Compliance

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.

After being found guilty in April 2008 of charges related to a scheme obtaining property via forged deeds, Duane McKinney of Washington, was sentenced in the U.S. District Court for the District of Columbia before the Honorable Judge Reggie B. Walton to 150 months in prison and ordered the defendant to pay $912,630 in restitution and to forfeit three luxury vehicles and two real properties. The court also ordered two money judgments in the amounts of $770,872 and $59,000. The evidence established that McKinney obtained title to about $1 million worth of D.C. and Maryland properties through forged deeds. In fact, the owners did not sign the deeds, as the vast majority of the owners were dead at the time of the forged deeds. Co-conspirator Joe D. Liles assisted McKinney by signing his name to these false deeds as the notary falsely stating that he saw the owner sign the deeds as grantor and that the owner personally appeared before him. Once the deeds were notarized, McKinney would sell the properties as if they belonged to him or his business and would use the money for himself. Liles pleaded guilty on Jan. 16, 2008, to a charge of false statements and was sentenced on Jan. 6, 2009, to 180 days of a suspended sentence, three years probation and to pay restitution of $691,587.

The Department of Housing and Urban Development is launching a new advertising campaign on Jan. 14 to alert troubled homeowners about foreclosure rescue scams. Outgoing HUD secretary Steve Preston will make the announcement along with New York City Mayor Michael Bloomberg at a press conference that morning to be held at the offices of Neighborhood Housing Services in New York. The new campaign, called "Keep Your Home. Know Your Loan." seeks to fight the proliferation of rescue scams that "often victimize struggling homeowners and push them closer to financial ruin," HUD said. The Federal Trade Commission recently sanctioned a Florida-based operation, Mortgage Foreclosure Solutions, which promised, for a $1,200 fee, to stop foreclosures and save their clients' homes. "Many consumers who paid the company ultimately lost their homes to foreclosure, and others avoided foreclosure only through their own efforts," FTC said.

The Federal Home Loan Bank of Seattle told its members on Jan. 12 (depositories mostly) that it may not meet its risk-based capital requirement for the period ending Dec. 31, blaming accounting rules that affect the value of its investment in private label mortgage-backed securities. In a letter to members, the FHLB says it must mark-to-market the non-prime assets, incurring a charge that is larger than any loss it anticipates on these investments. "We believe that the calculation of risk-based capital under the current rules significantly overstates our market risk in the current market environment," writes president Richard Riccobono, a former top thrift regulator in Washington. In the third quarter the bank took a $49.8 million charge on its private label investments, and lost $18.8 million in the quarter. If the FHLB cannot meet it risk-based capital goal it will be unable to pay dividends to members.

Edward Gotschall, co-founder of New Century Financial Corp. - once one of the largest subprime lenders in the nation - died late last week of natural causes, according to a report in The Orange County Register. He was 53. New Century's collapse is now the subject of a criminal investigation by the Department of Justice. Mr. Gotschall and three others founded New Century in 1995. He managed the books of the publicly traded company and worked with Wall Street investment banking firms. The company failed in early 2007. At one time, Merrill Lynch had considered buying it but passed on the deal. At its peak it was funding $60 billion in mortgages, according to the Quarterly Data Report.

A St. Louis man has pleaded guilty to mortgage fraud charges in connection with loans extended by Wells Fargo Home Mortgage and others. In the scheme Henry Broussard admitted to using phony gift letters to convince mortgage lenders that buyers were financially suitable to purchase properties owned by Broussard, when in fact he had provided the funds to satisfy downpayment requirements of various lenders. Broussard also admitted to fraudulently obtaining a loan of approximately $60,000 from Wells Fargo Home Mortgage. In all, Broussard admitted his fraudulent activities involved in excess of $120,000 of actual and intended losses. Broussard pleaded guilty to mail fraud before U.S. District Court judge Henry E. Autrey. Sentencing is set for April 2009.

