Compliance

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.

In a few weeks, President Barack Obama will lay out a comprehensive plan to stabilize the banks, revive credit markets and address the housing crisis, according to Timothy Geithner, the president's nominee to be Treasury secretary. The president of the New York Federal Reserve Bank told a Senate panel that the plan will include a bankruptcy provision to help struggling homeowners and possibly a proposal to move toxic assets off bank balance sheets into a "bad bank." Mr. Geithner stressed the comprehensive plan is still under development and he did not want to provide specific details. But he noted the administration wants to craft the bankruptcy proposal so it does not harm the mortgage market and drive capital away. "We are supportive of doing that in the most careful possible way," he said during his confirmation hearing. He also noted it's "enormously complicated" to draw up a bad bank plan that is cost effective. A team is looking at it today, he testified. "It is possible it will be part of the solution going forward." In stabilizing the banks, the administration wants to get the credit markets going again, including commercial and residential mortgage markets. "We also have to provide much more substantial direct support for credit markets," Mr. Geithner said.

Two brothers from New Hampshire have been charged with four counts of wire fraud and one count of mail fraud relating to a scheme to defraud lenders through the acquisition of real estate through straw purchasers using false and fictitious information. The indictment alleges that Thomas Ryder of Hopkinton, N.H., and Paul Ryder of Hudson, N.H., and others, submitted loan applications that included false statements, including statements as to the actual purchase price, the income, assets and employment of the purported purchasers and the intent of the purported purchasers to reside at the residences. The indictment further alleges that the defendants and others then skimmed the difference between the real sales price of the property and the sales price submitted to the lender, for which the lender provided funds, and then divided the proceeds. The brothers were mortgage brokers who operated under the name of M&M Mortgage Consulting located in Salem, N.H. A trial is scheduled for Mar. 3, 2009. The defendants were unavailable for comment.

After pleading guilty to carrying out a scheme to defraud in which he diverted money from his business's escrow account, intended to be used to pay closing costs on real estate transactions handled by his business, Daniel LaMarch of Green Bay, Wisconsin, has been sentenced to six years in prison for tax and wire fraud. LaMarch was also sentenced to a term of three years supervised release and ordered to pay restitution in the amount of $3.66 million. LaMarch is the former owner of Title Services of Green Bay, a company that also maintained offices in Appleton, Shawano, Oconto and Kewaunee. During the period March 2002 through February 2008, LaMarch diverted more than $1.5 million from the escrow account to his own personal benefit and the operation of his business. LaMarch also pleaded guilty to failing to pay to the IRS more than $500,000 in payroll taxes withheld from his employees and underreporting his income by more than $118,000.

Merrill Lynch & Co. - now the property of Bank of America - has agreed to pay $450 million to settle a subprime collateralized debt obligation lawsuit brought by lead plaintiff the Ohio State Teachers Retirement System. According to the complaint, Merrill Lynch artificially inflated the value of CDOs and other assets backed by subprime mortgages by issuing false and misleading statements about the bonds. In a public filing, Merrill says it settled the case but did not admit any wrongdoing. During the height of the subprime crisis, Merrill financed several non-bank subprime funders, bought their loans and packaged them into ABS and CDO investments, selling them worldwide. Merrill also settled a similar, $75 million case brought against it by employees. In a new SEC filing, the Wall Street firm says that even though a settlement has been reached there is no assurance that a "final" deal will be concluded and gain court approval. According to the law firm of Page, Perry LLC of Atlanta, "This development confirms that even larger, more sophisticated investors can recoup damages when they are misled into purchasing complex investments such as CDOs that are virtually incomprehensible for normal people." It adds that the settlement "may be the first in what is likely to become a trend."

Merrill Lynch & Co. -- now the property of Bank of America -- has agreed to pay $450 million to settle a subprime collateralized debt obligation lawsuit brought by lead plaintiff the Ohio State Teachers Retirement System. According to the complaint, Merrill Lynch artificially inflated the value of CDOs and other assets backed by subprime mortgages by issuing false and misleading statements about the bonds. In a public filing, Merrill says it settled the case but did not admit any wrongdoing. During the height of the subprime crisis, Merrill financed several non-bank subprime funders, bought their loans and packaged them into ABS and CDO investments, selling them worldwide. Merrill also settled a similar, $75 million case brought against it by employees. In a new SEC filing, the Wall Street firm says that even though a settlement has been reached there is no assurance that a "final" deal will be concluded and gain court approval. According to the law firm of Page, Perry LLC of Atlanta, "This development confirms that even larger, more sophisticated investors can recoup damages when they are misled into purchasing complex investments such as CDOs that are virtually incomprehensible for normal people." It adds that the settlement "may be the first in what is likely to become a trend."

