Compliance

The Office of Thrift Supervision has suspended a regulator whose career dates back to the S&L crisis for allegedly allowing IndyMac to backdate a capital infusion a few months before the alt-A lender/servicer was seized by the government. The OTS removed Darrel Dochow as director of its western region, which supervised IndyMac of Pasadena, Calif., Washington Mutual, Downey Savings, and several other large, now defunct thrifts that were key players in the subprime and alt-A markets. The matter is now under investigation by the Inspector General's Office of the U.S. Treasury. According to a letter written to Sen. Charles Grassley, R-Iowa, "The impact of West Region Director Dochow's approval to record the capital infusion in the quarter ending March 31, 2008, was that IndyMac was able to maintain its 'well-capitalized' status and avoid the requirement in law to obtain a waiver from FDIC to accept brokered deposits." IndyMac, which was taken over this past summer, was a big user of "hot money" to maintain its base of liabilities. Earlier in his career Mr. Dochow was a top regulator in Washington. In the late 1980s Mr. Dochow wanted the Federal Home Loan Bank Board (the forerunner of the OTS) to negotiate with rogue S&L operator Charles Keating Jr., who was threatening to sue the government. Eventually, Lincoln was seized by the FHLBB in one of the costliest thrift collapses in history, not counting failures that occurred this year.

Fraud prevention firm National Loan Auditors, Walnut Creek, Calif., is now offering an online resource portal aimed at providing clients with up-to-date information on statutes and case law pertaining to lending and foreclosure. The portal includes status updates on all federal, state and municipal legislation, the company said. "NLA Law Portal adds value to our forensic loan audit by providing support for its findings and information on how to effectively use the audit report in legal proceedings," said August Blass, CEO of National Loan Auditors. "Users are given summaries and guidelines that distill lending and foreclosure law into a short manageable synopsis, saving hours in research." Once access has been granted, clients have the ability to search various summary topics such as alternatives to workout agreements, Truth in Lending Act summary, and Home Ownership and Equity Protection Act action steps. State legislation topics also are available. By selecting a state, users will receive current case law and statues in that state. Litigation tools also will be displayed when applicable.

Harland Financial Solutions' Interlinq E3, the company's Web-based loan production platform management system, is providing complete integration with Compliance EAGLE, an automated compliance review service developed by QuestSoft. Compliance EAGLE offers Interlinq E3 users a compliance process within the LOS. Compliance EAGLE uses proprietary rule sets to identify regulatory exceptions. "Harland Financial Solutions has been a valued integration partner of QuestSoft's for more than ten years," said Leonard Ryan, president of QuestSoft in a prepared statement. This integration is said to provide customers with a best practices approach to dealing with regulatory compliance.

Steven Gordon, a former principal at Bayview Financial of Miami, has been indicted in connection with an alleged scheme to inflate the value of mortgage loans and increase his commissions. According to R. Alexander Acosta, U.S. attorney for the Southern District of Florida, Mr. Gordon was a principal at Bayview Financial, a finance company that buys portfolios of loans from lending institutions. Bayview pools certain loans into newly formed business entities, called "special purpose entities," and then issues securities backed by the loans to the investing public. Mr. Gordon held the title of director of residential acquisitions. One of his primary duties was to negotiate the purchase of thousands of loans for Bayview Financial's mortgage securitization program. Mr. Gordon's incentive compensation was based on his ability to buy those loans at a low cost. He allegedly defrauded Bayview Financial by altering credit information affecting the value of more than 2,800 loans he acquired on behalf of the firm. In a statement the company said, "After discovery of these actions, Mr. Gordon's employment was terminated," adding that "No investor suffered any loss as a result of this matter." Mr. Gordon could not be reached for comment.

The National Association of Mortgage Brokers on Friday sued the Department of Housing and Urban Development, seeking an injunction to coming changes under the Real Estate Settlement Procedures Act. In an interview with MortgageWire NAMB president Marc Savitt said, "We're asking for an injunction so the rule will not be finalized." NAMB has a number of complaints with the changes proposed by HUD. The new rules -- which go into effect a year from now -- require yield spread premiums to first be disclosed as a borrower paid item and then a broker credit back to the borrower. NAMB believes this will only confuse mortgage applicants and does not create a level playing field because mortgage bankers are not required to disclose servicing and secondary marketing fees paid to them. The trade group also does not like the new three-page good faith estimate (GFE) disclosure form because it is not itemized (as it is now) and quotes the borrower only one figure. Mr. Savitt said his brokerage has been asking customers whether they prefer an itemized explanation of their closing costs, "and all of them told us yes -- that they want to know how we arrived at that number." In a statement, HUD said, "In this housing market, the nation is crying out for reasonable regulation to help families shop for and save money on the largest purchase of their lives. This rule is that reasonable regulation and it helps consumers to avoid getting into trouble in the first place. It's mystifying why anyone would stand in the way of the kind of transparency this rule brings to the marketplace."

