumers into subprime loans, according to the NAACP, and did not undertake a "meaningful review" of applications to determine if the applicants would qualify for a prime loan. "It is time for these lenders to be held accountable. We look forward to forcing real change and real relief through this lawsuit," said NAACP president Benjamin Jealous. In a statement, Wells Fargo said, "We intend to vigorously defend these unfounded allegations. We are confident we will prevail." HSBC said it does not comment on pending litigation. "We stand by our fair lending and consumer protection practices," it said. The London-based HSBC acquired Household Finance and its Beneficial Finance subprime affiliate earlier in the decade. Prior to that HSBC was not a subprime lender.

Jack Ferm, a former radio talk show host in Las Vegas, was arrested on two counts of felony theft and related charges in connection with the operation of U.S. Justice Foundation, a mortgage rescue firm. Mr. Ferm is the president and owner of U.S. Justice Foundation, a document preparation business that allegedly misled customers into believing his service would stop ongoing foreclosures on their homes without the need to retain an attorney. His company website indicates he has a participated in successful litigation against numerous large corporations. The Nevada Attorney General's office received numerous complaints about alleged misrepresentations made by Mr. Ferm, including several clients who paid thousands of dollars to the U.S. Justice Foundation with no legal documents having been prepared or filed on their behalf. In many cases, Mr. Ferm required the victims to pay a monthly charge — in addition to the original retainer.

A lawsuit filed by the National Association of Home Builders to block implementation of a RESPA rule has been put on hold while the Department of Housing and Urban Development reconsiders its position on prohibiting builders from tying price discounts to the use of their affiliated mortgage companies."All aspects of the litigation are put on hold until HUD completes its renewed public comment process," a NAHB spokeswoman said. A U.S district court judge was scheduled to hear arguments April 3 in NAHB's suit to overturn the new "required use" provision in the Real Estate Settlement Procedures Act rule that the Bush administration issued shortly after the November elections. On March 6, HUD said it will delay the implementation date until July 16, while it solicits public comment on whether to "withdraw" the required use rule. "Proposing to withdraw this rule is the right thing to do so that home builders can offer consumers the best possible deal on the purchase of a new home. We are hopeful that HUD will do what is right for consumers and take final action to strike the rule later this year," NAHB chairman John Robson said.

Kara McIntosh of Bethesda, Maryland, pleaded guilty to mail fraud related to the fraudulent purchase of properties in Maryland and Washington, D.C. using false mortgage documents. According to the plea agreement, McIntosh, Timothy Reed and others recruited straw buyers to purchase houses. McIntosh knew the straw purchasers were not planning to live in the properties and did not qualify for the mortgages. Some of the straw buyers purchased multiple properties at the same time. To enable straw buyers to purchase the properties, McIntosh was paid to prepare fraudulent mortgage applications, which misrepresented the straw buyers' income and assets. McIntosh also received part of the fraudulently obtained mortgage funds. For example, at one closing, McIntosh falsely claimed $109,600 for "renovations" that her company purportedly performed. No such renovations ever occurred. Beginning in 2006, this scheme involved fraudulent loans worth more than $19 million. More than 10 individuals and banks were harmed. The loss amount foreseeable to McIntosh is between $2.5 million and $7 million. Many of the purchased properties have been foreclosed upon. U.S. District Judge J. Frederick Motz has not yet scheduled her sentencing. Her co-conspirator, Reed, pleaded guilty on Feb. 10 to the same offense. No date has been scheduled for his sentencing. To date, four defendants have pleaded guilty to their participation in this scheme.

A former loan processor who was based in Houston has pleaded guilty to mail and wire fraud conspiracy charges before U.S. District Judge Nancy F. Atlas. The processor, Babette Jammer, admitted to conspiring with others to defraud residential mortgage lenders by misstating facts relevant to the lending decisions. Jammer assisted loan officers at two Houston area mortgage brokerage firms in preparing fraudulent documents used to induce lenders to provide 100% financing for homes the borrowers falsely claimed were to be their primary residences. Jammer created false IRS documents, including W-2 forms and tax returns, which were provided to the lenders.

SigniaDocs, Houston, has integrated its electronic vault technology with Equifax's identity verification engine to address their respective users' interest in using secure automation to counter increasing ID fraud through means in line with new federal rules. The engine, which is called Equifax Secure's eIDverifier, verifies online mortgage applications and the company promises borrower identification that is compliant with the Federal Trade Commission's Fair and Accurate Credit Transactions Act red flag rules. The rules, which first went into effect in November 2008 and are set for full enforcement as of May 1, require companies to look out for and address potential indicators that may be signs of ID fraud. A February report by Javelin Strategy & Research, San Francisco, indicated that the number of identity fraud victims increased 22% to 9.9 million adults in the United States in 2008.

