Compliance

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.

Mark Turkcan of Kirkwood, Missouri, pleaded guilty before U.S. District Judge Donald J. Stohr to the misapplication of funds connected with his position at First Bank Mortgage, causing a loss of $35 million. According to Catherine L. Hanaway, U.S. attorney for the Eastern District of Missouri, the losses began as early as 1987 when Turkcan was employed by Sheahan Financial. In 1990, First Bank purchased Sheahan Financial without knowing about the losses concealed on the books of Sheahan Financial, causing First Bank to overpay in the purchase. After the purchase of Sheahan in 1990, Turkcan became president of First Bank Mortgage, where he continued to buy and sell mortgage-backed securities as part of his job. However, losses from the unauthorized and unapproved borrowings rose to approximately $35 million. They were covered up and concealed from First Bank by destroying or changing records and posting profits on the books and records of the Bank. To cover the losses, Turkcan borrowed against the mortgage-backed securities of First Bank Mortgage. These loans were also concealed from First Bank. To conceal the true nature of these transactions, Turkcan created fictitious trade tickets and Bear Stearns confirmations. Ultimately these losses rose to a level of approximately $35 million, which First Bank had to pay Bear Stearns. Sentencing is scheduled for Apr. 17, 2009. "It was strictly a solo operation," said Michael Reap, first assistant U.S. attorney, who is prosecuting the case. Mr. Reap added that Turkcan was immediately terminated when bank officials interviewed him about this matter.

The House has passed the $820 billion economic stimulus bill that restores the $729,750 loan limit in high cost areas for the rest of this year. Congress originally raised the maximum loan limit on Fannie Mae, Freddie Mac and Federal Housing Administration loans to $729,750 in February 2008 as part of the first stimulus bill. But that provision expired Dec. 31 and the loan limit adjusted downward to $625,500 where it is today. The Senate is expected to vote on a stimulus bill next week. But so far the Senate package does not include a loan limit increase. Housing industry lobbyists are working to attach the House loan limit provision to the Senate bill. The House bill also includes a provision that increases the loan limit on FHA-insured reverse mortgages from $417,000 nationwide to $625,500 for the rest of calendar year.

The House Judiciary Committee Tuesday evening approved legislation giving bankruptcy judges broad authority to reduce or "cram down" the principal amount of a mortgage on a primary residence by a 21 to 15 vote, but politicians and industry lobbyists differ on the scope of an exemption for FHA and VA mortgages. Mortgage industry lobbyists tried to narrow the scope of the bill. But an amendment by Rep. Trent Franks, R-Ariz., to limit bankruptcy cramdowns to mortgages originated from 2004 through 2008 was defeated. Committee chairman John Conyers, D-Mich., said his bill exempts Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service guaranteed loans from cramdowns. But industry lobbyists claim the exemption for government-insured loans does not go far enough and amounts to little more than guidance to the bankruptcy courts. "If this bill is enacted, lenders will no longer participate in these programs because it provides no assurance against a possible cramdown," one bankruptcy expert said. Committee action on the bankruptcy bill (H.R. 200) came too late to attach it to the economic stimulus bill. Chairman Conyers will probably attach H.R. 200 to the next major piece of legislation moving through Congress. Rep. Conyers said during the markup session that he is still open to making improvements to the bill. The Conyers bill basically follows the outline of a compromise Citigroup endorsed, which allows cramdowns on existing mortgages originated up to the date of enactment. Rep. Conyers added one provision that allows lenders to share in future appreciation of the property.

The House Judiciary Committee Tuesday evening approved legislation giving bankruptcy judges broad authority to reduce or "cram down" the principal amount of a mortgage on a primary residence - with the exception of government insured loans. The measure passed by a vote of 21 to 15. Mortgage industry lobbyists tried to narrow the scope of the bill, but committee chairman John Conyers, D-Mich., only agreed to exempt Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service guaranteed loans from cramdowns. An amendment by Rep. Trent Franks, R-Ariz., to limit bankruptcy cramdowns to mortgages originated from 2004 through 2008 was defeated by a 20-15 vote. Committee action on the bankruptcy bill (H.R. 200) came too late to attach it to the economic stimulus bill. Chairman Conyers will probably attach H.R. 200 to the next major piece of legislation moving through Congress. Rep. Conyers said during the markup session that he is still open to making improvements to the bill. The Conyers bill basically follows the outline of a compromise Citigroup endorsed, which allows cramdowns on existing mortgages originated up to the date of enactment. Rep. Conyers added one provision that allows lenders to share in future appreciation of the property.

Ralondria Stafford of San Francisco, and Necole Ward of Las Vegas, were indicted on charges relating to a mortgage fraud scheme they allegedly carried out in Vallejo, Calif., where the sisters used to reside. According to Kyle Reardon, assistant U.S. attorney for the Eastern District of California, who is prosecuting the case, the indictment alleges that between July 2005 and August 2006, the defendants operated RN Realtors in Vallejo, and used straw buyers to purchase properties that they owned to avoid foreclosure. The buyers were approached and offered $5,000 for the use of their name and financial information. The defendants allegedly represented to the buyers that the purchase would be in name only and that Ms. Stafford would purchase the properties back from the straw buyers in six to 12 months. In the course of the conspiracy, the defendants are alleged to have prepared Uniform Residential Loan Application forms in the straw buyers' names containing material false statements. These false statements included, among other things, overstating of the straw buyer's income, claiming employment at employers for which the straw buyers did not work and misidentifying the purpose of the purchased locations as a primary residence. The indictment also alleges that on one occasion, in support of the materially false statements, the defendants attached to the application falsified Internal Revenue Service form W-2s and a lease agreement. A trial date has not yet been set. John Richard Manning, Ms. Stafford's attorney, was unavailable for comment at deadline. Bruce Locke, Ms. Ward's attorney, declined to comment.

