Compliance

The leader of a multi-state fraud scheme that cost lenders at least $2.5 million was sentenced to 45 months in prison. After being convicted in April 2008 for masterminding a mortgage fraud scheme involving homes in Phoenix, Las Vegas, San Diego and other areas, Marcus Dozzell of Henderson, Nev., was sentenced while co-defendant Lutrell Sharpe received a term of 88 months in prison. According to U.S. attorney Diane J. Humetewa of Arizona, from May 2002 through May 2007, Dozzell, Sharpe and others conspired to commit mortgage fraud whereby Dozzell and Sharpe fraudulently submitted 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 Dozzell and Sharpe's and other defendants control. Sharpe directed others to prepare fraudulent loan applications misrepresenting salary, assets and liabilities. Ten other co-conspirators were also charged and have pleaded guilty. Sentencing for that group will come in the next few months.

An Oxon Hill, Maryland, man pleaded guilty to mail fraud in connection with the fraudulent purchase of 25 properties in Maryland, the District of Columbia and Virginia. According to prosecutors, Terrence White and others used false mortgage and settlement documents to buy the homes, and paid at least 15 "straw buyers" $10,000 per property to purchase the properties on their behalf. White created false mortgage and settlement documents, many of which misrepresented the straw purchasers' income and assets. White and others also created false invoices to claim that their now defunct company, Brotherly Investment Group, performed "renovations" on some of the properties. Using these false invoices, White and others were "repaid" at closing for the purported renovations. Between 2006 and 2008, White and others received $3.83 million in fraudulent funds. Many of the purchased properties have been foreclosed upon.

House and Senate conferees raised the first-time homebuyer tax credit to $8,000 (a $500 increase) during last-minute negotiations on the pending economic stimulus bill. Also, the effective date of the credit was increased by three months to December 1. The final stimulus bill (H.R. 1) also raises the maximum GSE loan limit to $729,720. At press time the House was voting on the $800 billion package. A Senate vote on final passage could come as early as Friday evening or during the weekend. As reported earlier, the conferees cut a $15,000 homebuyer tax credit approved by Senate in half and limited the tax benefit to first-time homebuyers. The final version of H.R. 1 also restores the maximum $729,750 loan limit for Fannie Mae, Freddie Mac and Federal Housing Administration loans for the rest of this calendar year. (The current limit is $625,500.) Reinstating the higher loan limits will "help to reduce inventory and improve liquidity in the overall mortgage market," said Charles McMillan, president of the National Association of Realtors. Although the $8,000 first-time homebuyer tax credit is a disappointment to many in the industry, the tax writers made it a real tax credit so homebuyers do not have to repay it like an interest-free loan. Eliminating the repayment provision should bring more buyers into the market, Mr. McMillan said. The final stimulus bill also raises the loan limit on FHA-insured reverse mortgages to $625,500 from $417,000 for the rest of the calendar year.

Lee Howlett of Portland, Oregon, pleaded guilty before U.S. District Court Judge Robert E. Jones to charges related to his participation in a mortgage fraud scheme. Howlett was charged as part of Operation Malicious Mortgage, a nationwide mortgage-fraud sweep involving more than 400 defendants. According to Karin J. Immergut, U.S. attorney for the District of Oregon, between 2002 and 2006, Howlett conspired with others to purchase real property in the name of co-conspirators. He caused false information to be given to mortgage lenders in applications for mortgage loans by the co-conspirators to induce lenders to approve mortgage loans. He created false appraisal reports for properties used in the conspiracy and signed the reports using the name and license number of a licensed appraiser without the appraiser's knowledge or authority. Appraisals on some properties were inflated and the higher value was used to apply for larger loans. According to court records, between 2003 and 2006, Howlett made false statements on applications for mortgages on approximately 16 transactions involving seven properties and financing totaling around $3.7 million. Howlett took the excess funds for his own use and to share with his co-conspirators. The properties were either sold or went into default. Sentencing is set for May 5, 2009.