After pleading guilty before U.S. District Judge Keith Ellison, Seth Srader has been convicted for participating in a scheme to defraud residential mortgage lenders. According to Tim Johnson, acting U.S. attorney for the Southern District of Texas, Srader was involved in a mortgage fraud scheme where individuals were recruited to purchase residential properties at or near 100% financing using their good credit. The borrowers were paid from the loan proceeds for their participation in the acquisition of the property. Loan officers at mortgage brokerage offices were used to furnish false and fraudulent information to the lenders. Loan proceeds were disbursed to one or more of the conspirators through checks or wire transfers from the title company to a bank account established in an assumed name. Srader participated in the scheme as a borrower, purchasing two residential properties in the Houston area using false and fraudulent information. The loans Srader obtained, totaling $869,310, eventually fell into default. Srader, one of six people indicted in connection with the scheme, has been permitted to remain free on bond pending sentencing, which has been set for March 3, 2009.

Dorie DiMarca of Andover, Massachusetts, was charged with two counts of wire fraud concerning real estate appraisal services she had performed. According to Thomas P. Colantuono, U.S. attorney for the District of New Hampshire, Ms. DiMarca was arraigned on the charges on Dec. 8, 2008, and entered pleas of not guilty to the charges. The indictment alleges that Ms. DiMarca provided appraisal services to two mortgage brokerage companies located in New Hampshire: New England Regional Mortgage and First Call Mortgage. The indictment further alleges that Ms. DiMarca represented herself as a licensed appraiser when she was not licensed and had no authority to provide real estate appraisals. The indictment lists at least 22 properties in New Hampshire and Massachusetts for which Ms. DiMarca provided a purportedly legitimate appraisal. Ms. DiMarca allegedly e-mailed the appraisals from Massachusetts to the offices in New Hampshire. She was released on bail pending her trial, which is scheduled for Jan. 21, 2009.

U.S. District Court Judge Alan Gold sentenced real estate attorney Joseph J. Weisenfeld to 63 months in prison following his guilty plea to charges stemming from Weisenfeld's misappropriation of more than $3 million in client funds purportedly held in escrow for authorized real estate transactions and related expenses. According to R. Alexander Acosta, U.S. attorney for the Southern District of Florida, Weisenfeld, a licensed attorney, represented individuals and/or entities (mostly buyers) in real estate transactions. As the closing agent in many of these transactions, Weisenfeld would collect funds from buyers and lenders, and would represent to the parties engaged in the transaction that these funds were being held in escrow to be disbursed for various specified purposes, including the satisfaction of pre-existing mortgages. However, he misappropriated the escrowed funds for his use and benefit. Over the course of the scheme, Weisenfeld misappropriated more than $3 million in client funds from his attorney trust account. No fine was imposed and a restitution hearing is scheduled for Jan. 24, 2009.

Gateway Funding Diversified Mortgage Services, Horsham, Pa., has agreed to pay $200,000 to the Federal Trade Commission to settle charges that it engaged in discriminatory lending practices, even though it refutes the allegations. The FTC had originally levied a $2.9 million judgment against the non-bank lender, which was once headed by a top officer of the Mortgage Bankers Association. Gateway had been battling the FTC for three-and-a-half years. The agency alleged that in 2004 and 2005 the lender violated the Equal Credit Opportunity Act. During these two years, Diversified was managed by Regina Lowrie, who served as annual chairman of the Mortgage Bankers Association for 2005/2006. The FTC alleged that Gateway allowed its loan officers to charge overages that resulted in African-Americans and Hispanic applicants paying higher fees and interest rates than whites. But Gateway president and chief executive Bruno Pasceri says the company uses the term overage in an unusual way and it does not mean loan officers can charge overages. "We tried to explain," he said. "But they could not get their heads around that we don't operate like other people." FTC began its investigation in 2005 when Ms. Lowrie was president and CEO of Gateway and MBA chairman. She could not be reached for comment. She left Gateway about two years ago. "We do not discriminate," Mr. Pasceri said. "The only we reason we agreed to settle is because the legal fees are destroying us. Our legal bills were $100,000 a month," he added.