Steven Gordon, a former principal at Bayview Financial LP, Coral Gables, Fla., pleaded guilty to wire fraud charges related to a five-year scheme to inflate the value of mortgage loans to increase his commission compensation. The Miami resident was dismissed from the firm in 2006. Bayview bought portfolios of loans from lending institutions, pooled these loans into "special purpose entities" and then issued securities backed by those loans to the investing public. While employed at Bayview, Gordon negotiated the purchase of thousands of loans for Bayview's residential mortgage securitization program. His incentive compensation was based, in part, on his ability to buy those loans at a low cost. Gordon admitted that between 2001 and 2006, he engaged in a scheme to defraud Bayview, in which he regularly altered credit information affecting the value of more than 2,800 loans acquired for the residential mortgage securitization program. Gordon's fraud caused Bayview to pay him more than $2.8 million in excessive and undeserved bonuses. Sentencing has been scheduled for April 23, 2009.

The Federal Trade Commission has challenged the way a Gateway Funding Diversified Mortgage Services LP executive characterized his company's previous pricing practices and the FTC's understanding of them in commenting on a December 2008 settlement between the company and the federal agency related to those practices. In a letter responding to the Horsham, Pa.-based Gateway's president and chief executive Bruno Pasceri's comments denying that his company's past pricing practices were discriminatory and suggesting that the FTC did not understand those practices, Peggy L. Twohig -- associate director in the FTC's Division of Financial Practices/Bureau of Consumer Protection -- said, "In fact, the FTC conducted an extensive investigation, and our analysis was based on a thorough understanding of Gateway's loan pricing practices. On that basis, the commission concluded that Gateway's policy and practice of allowing loan officers to charge discretionary overages resulted in African-Americans and Hispanics being charged higher prices because of their race or ethnicity -- price disparities that were substantial, statistically significant, and could not be explained by factors related to underwriting risk or credit characteristics of the applicants." Ms. Twohig also noted that the commission "voted unanimously to file these fair lending charges." Gateway in December 2008 agreed to pay $200,000 to settle the charges.

The Federal Trade Commission has challenged the way a Gateway Funding Diversified Mortgage Services LP executive characterized his company's previous pricing practices and the FTC's understanding of them in commenting on a December 2008 settlement between the company and the federal agency related to those practices. In a letter responding to the Horsham, Pa.-based Gateway's president and chief executive Bruno Pasceri's comments denying that his company's past pricing practices were discriminatory and suggesting that the FTC did not understand those practices, Peggy L. Twohig - associate director in the FTC's Division of Financial Practices/Bureau of Consumer Protection - said, "In fact, the FTC conducted an extensive investigation, and our analysis was based on a thorough understanding of Gateway's loan pricing practices. On that basis, the commission concluded that Gateway's policy and practice of allowing loan officers to charge discretionary overages resulted in African-Americans and Hispanics being charged higher prices because of their race or ethnicity - price disparities that were substantial, statistically significant, and could not be explained by factors related to underwriting risk or credit characteristics of the applicants." Ms. Twohig also noted that the commission "voted unanimously to file these fair lending charges." Gateway in December 2008 agreed to pay $200,000 to settle the charges.

Isaac Yass, an Israeli citizen living in Los Angeles, and Robert Andrew Blechman of Culver City, Calif., were convicted for running a scam in which homeowners who were behind on their mortgage payments paid them to hold off foreclosure by filing fraudulent bankruptcy petitions. During the trial, prosecutors presented evidence that Yass and Blechman conspired to operate a fraudulent service called Stopco claiming to be able to save homeowners who were behind on their mortgage payments from losing their homes. Evidence showed that Yass solicited homeowners who were going through foreclosure proceedings and told them that for a fee he could help them keep their houses. The defendants filed fraudulent bankruptcy petitions in federal bankruptcy courts in Topeka, Wichita and Kansas City, Kan. The petitions were filed in the name of nonexistent individuals with businesses that claimed to be part owners of properties that were in foreclosure. The result was an automatic stay in the foreclosures, halting any further actions by creditors against the properties. The defendants delivered the fraudulent petitions, which contained false names and Social Security numbers and addresses for the creditors that were in fact mailboxes or UPS Store locations in Kansas, to the bankruptcy court. Sentencing is set for May 11, 2009.

Godwin Asifo has been indicted in Alexandria, Virginia for his alleged role in a mortgage fraud scheme. The indictment lists four properties in Virginia that were granted mortgage liens based on false and fraudulent misrepresentations. According to the indictment, Mr. Asifo, an Allstate agent in Alexandria, allegedly recruited straw buyers in the purchases and worked with mortgage brokers on falsifying loan applications to show that straw buyers had more money in their bank than they actually had, earned more income than they actually earned and falsely show that the straw buyers worked at businesses with which Mr. Asifo was associated. Mr. Asifo is alleged to have temporarily put funds into a straw buyer's bank account so that when called to verify the amount of money on deposit, bank employees would respond that the straw buyer had more money in his account than was in fact his money. Mr. Asifo also allegedly had associates respond to requests for verification of employment by falsely stating that the straw buyers worked at certain businesses. According to a spokesperson for Allstage, Mr. Asifo is still employed with the company. Neither Mr. Asifo nor his attorney, John Iweanoge, returned calls requesting comment.