Central States Mortgage, Wauwatosa, Wisc., which provided residential origination services to more than 250 credit unions, shut its doors on Monday, the second closure of a major CU-related mortgage firm in as many months. CSM is owned by 25 credit unions and the Wisconsin Credit Union League. Central States originated $538 million in residential loans in 2008, compared to $707 million the year before. The lender has been embroiled in controversy over the past eight months - first with the firing of its CEO and founder Richard Jungen, then with a suit claiming Mr. Jungen defrauded it of $15 million through a secondary funding vehicle he owned called Interim Funding. (The alleged fraud took place while he was still managing Central States.) Members United Corporate FCU of Illinois, which provided a warehouse line of credit to Central States, is also preparing to write-off millions of dollars in loans to CSM. A message at the Central States switchboard this morning says the company has suspended operations. Mr. Jungen founded Central States in 1984, then sold a majority stake to the credit unions in 1997. He continued to head the operation until last July when he was fired.

Richard Shumway of Brewerton, NY, was sentenced in U.S. District Court in Burlington, Vermont, to 51 months of imprisonment followed by three years of supervised release following his guilty plea to a federal wire fraud charge. Chief U.S. District Judge William K. Sessions III also ordered that Shumway pay $1.34 million in restitution. Shumway skimmed a total of nearly $1 million from more than 200 loans he brokered while owning and operating TSC Funding, a South Burlington-based mortgage brokerage business, by means of payments taken outside of closing, without the knowledge of the borrower. As part of the scheme, Shumway arranged for Gerald Mullaney, formerly a licensed real estate appraiser in the Albany, N.Y., area, to prepare falsified appraisals for the homes the borrowers were purchasing. This enabled Shumway to induce the borrower to take out a larger loan than necessary to buy the home, and also enabled Shumway to divert some of the proceeds of each loan to his own benefit. Shumway misled borrowers into believing the extra fees were to be paid to the lending institution to obtain a lower interest rate. Nazzarra Bernardo of Syracuse, the owner of the title company that processed the closing paperwork on each loan and served as escrow agent, aided Shumway in this scheme. Mullaney and Bernardo have pleaded guilty to related charges and await sentencing.

Senior U.S. District Judge James C. Fox sentenced Kimberly Taylor of Fayetteville, North Carolina, to 70 months' imprisonment followed by five years of supervised release following Taylor pleading guilty to charges related to a mortgage fraud scheme. The court also ordered Taylor to pay $91,933 in restitution. A Federal Grand Jury returned a criminal indictment on October 24, 2007. At her arraignment Taylor pleaded guilty on July 10, 2008, to 10 counts of bank fraud and two counts of aggravated identity theft. Starting in June 2005 and continuing through June 2006, while working as a licensed mortgage broker, Taylor devised a scheme in which she took the identities of clients or potential clients, to include their names, social security numbers, and dates of birth, and submitted loan applications to RBC Centura to obtain loans totaling $184,400.

After pleading guilty to charges related to a scheme resulting in losses of more than $3.5 million to HUD, an unlicensed real estate agent and property investor was sentenced to 36 months in federal prison, followed by three years of supervised release, and ordered to pay restitution of $2.83 million. According to the plea agreement, between August 1993 and May 2001, Robert Duran, aided and abetted by others, caused the funding and insuring of approximately $11.45 million in fraudulent FHA-insured home mortgage loans on at least 73 properties in Los Angeles and Riverside counties, California. All the properties went into default and were resold at a loss to HUD of approximately $3.56 million. Duran worked as an unlicensed real estate agent and property investor for real estate and investment companies. As an investor, Duran provided false employment, credit and income documents to mortgage lenders, many of which were FHA-insured lenders. Duran also acted as a real estate agent on sales of property to either straw buyers, fictitious buyers or buyers that did not qualify for an FHA-insured mortgage loan. Duran would also assist investors in facilitating sales of property to non-qualifying buyers or would act as an investor himself. He caused fraudulent employment, income, credit and identification documents to be submitted to FHA and enlisted notaries to falsely notarize that they witnessed the signing of loan documents. Duran also used the notary books of others to falsely notarize loan documents without the knowledge of those notaries and placed downpayments into escrow on behalf of non-qualifying buyers.