Daniel Adam Rooks, his father Alford Eugene Rooks, Stanley Garfield Williams, Jr., Henry Clay Blake, Jr., and Cynthia Tilley Greer, all from North Carolina, have been charged for scheming to obtain money and property from homebuyers and lenders by materially false and fraudulent pretenses. According to the indictment, from approximately January 1998 until April 2004, Daniel Rooks bought about four tracts of land in Whiteville, N.C., subdivided the properties, put trailers on them and sold them to low-income people from around the area. He originally sold these properties with the aid of family members. He then partnered with two mortgage brokers, Mr. Williams and another individual out of Greenville, N.C., to finance the mobile homes. Daniel Rooks lied to the buyers about the estimated cost of the property, the payment amounts and his ability to secure loans. After taking their Social Security numbers and names, he would turn the information over to Mr. Williams and the other broker, who would falsify the loan applications, sending them in for approval. Mr. Blake, a registered property appraiser, prepared false and inflated appraisals of parcels of property that were submitted to mortgage lenders. Ms. Greer, a paralegal and notary, prepared and notarized real estate documents and arranged and conducted real estate closings, sometimes without the borrower's knowledge or presence and disbursed settlement checks. After the first round of sales were foreclosed, Mr. Williams began buying up the foreclosed property, finding new buyers or getting straw buyers whose names and Social Security numbers he could use to sell them all over again. More than 100 loans allegedly were secured and approximately $6 million in fraudulent funds were received.

Five Ohio residents have been charged for their roles in a mortgage fraud scheme. Paul A. Lesniak of Strongsville, Uri Gofman of Beachwood, Grennadiy Simkhovich of Highland Heights, Dave Pirichy of Burton and Howard Sieferd, Jr., of Euclid, have been charged with allegedly conspiring to purchase 18 properties in the Cleveland area for almost $2 million. The indictment alleges that Mr. Lesniak completed and submitted false and fraudulent loan applications with the assistance of Mr. Pirichy, a broker for Central National Mortgage, which falsified his employment, overstated his income and assets, falsified his intent to occupy the property and concealed the source of the down payment funds, which were provided by Mr. Gofman and Mr. Simkhovich through their company, Real Asset Fund, in order to obtain the financing to purchase the eighteen properties. The indictment also alleges that Mr. Sieferd served as the title agent on the properties and conspired with Mr. Gofman and Mr. Simkhovich to allow the loan proceeds to be fraudulently and improperly distributed. The defendants allegedly did all of this in order to defraud Long Beach Mortgage Company, Argent Mortgage Company and Mortgage IT into funding the loans.

State officials in Nevada have arrested William Vargas, one of three defendants who allegedly operated a foreclosure rescue scam in Las Vegas beginning in February 2007. His business was operated under the name Federal Housing Aid. Two additional defendants are still at large with warrants issued for their arrests: Paula Luna is believed to be in California and Michael Sinclair has reportedly fled to the Philippines. The alleged scheme involved the collection of upfront fees for the purpose of assisting the victims with avoiding foreclosure on their homes. The suspects allegedly charged the victims between $899 and $1,500 for foreclosure rescue services and offered a 100% money back guaranty, claiming their company would refund the money if the foreclosure could not be stopped. Investigators working for the attorney general's Mortgage Fraud Task Force arrested Vargas.

Peter Affatati of Coral Springs, Fla., pleaded guilty to orchestrating a $40 million mortgage fraud scheme involving more than 50 residential mortgages, most in South Florida. In the scheme, Affatati would use straw buyers of the residential properties through his company, Assurance Title. Affatati would falsify the employment, income and assets of the straw buyers to qualify them for large mortgages from institutional lenders. Upon the funding of the mortgage, he would wrongfully divert a large portion of the proceeds for his own use and benefit. Affatati was also convicted of defrauding a victim in North Carolina by selling him fictitious securities in the amount of $390,000.

Eric Philpot of Cincinnati, Ohio, was sentenced to 37 months in prison for a scheme he ran that defrauded mortgage lenders out of more than $200,000 in less than two years. Philpot, who pleaded guilty on June 17, 2008, to one count of mail fraud and one count of conspiracy to commit money laundering, solicited people to buy residential properties and helped them secure financing by providing lenders with false information about the buyers' income, source and scope of the down payments and other information. Additionally, Philpot failed to disclose to the lenders material information about the true nature of the real estate deals so that appropriate business decisions could be made by the lenders. Philpot admitted that, once the loans were approved, he maintained control both of the properties that were often deeded in the names of others and the loan proceeds. These actions led to losses for the lenders. Philpot also fraudulently obtained financing for the sale of one property while he knew he was under federal investigation for mortgage fraud. A hearing is scheduled for Feb. 2, 2009, to determine the amount of restitution Philpot must pay.