After being convicted in November 2008 for charges related to organizing a mortgage fraud scheme, Mitchel A. Fuchs, a.k.a. "Mike Fox," of Rockford, Illinois, was sentenced by U.S. District Judge Frederick J. Kapala to 144 months in prison. In addition to the 12 years of imprisonment, Judge Kapala also ordered Fuchs to pay $183,890 in restitution. According to Patrick J. Fitzgerald, U.S. attorney for the Northern District of Illinois, Fuchs, and co-conspirators Frank G. Anast of Rockford, and Jessica L. Gibson of Loves Park, Ill., defrauded commercial lenders by causing unqualified loan applicants to receive commercial loans. From 2002 through approximately 2005, Fuchs was a loan officer at two Rockford mortgage brokerage firms that earned fees by assisting customers in obtaining mortgage-backed loans from commercial lenders. From February of 2004 through August of 2004, Gibson worked for Fuchs as a loan processor. During this same time period, Anast was self-employed doing computer work. Fuchs defrauded commercial lenders by deceiving them into funding loans for unqualified loan applicants by paying Anast to create fictitious pay stubs and W-2s for Fuchs' loan customers. In addition, Fuchs and Gibson falsely altered pay stubs and W-2s for other loan customers and altered credit reports for Fuchs' loan customers. Fuchs created fictitious cashier's checks and official bank checks to falsely show that his customers had invested their own funds in the properties. In addition, Fuchs and Gibson created fraudulent investment statements in order to show that loan customers had sufficient funds available to close on the loans they were seeking. Both Anast and Gibson were sentenced on Nov. 14, 2008. Anast was sentenced to five years of probation, 10 months of which are to be served on home confinement and ordered to pay $87,369 in restitution. Gibson was sentenced to four years of probation, two months of which are to be served on home confinement and ordered to pay $29,510 in restitution.

After admitting to leading a scheme to fraudulently obtain more than $12 million in home loans, David Kostelec of Leawood, Kansas, has been sentenced to 154 months in federal prison and ordered to pay more than $1.3 million in restitution. In his plea in October 2008, Kostelec admitted that from July 20, 2002, through Oct. 14, 2005, he and others conspired to defraud lenders by submitting fraudulent loan applications and false real estate appraisals and attempted to conceal the crimes by laundering the money through accounts at various banks. Kostelec submitted false and fraudulent appraisal reports to lenders containing inflated property values and forged signatures of licensed appraisers. Conspirators stole the identities of licensed appraisers by searching the Internet for information including the appraisers' state license numbers. After closing, the conspirators used straw entities to receive the money from escrow companies. Then they moved the money to personal accounts. Kostelec admitted to committing these schemes with properties in Kansas, Missouri and Florida.

Chandra Jones of Lanham, Maryland, pleaded guilty to charges related to a mortgage fraud scheme that falsely promised to help homeowners facing foreclosure keep their homes and repair their damaged credit. According to her plea agreement, in July 2005, Jones was hired to work as a loan processor at the now-defunct Metropolitan Money Store in Lanham, Md., which offered foreclosure consultation and credit services to financially distressed homeowners. At MMS, Jones conspired with others to fraudulently promise to help troubled homeowners avoid foreclosure. The homeowners were directed to allow title to their homes to be put in the names of straw buyers 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 their homes to them. Using the homeowners' properties, the conspirators applied for mortgages to extract the maximum available equity from the homes and prepared and submitted to mortgage lenders fraudulent loan applications to obtain inflated loans on the target properties in the straw buyers' names. At settlements, the conspirators imposed numerous fees and required "seller contributions," which were far in excess of industry standards. They also imposed fees for services that were not performed. The total loss attributable to Jones is $4.19 million. Jones, daughter of former MMS CEO Jennifer McCall and her husband Clifford McCall, is the sixth defendant to plead guilty in the MMS mortgage fraud scheme. The McCalls also pleaded guilty to fraud charges connected with the scheme. U.S. District Judge Roger W. Titus scheduled sentencing for Jones on Oct. 5, 2009.

Alexander Kaplan of Brooklyn, New York, was found guilty in Manhattan federal court of participating in a multimillion-dollar mortgage fraud scheme. According to the evidence at trial, from late 2004 through January 2007, Kaplan and his coconspirators, using straw buyers, obtained hundreds of mortgage and home equity loans by submitting loan applications and supporting documents that contained information about, among other things, the prospective borrower's employment, income and assets and intent to reside in the property in question, as well as the fair market value of the property. Additionally, Kaplan and his co-conspirators, using artificially inflated appraisals, sought and obtained mortgages at values that exceeded the properties' actual sale prices and true market values. Kaplan served as the attorney for the straw buyers and the banks in the closings of sales of 10 rent-regulated condominium apartments on the Upper West Side of Manhattan. None of the documents submitted to the lenders in these transactions disclosed that: certain buyers were seeking loans to purchase more than one apartment as a primary residence; each of the apartments was already occupied by a tenant and therefore not suitable for a primary residence; or the apartments were subject to rent regulation laws that precluded the buyer from charging the reported rents. Kaplan presided over the closings and obtained false documents. Almost all of the apartments were then resold to straw buyers within a matter of months. The purported sales prices for each of the flips were almost twice the initial purchase price and Kaplan's co-conspirators obtained almost $13 million in additional loans on the apartments. Of the 26 other defendants originally charged with Kaplan, 25 have pleaded guilty. Sentencing for Kaplan is for May 1, 2009.