A Columbus, Ohio restaurant owner, Gihan Ahmed Ismail Zalat, was sentenced to four years in prison for her role in a mortgage flipping scheme. Zalat pleaded guilty to three counts of engaging in a pattern of corrupt activity and five counts of money laundering. Zalat was indicted in February 2008 for a mortgage fraud scheme involving several Ohio properties. Zalat is a former co-owner of the Happy Greek restaurant, South Campus Gateway, Ohio. The scheme took place between 2005 and 2007 and involved false documentation and misrepresentations in loan applications, property flips, using inflated appraisals and unauthorized kickbacks disguised as construction monies for home improvement.

William Athan of Shelton, Conn., waived his right to indictment and pleaded guilty before U.S. District Judge Vanessa L. Bryant to his role in a $3.6 million mortgage fraud scheme. According to public statements and documents filed with the court, Athan, Jose Guzman, Brian Guimond and others participated in a real estate and mortgage fraud scheme that arranged for individuals to purchase properties and fund mortgages of houses located in Connecticut. Athan, Guzman and another individual created a New London-based real estate investment company, which was engaged in both the business of buying and selling real estate properties and the mortgage origination business. Through this scheme, the conspirators arranged for and assisted in arranging for various straw borrowers to obtain funding from various lenders.

Financial institutions last year filed 62,084 mortgage-related "suspicious activity reports" with government regulators -- a 44% increase from the prior year, according to new figures released by the Financial Crimes Enforcement Network. FinCEN director James H. Fries said one trend the agency found "is the increase in mortgage fraud detection in connection with mortgage purchasers sending home loans back to originators for repurchase." FinCEN also is seeing an increase in foreclosure-related fraud. The SARs figures cover reports filed for the 12-month period ending June 30, 2008.

Anne Justesen of Stillwater, Minnesota, former vice president of Jennings State Bank, pleaded guilty in U.S. District Court in Minneapolis to one count of mortgage fraud through identify theft. According to court documents, in November 2005, Justesen forged her husband's signature on documents for a $200,000 mortgage for a lake home near Luck, Wis., owned by Justesen and her husband. As a result of the forged mortgage documents, Jennings State Bank was left with inadequate collateral. The bank discovered the fraud during a routine examination of its documents. According to Jennings State Bank, an employee found a document that looked unusual and confronted Justesen about it, which triggered the investigation.

Micah Bowens of Henderson, Nev., was sentenced to 48 months in prison for leading a mortgage fraud scheme in Phoenix, San Diego and Las Vegas. Jennifer Sellers, a real estate agent from Las Vegas, was sentenced to 24 months in prison and Alonzo Love of San Diego was sentenced to 14 months. All three pleaded guilty to charges related to their participation in a five-year conspiracy involving the purchase of 19 properties using fraudulent loan documents. Seven other co-conspirators have pleaded guilty for their involvement and will be sentenced over the next few months. According to Diane J. Humetewa, U.S. attorney for the District of Arizona, from May 2002 through May 2007 Bowens, Sellers, Love and others conspired to commit mortgage fraud in Phoenix, San Diego and Las Vegas by fraudulently submitting mortgage loan applications on behalf of straw buyers under false pretenses, obtaining and disbursing the proceeds of fraudulently obtained loans, including directing portions of the proceeds to bank accounts in Bowen's, Seller's, Love's and other defendants' control. The trio used the proceeds to purchase expensive homes, luxury vehicles, jewelry and other personal expenses. The conspiracy resulted in a loss to lending institutions of approximately $2.5 million.

A civil lawsuit filed against CU National Mortgage last week - hours before the company filed for bankruptcy - charges that the owner and CEO of CUNM masqueraded as an executive vice president of another credit union and approved "allonges," assigning millions of dollars of that credit union's mortgages to Fannie Mae as part of a wide-ranging fraud scheme that may involve hundreds of millions of dollars of credit union loans. CUNM was a private-label lender/servicer for more than a dozen credit unions. During a hearing last week in U.S. bankruptcy court (where CUNM and its parent U.S. Mortgage of Pinebrook, N.J. filed for protection), lawyers for the other CU, Picatinny FCU of Dover, N.J., said CUNM may have sold as much as $14 million of its loans to Fannie Mae without authorization and without sending the receipts to the credit union. "[USM CEO Michael] McGrath endorsed Picatinny's name to a note which assigned the mortgages to Fannie Mae," said James Forte, Picatinny's lawyer in the case. "These loans were sold without our authorization." Picatinny and dozens of other CUs are currently working with officials of USM/CUNM for the return of tens of millions of mortgages sold to Fannie Mae without their authorization, according to a report in Credit Union Journal. Lawyers for Mr. McGrath did not return telephone calls about the matter. The FBI is now investigating the collapse of USM and CUNM.