After pleading guilty on Oct. 2, 2008, to charges relating to a mortgage fraud scheme, Marty Ray Folwick, a real estate officer from Portland, Oregon, was sentenced to 63 months in prison, followed by 48 months of supervised release. In addition, Folwick was ordered to pay $536,514 in restitution to one bank. Other victim banks will have 60 days to seek further restitution. Folwick's scheme related to a single property in Woodburn, Ore., which was purchased for $390,000. Folwick found buyers for the property and then falsified their loan application by overstating their monthly income, failing to disclose that the buyers had an outstanding mortgage on another property, and failing to disclose that Folwick was receiving a $25,000 kickback from the transaction. At the plea hearing, prosecutors argued that Folwick had engaged in similar illegal conduct with respect to almost 70 properties. The government submitted a memorandum asserting that there were 32 victim banks and 21 straw buyers used by Folwick to perpetuate his mortgage fraud scheme.

Fannie Mae and Freddie Mac are projected to force mortgage originators to buy back over $1 billion in whole loans in 2009 because of misrepresentations or fraud, according to their regulator. "In 2006 and 2007, the underwriting was so poor and there was a lot of mortgage fraud," Federal Housing Finance Agency director James Lockhart told reporters. "They have the right under their agreements to require the originator to repurchase the loan," he added. The government sponsored enterprise regulator indicated the buybacks could range from $1 billion to $1.5 billion. Buybacks can put "some real discipline into the origination system," the GSE regulator told a Women in Housing and Finance luncheon. "If you know you are going to get the mortgage back, you may be a little more careful in the future," he said.

U.S. District Judge J. Frederick Motz sentenced Marny Arlen Bailey of Highland, Md., to 21 months in prison followed by five years of supervised release for wire fraud in connection with a scheme to steal real estate settlement funds that were intended to pay off the homeowners' previous loans. Judge Motz also ordered that Ms. Bailey pay restitution of $877,000 to the title company who paid off the homeowners' loans after the fraud was discovered. According to Rod J. Rosenstein, U.S. attorney for the District of Maryland, Ms. Bailey owned Executive Settlements, a company that handled residential real estate closings. Whenever real property that was subject to a lien or mortgage was sold or refinanced, Executive Settlements and Ms. Bailey were obligated to pay the original mortgage lender out of the proceeds of the transaction. Beginning in late 2007 or early 2008, Ms. Bailey used funds, which were intended to pay off mortgage lenders, for her own purposes. In early 2008, she diverted whole settlement amounts to her personal accounts and started gambling in an attempt to recoup the amounts she had stolen. When the bank where Bailey had her escrow account advised her to take her business elsewhere, Bailey transferred the balance in her escrow account, over $184,000, to an operating account and spent it. In February and March of 2008, she stole settlement monies from as many as four homeowners, for a total of over $877,000. The FBI arrested Bailey on May 23, 2008 in Atlantic City, N.J., where she was living in casinos and gambling.

Rosario Divins, a self-represented foreclosure prevention specialist from San Antonio, has been arrested for allegedly engaging in a fraudulent foreclosure prevention scheme. According to Johnny Sutton, U.S. attorney for the Western District of Texas, Divins allegedly unjustly enriched herself by collecting large sums of cash or property titles from individuals in desperate financial situations who responded to her mail offering to stop their residential foreclosures. Despite three separate sanctions from the U.S. Bankruptcy Court for the Western District of Texas ordering her to stop misrepresenting herself and making false promises to her clients, the indictment alleges that Divins has continued to implement her scheme.

President-elect Barack Obama said his economic recovery package will include a program to stem foreclosures along with new regulations to prevent the speculation and over-leveraging that fueled the housing boom. The package will include a "strong set of new financial regulations in which banks, rating agencies, mortgage brokers, a whole bunch of folks, have to be much more accountable and behave much more responsibly," Mr. Obama said on NBC's "Meet the Press" on Dec. 7, 2008. "We've got to have transparency, openness and fair dealing in our financial markets," he added. The former Illinois senator also stressed that foreclosure prevention is going to be a "top priority" of his administration. He noted that reducing foreclosures would help stabilize the housing market and financial institutions.

After pleading guilty to charges relating to participating in a mortgage fraud scheme totaling more than $6.5 million, three Palm Beach County residents have been sentenced. Lauren Jasky was sentenced to 36 months in prison followed by five years of supervised release. Ralph Michel was sentenced to 30 months in prison followed by four years of supervised release. Berry Louidort was sentenced to 37 months in prison followed by five years of supervised release. According to R. Alexander Acosta, U.S. attorney for the Southern District of Florida, the Florida Office of Financial Regulation audited 24 subprime mortgage loans initiated by Boca Raton-based Compass Mortgage Service. The initial audit revealed that the loans included excessively large fees, ranging from $29,000 to $650,000, paid to Louidort and Michel. The fees were described as marketing and/or assignment fees but were in fact kickbacks to Louidort and Michel based on inflated sales prices. Jasky, who served as senior vice president of Compass Mortgage, originated the majority of the suspect loans.