John A. Yanchek of Sarasota, Florida, has pleaded guilty to three counts of a 47-count indictment charging him and three other individuals with conspiracy, making false statements in connection with bank loans, scheming to defraud several FDIC-insured banks and money laundering. According to the plea agreement, Yanchek entered into a conspiracy to make false statements to federally insured banks in connection with applications for commercial loans to fund the purchase of vacant land in the Sarasota/Manatee, Fla., area for development. The object of the conspiracy was to obtain a loan from a bank in an amount that was sufficient to allow the conspirators to purchase the property without contributing any equity of their own and to receive excess loan proceeds for their personal use and benefit. To influence the lending decision of the various banks, Yanchek, acting in his legal capacity as the closing attorney, made false statements regarding the financial resources of the borrower, the amount and source of equity contributed by the borrower, compliance with the seller's obligation to provide marketable title to the property and distribution of the loan proceeds. The total face amount of the commercial loans fraudulently obtained from seven banks was $82.7 million. Yanchek was one of four individuals indicted in connection with this scheme, including Neil Mohamed Husani, Larry P. Nardelli and Michael A. Tringali. According to the U.S. attorney's office, co-defendant Tringali pleaded guilty to the conspiracy charge on Nov. 3, 2008, and awaits sentencing. Mr. Nardelli is on trial this week. Mr. Husani has been arrested in Jordan.

The American Securitization Forum has begun its next phase of a project aimed at restoring investor confidence in the moribund market for mortgage- and asset-backed securities that includes a proposal for monthly servicer reporting on deals through maturity. The group, as part of its ongoing Project on Residential Securitization Transparency and Reporting, released a request for comment on its new residential MBS reporting package for the securities that sets guidelines aimed at making the performance of their underlying loans easier to track. The reporting package consists of a proposed package of data fields set to be updated monthly by RMBS servicers throughout the life of an RMBS deal and distributed to investors and credit rating agencies. The ASF, in conjunction with its conference in Las Vegas, also has released for comment a revised version of last year's proposed RMBS disclosure package, a 135-field package of pool and loan-level information that was designed to be used when RMBS deals are initiated and aimed at allowing investors to more easily compare loans and transactions across all issuers and perform some key loan-level analysis. The ASF said it also has issued a set of recommended data fields for manufactured housing securitizations and addressed issues involving information about modifications, second liens, fraud, the definition of "full documentation" and standard terms and identifiers designed to avoid confusion. Both packages include similar recommendations for file naming conventions and were designed to complement each other.

Howard A. Sperling of San Diego pleaded guilty in federal district court to conspiracy to commit wire fraud for his part in a scheme to defraud a California construction firm of nearly $13 million. According to the information presented in court, from August 2003 through January 2004, Sperling and his co-defendants conspired to defraud Cornell Corrections of California, a private company that operates corrections facilities for various governmental units. In June of 2003, Cornell Corrections contracted to have a corrections facility built in Canon City, Colo., for $13 million. The $13 million purchase price was to be held in an escrow account until the facility was completed. In August 2003, Sperling and his co-defendants induced Cornell Corrections to transfer its $13 million to an account in Atlanta controlled by co-defendant, Edgar J. Beaudreault, by falsely representing to Cornell that the account was an escrow account that was administered by a reputable bank. Upon receipt of Cornell Corrections' $13 million, Sperling and his co-defendants, Beaudreault and Robert B. Surles, wire transferred the majority of Cornell's $13 million to other accounts to be used for their own purposes. Most of the money was disbursed to the accounts of the three co-conspirators. Sperling withdrew $365,000 in cash, transferred $400,000 to personal and family members' accounts, paid $215,000 to banks and credit card companies, $85,000 to a Harrah's Casino and $60,000 for a luxury Mercedes Benz automobile. Sentencing is scheduled for April 30, 2009, before U.S. District Judge Clarence Cooper. Beaudreault pleaded guilty in December 2008 and is scheduled to be sentenced on March 18, 2009. Mr. Surles awaits trial and was unavailable for comment.