William Montelle Loyd III of Raleigh, N.C., has been sentenced to 84 months' imprisonment followed by three years of supervised release for conspiring to commit mail fraud, wire fraud, and aggravated identity theft. The court also ordered Lloyd to pay more than $1.26 million in restitution. From November 2002 through December 2006, Loyd entered into a conspiracy with others to obtain 16 loans from an online mortgage company worth approximately $2.6 million by submitting false documentation regarding employment, salary, appraisals and tax information during the course of securing the loans. The investigation revealed that Loyd utilized his father's and his brother's identities and Social Security numbers to obtain loans in their names without their authorization or knowledge.

The FBI is investigating claims of a massive fraud at U.S. Mortgage Corp., Pinebrook, N.J., the privately held owner of Credit Union National Mortgage, which has filed for bankruptcy. More than three dozen credit unions allege the failed mortgage company owes them more than $110 million of loan proceeds it had collected for them as a servicer. The company's attorney said he is working with the U.S. Justice Department, the National Credit Union Administration, and regulators in several states in investigating the case. Lawyers for U.S. Mortgage could not be reached for comment. In documents filed earlier this week with the U.S. Bankruptcy Court, Picatinny FCU claims CU Mortgage sold more than $14 million worth of its mortgages to Fannie Mae without its knowledge and without paying the Dover, N.J.-based credit union the proceeds of the sale. Picatinny is one of more than three-dozen credit unions that have filed claims against the troubled lender. The largest unsecured claim is by Fannie Mae for $99.2 million, but the next 19 largest unsecured claims are all credit unions -- including the Treasury Department's CU.

NEWARK, N.J. The FBI is investigating claims of a massive fraud at U.S. Mortgage Corp., the privately held owner of C.U. National Mortgage, which filed for bankruptcy earlier this week. More than three dozen credit unions are claiming the failed mortgage company owes them more than $110 million of loan proceeds it had collected for them as a servicer. In documents filed yesterday with the U.S. Bankruptcy Court, Picatinny FCU claims C.U. Mortgage sold more than $14 million worth of its mortgages to Fannie Mae without its knowledge and without paying the Dover, N.J., credit union the proceeds of the sale. Picatinny is one of more than three dozen credit unions that filed claims against the troubled lender this week. The largest unsecured claim is by Fannie Mae for $99.2 million, but the next 19 largest unsecured claims are from credit unions, including: Suffolk FCU ($33.8 million); Proponent FCU ($21.6 million); Sperry Associates FCU ($9.2 million); Treasury Department FCU ($8.7 million); Novartis FCU ($3.1 million); Educational Systems FCU ($3.1 million); County Educators FCU ($ 2.8 million); Energy FCU ($2.6 million); Rutgers FCU ($2.2 million)_ Piedmont Aviation FCU ($2.1 million); Pinnacle FCU ($1.8 million); Velocity County FCU ($1.5 million); TCT FCU ($1 million) as, well as Picatinny FCU. Also: Lassen County FCU ($832,000); JM Associates FCU ($502,000); Miami Firefighters FCU ($490,000); First Florida CU ($448,000) and Newark Board of Education Employees CU ($440,000). Other creditors include Harland Financial, Wolters Kluwer and PrimeAliance. Picatinny FCU said after it learned of the sale of its loans to Fannie Mae it demanded the loan files back so it could sell the servicing rights to another provider, but U.S. Mortgage refused the request. As proof of its claims, Picatinny FCU filed a Feb. 12 letter with the bankruptcy court from U.S. Mortgage's general counsel Andrew Liput explaining that $9.5 million worth of its mortgages "appeared to have been sold without your authority to Fannie Mae and the sales proceeds subsequently diverted." The company's attorney said he is working with the U.S. Justice Department, NCUA and regulators in several states in investigating the case. Lawyers for U.S. Mortgage could not be reached for comment yesterday. The owners of the privately held company are: Michael McGrath, Jr., a 35.6% stake; Brian McGrath, 7.6%; Thomas McGrath, 7.6%; James and Lori McGrath, 3%; and Labranche Inc., of New York City, 39.9%. Credit Union Journal

Gerald Carti of Oakland, N.J., a former loan officer, pleaded guilty to charges connected to a mortgage fraud and property-flipping scheme involving rental properties. Carti admitted to conspiring with his co-defendants and several others to fraudulently originate mortgage loans and to launder proceeds of the loans during 2002 through 2005. The loans were for two- and three-family homes in Paterson, N.J. Carti's guilty plea is one of 12 guilty pleas related to an investigation into fraudulent FHA-insured and conventional mortgage loans originated by various New Jersey mortgage companies.