After pleading guilty to charges related to his participation in a $3.6 million mortgage fraud scheme, Orlando M. Gonzalez of Wellington, Fla., was sentenced to 46 months in prison. Gonzalez was charged with two counts of wire fraud involving one property. The fraud scheme caused a $400,000 loss to National City Bank. In addition, Gonzalez was charged in another two counts with stealing an individual's identity to obtain an American Express credit account, and then using that credit account to obtain more than $33,000 in money, merchandise and services.

Fannie Mae and Freddie Mac have been directed by their regulator to record -- beginning in 2010 -- identification numbers for loan officers, appraisers and others involved in originating mortgages they purchase in the secondary market. The names of these origination professionals will not be recorded and instead each will be given a number under a new national registry for mortgage professionals. Requiring "identifiers" will allow the GSEs to "monitor performance and trends of their loans," said Federal Housing Finance Agency director James Lockhart. "If originators or appraisers have contributed to the incidences of mortgage fraud, these identifiers allow the enterprises to get to the root of the problem and address the issues." A nationwide licensing and registry system that goes into effect June 30 requires all loan officers and mortgage brokers to have a unique identification number. But the GSE regulator is taking it a step further by insisting on appraiser identifiers. FHFA maintains it is important to detect negligence and fraud. In addition, Fannie and Freddie will be changing their systems to collect loan originator and company identifiers. "Simultaneously implementing collection of appraiser identifiers would be reasonable and practical," the agency said.

After pleading guilty in Suffolk Superior Court to multiple charges in connection with her fraudulent activity in securing subprime mortgages for several unqualified homebuyers, Nicole Lyder of Dorchester, Mass., has been sentenced by Suffolk Superior Court Judge Christine McEvoy to serve two years in prison. Beginning in November 2005, Lyder engaged in fraudulent activity in order to secure subprime mortgage loans for several homebuyers in Dorchester, Randolph and Taunton, Mass. Lyder, working as a mortgage officer for a Quincy, Mass.-based mortgage company, engaged in this activity without the knowledge of the homebuyers and with the knowledge that the buyers would not otherwise qualify for mortgages. After receiving a complaint about Lyder in September 2006, the attorney general's office began an investigation into Lyder's activities, focusing on mortgage loans that Lyder assisted homebuyers in securing (two for properties in Dorchester, one in Randolph and one in Taunton). Investigators found that Lyder had forged business certificates, which contained false information relating to the financial status of the homebuyers. Lyder then submitted those forged business certificates on behalf of the homebuyers. In addition, in each of these four home purchases Lyder also exaggerated the homebuyers' financial standing on various other documents submitted to Fremont in support of the loan applications. As a result of this fraudulent activity, Lyder collected thousands of dollars in commissions.

The electronic registry for tracking ownership of mortgage loans and servicing rights has been expanded to allow the registration of loans where MERS is not the mortgagee of record. These "information only" registrations are being called MERS iRegistrations, and they give members the anti-fraud and tracking benefits of a "MERS as original mortgagee" registration without naming MERS as the mortgagee. The iRegistration procedure can be used to register a loan prior to closing, MERS said. The MERS website is www.mersinc.com.

Yadira Garrido, Jorge Cordero and Maritza Salan were sentenced in connection with their participation in a mortgage fraud scheme. U.S. District Court Judge Federico Moreno sentenced defendant Garrido to 51 months in prison, followed by three years of supervised release and ordered to pay $5.32 million in restitution. Cordero was sentenced to 10 months in prison, three years supervised release and ordered to pay $841,863 in restitution. Salan was sentenced to 60 days in prison, three years of supervised release and was ordered to pay $841,863 in restitution. Another co-conspirator, Ishmett Nazario, was previously sentenced to 41 months in prison, three years supervised release and was to pay $1.44 million in restitution. The defendants were charged for their respective roles in the fraudulent sale of residential property located in Coral Gables, Fla. They subsequently pleaded guilty in November 2008. According to the statements made during the pleas, the defendants transferred the residential property three times within approximately one year, resulting in almost doubling the price of the property from $780,000 to $1.4 million. Garrido purchased the residential property and flipped it to straw buyer Cordero. Cordero then transferred the property to co-defendant Jose Alvarez, who sold the property to a second straw buyer Salan. Garrido provided false employment information to the lender to artificially increase Salan's ability to borrow $1.33 million in loans to purchase the property. Once the sale to Salan was in effect, Salan failed to make a single payment on these loans. The property ultimately went into foreclosure, resulting in a significant loss to the lender.