A Tennessee man was found guilty by a federal court on all 51 counts of an indictment charging him with conspiracy, wire and bank fraud, and money laundering in connection with a mortgage scheme involving 22 homes. According to investigators, Harold Stafford was at the center of a scheme involving the purchase of 22 luxury homes in Hendersonville, Gallatin and Goodlettsville using unqualified straw buyers. Stafford and his co-conspirators submitted false loan applications that overstated their income and lied about using the homes as primary residences. The group also hid other recent home purchases. All of the mortgages wound up in default and foreclosure, resulting in $2.21 million in losses to the lenders. Sentencing is scheduled for early May.

Anthony Natale, a lawyer from Neshanic Station, N.J., and Kenneth Lagonia formerly of East Brunswick who now resides in North Carolina, pleaded guilty to their roles in criminal conspiracy involving NJ Affordable Homes, Corp., a purported real estate investment company, which defrauded hundreds of investors and mortgage lenders of more than $20 million. According to Ralph J. Marra, Jr., acting U.S. attorney for the District of New Jersey, Natale was retained to conduct real estate closings for properties bought by NJAH as part of an investment program where NJAH promised to purchase and renovate properties to be resold at substantial, guaranteed profits. Natale admitted that he directed his paralegal to prepare fraudulent HUD-1 Universal Settlement Statements that falsely showed that Natale's clients, who were "nominee buyers," had paid money to purchase the properties and thus had equity in the properties, when Natale knew they had not. He also acknowledged that these false HUD-1s were often submitted to mortgage lenders for mortgage loans and then to HUD and the FHA, which, in turn, federally insured the loans. Lagonia, president of Quality Homes Are Us, a company affiliated with NJAH, admitted that he created false solicitation letters on behalf of NJAH, representing that NJAH was profitable, in order to lure investors. Lagonia also acknowledged that he signed false employment verifications for nominee purchasers, which were submitted to lenders, and notarized deeds and other mortgage documents, falsely representing that the nominee purchasers were present at closings when they were not. Sentencing for both defendants, who are free on $100,000 unsecured bonds, is scheduled for May 18. Natale and Lagonia are the ninth and 10th defendants associated with this ongoing NJAH investigation to plead guilty.

AllRegs, Eagan, Minn., has created a new certification program for residential mortgage underwriters of government loans. The program is offered through AllRegs Academy and will give participants the designation of Residential Government Underwriter. Those seeking the designation must have two years experience in the mortgage industry, with an emphasis in underwriting, processing, government lending, risk analysis or quality assurance. They also must complete 12 hours of education with a passing score of 75% or above and pass an examination. The coursework includes underwriting, appraisal and compliance programs; Federal Housing Administration and Veteran's Administration underwriting courses; and courses in the USDA's Rural Housing program. Once certified, designees must renew their RGU every two years by successfully completing approved education courses.

Vijay K. Taneja, a mortgage banker in the Washington, D.C. area, has been sentenced to 84 months in prison following his conviction for defrauding four companies. His jail term will be followed by three years of supervised release, and he has been ordered to pay $33 million in restitution to four financial institutions: Franklin Bank, First Tennessee Bank, Wells Fargo Bank, and EMC Mortgage Co. Taneja, who resides in Fairfax, Va., pleaded guilty to money laundering in connection with a mortgage fraud scheme involving his company, Financial Mortgage Inc., which originated and sold mortgages on residential properties in the greater Washington, D.C. area. According to court documents, FMI initially utilized his warehouse lenders to temporarily fund the mortgages and then sold the mortgages to another group of financial institutions as long-term investments. Beginning in 2001, FMI began defrauding these financial institutions, causing an accumulated loss of at least $33 million to four financial institutions by the time FMI filed for bankruptcy in June 2008. Taneja created fictitious loans with phony loan closings, selling the same legitimate loan to multiple investors and pocketing the proceeds generated from refinancing loans, when the bulk of those proceeds were intended to pay off prior mortgages on the same properties.

