Compliance

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.

Federal authorities in Newark, N.J., arrested four more individuals last week they believe are responsible for draining millions of dollars from credit unions and banks around the country by tapping into home-equity lines of credit. The arrests make a total of 17 individuals charged in the international scheme by which the suspects engineered fraudulent wire transfers or gained unauthorized access to the victims' online accounts to drain HELOCs, then wired millions of dollars in proceeds overseas. The scheme is reminiscent of the TJX credit card breach, where stolen credit union and bank account information was sold over the Internet and used to siphon millions of dollars from American shoppers from sites all over the world. "Home-equity lines of credit are an expanding front in the battle against mortgage fraud," said Christopher Christie, U.S. attorney for the District of New Jersey. "Homeowners should carefully review their statements to make sure their hard-earned equity is not disappearing from under their noses," he said.

House Financial Services Committee chairman Barney Frank, D-Mass., wants to create a new "set of rules" for the securitization of mortgages and empower servicers to modify loans as part of his 2009 agenda. "Our job is to come up with a set of rules that diminishes excessive risk-taking while still giving us the benefits of securitization," Rep. Frank told a Consumer Federation of America Washington conference. He said issuers of mortgage-backed securities will have to retain some liability. "They can't lay off all of the risks" to investors. Servicers of MBS should be able to make decisions about resolving troubled mortgages, he advocated. The committee chairman also said he expects to pass a tough subprime bill that will do away with yield-spread premiums that gives mortgage brokers an incentive to raise interest rates.

Derrick Polk of Los Angeles, Oludola Akinmola and Oladeji Craig, both of Brooklyn, and Oluwajide Ogunbiyi of Springfield, Ill., have been charged with engaging in an international conspiracy to deplete millions of dollars from U.S. victims' home equity lines of credit using personal information obtained through identity theft and unauthorized computer access. According to the FBI, the four men allegedly conspired to deplete available funds from HELOCs belonging to identity theft victims either by engineering fraudulent wire transfers or by gaining unauthorized access to the victims' online bank accounts. The defendants and their co-conspirators have been accused of acquiring the identity information of thousands of victims and used that information to conduct numerous fraudulent schemes, withdrawing more than $2.5 million from HELOC accounts and attempting to withdraw at least $4 million more in unsuccessful transfers. Hakeem Olokodana and Yomi Jagunna, both of Queens, N.Y., Abayomi Lawal of Brooklyn and Daniel Yummi of New York, have also been charged with conspiring to identify HELOCs with large balances and to acquire all of the confidential customer information necessary to transfer money out of victim accounts.

The United Kingdom's government has made plans for a program designed to help those experiencing a temporary loss of income stay in their homes, according to the U.K. Treasury. "The new Homeowner Mortgage Support Scheme will enable households that experience a significant and temporary loss of income as a result of the economic downturn to defer a proportion of the interest payments on their mortgage for up to two years," the U.K. government entity said. "The government will guarantee the deferred interests payments in return for banks' participation in the scheme," it added. The plan is set to become available early in 2009 and the U.K. government said the eight of largest banks have pledged to work with it in developing the program.

Reported incidents of mortgage fraud in the U.S. increased by 45% on fewer loan applications in the second quarter of 2008 from a year ago, according to a new report released by the Mortgage Asset Research Institute. Key findings from the MARI Quarterly Fraud Report, which is based on data submitted by MARI subscribers on loans originated in the second quarter of this year that have since been classified as fraudulent, include that fraud most often occurs at the beginning of the loan process. According to the report, the top three states for reported incidents of mortgage fraud in the second quarter of 2008 are Florida, California and Illinois. Florida saw a 5% increase in general application misrepresentation in the second quarter, while California saw a 20% decrease. Illinois has the highest percentages of income and employment misrepresentation on the loan application. More than 65% of fraud incidents are attributed to "general application misrepresentation," a trend where information is potentially misrepresented during the application process. This fraud trend is followed closely by reported misrepresentations related to income at 36% of seconds quarter applications and employment at 20% of 2Q08 applications.

A Federal Reserve Board study discovered that banks and thrifts made only a small percentage of subprime loans in their Community Reinvestment Act assessment areas and these findings refute critics who claim CRA lending contributed to the subprime crisis. "Only 6% of all higher-priced [subprime] loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas," Fed governor Randall Kroszner said. This evidence does not support the view that CRA contributed in any substantial way to the subprime mortgage crisis, he added. In examining foreclosure data, Fed researchers also discovered that foreclosure filings have increased at a faster pace in middle-income and higher-income areas than in lower-income areas served by CRA lenders.

In an attempt to spark a housing recovery the Treasury Department is working on a plan that ultimately could lead to a 4.5% 30-year fixed rate loan for consumers. According to combined news reports breaking Thursday morning, Treasury would be the ultimate buyer of mortgage-backed securities that yield 4.5%. Over the past two days 30-year 'A' paper loans were yielding just over 6%. The bonds would be backed by newly originated loans that would be used by homebuyers to purchase new or existing homes. The Department would buy guaranteed MBS from Fannie Mae or Freddie Mac. The loans would meet underwriting criteria of the two GSEs and the Federal Housing Administration. The idea is still in the planning stages and at press time Treasury officials were not commenting about the idea.

Howard Gaines, an attorney and licensed title agent from Delray Beach, Fla., has been convicted of charges relating to his participation in a $10 million mortgage loan scheme to defraud mortgage lenders on properties located in Broward County. Sentencing is scheduled for Feb. 10, 2009. According to the evidence presented at trial, Gaines was a licensed title agent at Your Title Choice in Deerfield Beach, Fla. Gaines, as a title agent, aided co-conspirator Anthony Dehaney and others to close on fraudulent loans. Among the fraudulent documents presented at closings were HUD-1 Settlement Forms, which falsely represented that buyers were using their own money to close on the purchases. The evidence showed that Gaines helped Dehaney close more than $10 million in loans during 2004, 2005, and 2006, including $5 million in fraudulent mortgages. There were seven who were originally arrested and Gaines' conviction was the sixth conviction in this matter. The following five conspirators have pleaded guilty: Anthony Dehaney, Marcia Mestre, Angela Angela Manalaysay, Beverly Ireland and Donna Patricia Grant. The seventh defendant, Andrea Dehaney, is still pending trial.

Roy Keith Fife, a real estate agent from Tucson, Arizona, pleaded guilty to fraud and forgery charges in Pima County Superior Court on Dec. 2, 2008. At the hearing, Fife admitted forging the signature of a client for whom he served as a residential real estate sales agent. Fife forged the signature on loan documents to facilitate the sale of the client's property. Through this sale, Fife obtained a commission of more than $100,000. As a result of Fife's forgery, his client's carryback loan was made junior to a million-dollar equity loan taken out by the buyers. The seller specifically required in the sales contract that his carryback would be in first position. The buyers of the property have since defaulted on both loans. Fife, whose real estate license is now inactive, faces unrelated real estate fraud charges in federal court. His sentencing will occur after his federal trial, now scheduled for October 2009.

A Federal Reserve Board study discovered that banks and thrifts made only a small percentage of subprime loans in their Community Reinvestment Act assessment areas and these findings refute critics who claim CRA lending contributed to the subprime crisis. "Only 6% of all higher-priced [subprime] loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas," Fed governor Randall Kroszner said. This evidence does not support the view that CRA contributed in any substantial way to the subprime mortgage crisis, he added. In examining foreclosure data, Fed researchers also discovered that foreclosure filings have increased at a faster pace in middle-income and higher-income areas than in lower-income areas served by CRA lenders.