Craig A. Long of Kansas City, Missouri, has pleaded guilty to federal mortgage fraud charges. In his plea, Long admitted he conspired with others to defraud lenders by submitting fraudulent loan applications and false real estate appraisals. Long and his co-conspirators obtained loans for purchase or refinancing of real property by submitting to the Federal Housing Administration and other lenders loan applications containing false information about borrower's identities, employment and income, as well as false information about liens, occupancy and sales contracts. In June 2005, he provided false information to lenders for money to finance the purchase of a house in Kansas City. A sales contract falsely represented there was a $43,800 lien on the property. The loan application falsely stated the buyer was earning $8,500 a month as the owner of a construction company when in fact the buyer was retired and living on Social Security. Additionally, the value of the property was fraudulently inflated. Sentencing is set for Apr. 6, 2009.

Michael P. Rumore, who ran his law practice from his Lyndhurst, N.J., home, pleaded guilty to stealing approximately $4 million entrusted to him for real estate closings, which he used to gamble in Atlantic City. Rumore entered his plea before Superior Court Judge Harry G. Carroll in Bergen County to first-degree money laundering and second-degree theft by failure to make required disposition of property received. Rumore was hired as an attorney and settlement agent for real estate purchasers. Between April 2007 and August 2008, he received approximately $4 million from various mortgage companies to disburse the funds for closings and use them to pay balances on existing mortgages and other associated costs and fees. Rumore admitted that he instead transferred the funds into his personal and business accounts and used them to gamble at casinos in Atlantic City. Rumore surrendered his license to practice law in the state and was disbarred by the Office of Attorney Ethics in September 2008. Sentencing is scheduled for Apr. 17, 2009.

Timothy Pearson of Beavercreek, Ohio, was sentenced to 20 months in federal prison, followed by three years of supervised release and ordered to pay $171,211 in restitution to the Internal Revenue Service for his role in a mortgage fraud scheme. Pearson had previously been employed as a loan officer. Pearson pleaded guilty on March 12, 2007 to one count of conspiracy to commit money laundering and to two counts of income tax evasion. According to court documents, Pearson was involved in a mortgage fraud conspiracy between March 2001 and December 2005 where he directly and indirectly participated in at least 365 fraudulent real estate closings in the greater Dayton, Ohio area. Pearson prepared and submitted fraudulent mortgage loan applications on behalf of prospective purchasers of residential properties, a majority of which were located in the Dayton area. In addition, Pearson fraudulently provided downpayments for the purchasers at the real estate closings.

Federal regulators have decided to give banks and thrifts Community Reinvestment Act credit for helping to prevent foreclosures. "Examiners may consider favorably" the establishment of loan programs to modify and restructure mortgages for homeowners facing foreclosure, according to a newly revised "Interagency Questions and Answers Regarding Community Reinvestment." Banks can also receive community development services points by providing foreclosure prevention programs to low- and moderate-income homeowners. "The new and revised Questions and Answers encourage financial institutions to participate in foreclosure programs that have the objective of providing affordable, sustainable, long-term restructurings and modifications for homeowners who are facing foreclosure on their primary residences," according to a joint statement by the regulators.

In downgrading its ratings on Carmel, Ind.-based insurance company Conseco Inc., Fitch Ratings cites concerns with the company's commercial and residential mortgage investments. "Fitch believes Conseco's statutory capital will be pressured by impairments in the deteriorating market for commercial mortgage backed securities and commercial mortgages. Fitch also notes Conseco's exposure to a sizable but highly rated alt-A residential mortgage-backed security portfolio and below-investment-grade fixed maturity corporate securities that are greater than 100% of statutory capital. The company has a meaningful exposure to GAAP unrealized losses on its investment portfolio that under statutory accounting rules are not reflected in capital," the rating agency said. The report added that Conseco is working on various initiatives to improve statutory capital and the future of its ratings will be based on the ability to improve is financial profile.