The House Financial Services Committee is slated to mark up a bill on Feb. 4 which, if passed, would revamp the Federal Housing Administration's Hope for Homeowners program and strengthen the Federal Deposit Insurance Corp. The Hope for Homeowners refinancing program has been considered to be a disappointment so far. But the bill, crafted by committee chairman Barney Frank, D-Mass., would eliminate the 3% upfront mortgage insurance premium and cut the 1.5% annual premium in half. If passed, FHA could charge a 55 basis point to 75 basis point annual premium based on the borrower's credit risk. The bill (H.R. 703) also contains a safe harbor for servicers that engage in loan modifications to shield them from investor lawsuits. This safe harbor provision applies to all loan modifications initiated before the end of 2011. Servicers would be required to regularly report their loan modification activities to the Treasury Department. H.R. 703 would also make the temporary hike in deposit insurance coverage to $250,000 permanent and increase FDIC's borrowing authority from $30 billion to $100 billion. Rep. Frank said he wants to move this bill quickly through the House and attach it to legislation the Senate must pass.

Former loan broker John M. Rubischko of Eagan, Minnesota, was sentenced in federal court on counts of wire fraud and aggravated identity theft in connection with a mortgage fraud scheme resulting in losses of more than $1 million. U.S. District Court Judge Donovan Frank sentenced Rubischko to 87 months in prison and five years' supervised release. Rubischko was charged on June 16, 2008, and pleaded guilty on June 27, 2008. Rubischko was a mortgage broker who owned and operated licensed mortgage broker businesses, including Family First Mortgage, All Fund Mortgage and MortgageBanc.

The Justice Department says it foiled a plot by a fired Fannie Mae contract worker to destroy all the data on the GSE's 4,000 computer servers nationwide. The worker, 35-year-old Rajendrasinh Makwana, of Glen Allen, Va., is scheduled for arraignment Friday in U.S. District Court in Baltimore on one count of computer intrusion, according to a report in the Associated Press. U.S. Attorney Rod Rosenstein said Mr. Makwana was fired in late October. The prosecutor said that on that day Mr. Makwana programmed a computer with a malicious code that was set to spread throughout Fannie's network of servers and destroy all the data by the end of January 2009. Mr. Makwana's public defender has yet to comment on the charges.

Genevieve Simmons of the Bronx, New York, pleaded guilty before U.S. District Judge Lawrence M. McKenna in Manhattan federal court to falsely obtaining Section 8 federal housing subsidies. According to Lev L. Dassin, acting U.S. attorney for the Southern District of New York, Simmons worked as a correction officer with the New York City Department of Correction from approximately 1990 through 2008. From April 2003 through March 2007, Simmons received Section 8 housing subsidies from HUD by falsely claiming that she was unemployed. These housing subsidies are intended for individuals who meet low-income and other eligibility requirements. By misrepresenting that she had no employment income, Simmons pled to obtaining more than $40,000 in federal housing subsidies to which she was not entitled.

Four individuals have been charged with conducting a million-dollar mortgage fraud scheme in Michigan. Three are charged with racketeering: Dequincy Hyatt, of Detroit; Seaesther Thompson-Hayes, of Flat Rock; and Aaron Brooks, Jr., of Southgate. The fourth, Pietro Biundo, of Washington, Michigan, is charged with filing false documents when selling a home in one of the transactions. According to Michigan's attorney general Mike Cox, in 2006, Mr. Hyatt, managing partner of a homebuilding firm, Mr. Thompson-Hayes, a mortgage broker, and Mr. Brooks, a former credit union service representative, allegedly partnered together to perpetrate a mortgage fraud scheme involving two properties. In the first case, it is alleged the defendants secured a $710,000 mortgage for a $510,000 home in Shelby Township. After paying fees, the defendants were able to skim more than $163,000 off the transaction. In the second case, the defendants allegedly secured a $785,000 mortgage though the straw buyer for a $515,000 Clinton Township home. Mr. Biundo was the seller of the home in this case. The indictment alleges that the defendants sought and obtained a straw buyer for the two targeted luxury properties, who was told that her name and credit, boosted by inflated income and asset data, would be used to purchase the properties. The defendants would make the mortgage payments for her and her name would later be removed from the mortgages. In return, the straw buyer was promised compensation. About a year after the transactions, the defendants stopped making payments and the straw buyer was left with two mortgages in her name and unable to make payments. Both houses went into foreclosure. The defendants were unavailable for comment.