Fraud Files IX

FBI: Mortgage lenders, borrowers beware

"Consequences of fraud, criminal activity can result in steep fines and lengthy prison terms.

The Federal Bureau of Investigation, seeking to stem a rising tide of crime in home financing, said Thursday it will warn borrowers and lenders that mortgage fraud can result in stiff fines and prison time."

"The FBI is targeting "industry insiders" in pursuing a "pervasive and growing" problem, it said in a report released Wednesday. Heightened focus on mortgage fraud comes as the downturn in U.S. housing heads into a second year, pressuring lenders already beset with surging delinquencies."

"Suspicious activity reports regarding mortgage fraud schemes that included property "flipping" and inflated appraisals have more than doubled to 35,617 in the two years through 2006, the FBI said in a statement. The reports reflect losses of about $946 million, it said."

Oops... something tells me the old mortgage broker/real estate agent "everyone does it" excuse is going to get them a nice room reserved for them at the county jail.

"The once-booming housing market and rising popularity of nontraditional home loans have produced an unwanted byproduct: a 35 percent increase in suspected mortgage fraud.

A new report by federal regulators indicates the fraud is being perpetrated by people seeking to buy homes or others in cahoots with brokers and agents who cheat the system."

Top 10 states for mortgage fraud

1. Utah
2. Florida
3. California
4. New York
5. Idaho
6. Michigan
7. Arizona
8. Georgia
9. Minnesota
10. Illinois

10 red flags that could indicate fraudulent or predatory lending practices. Here are a few:

- asking the applicant to lie on a loan application or to leave certain fields blank.

- encouraging a client to refinance more than once in a short period of time. Borrowers sometimes find that monthly payments rise after each refinancing, a possible sign that the mortgage broker or lender doesn't have their best interests in mind.

- a loan value that exceeds the value of the house. That can indicate a loan officer who wants a bigger commission. It can also indicate an attempt to squeeze extra equity from the real estate, as alleged in recent lawsuits filed against a Murrieta brokerage.

- Another potential problem comes when homebuyers allow their real estate agent to act as their loan officer, Bonawitz said. The practice became more common in 2003 and 2004 when there was a sudden flood of deals and not always enough real estate professionals to handle them.


"Arizona has shot up to No. 7 in a ranking of states with the greatest amount of mortgage fraud, blowing past the 23rd spot it held the previous year.This is the highest Arizona has placed on the Mortgage Asset Research Institute's annual fraud survey, which is based on the number of mortgage fraud cases per total of state home loans. Data from the nation's biggest lenders are used to compile the survey."

"Arizona saw the biggest jump in mortgage fraud from 2005 to 2006 largely because of a wave of cash-back deals last year. The deals involve getting a loan for more than a home is worth and pocketing the extra cash.It's a scam that inflates home prices in neighborhoods, leaves recent home buyers possibly owing more than their house is worth and can cost lenders millions of dollars due to bad loans."

"Metro Phoenix's overheated housing market in 2004 and 2005 opened the door for cash-back fraud. Then, speculators sparked bidding wars and pushed up home prices. At the time, fraud was committed by investors lying on applications to purchase multiple homes. But the real problems began as the market slowed and investors could no longer quickly flip homes for a big profit."

"Groups made up of everyone from investors to real estate agents, loan officers and appraisers began devising schemes to do cash-back deals. "Really hot real estate markets mask mortgage fraud," said D. James Croft of the Mortgage Asset group, which tracks fraud for the Mortgage Bankers Association. "When home prices level off like they have in Arizona, fraud becomes apparent."'


"More than 20 homeowners are pursuing legal action against a Greeley home builder and his associates, who they say defrauded them into purchasing homes out of their price range by falsifying documentation to approve them for the loans."

"Families began organizing Feb. 27 after several have either filed or have considered foreclosure. The homes, located in the Gateway Lakes subdivision in southwest Greeley, were purchased in the last two years from builder Mark Strodtman of JS Real Estate LLC."

"The homeowners said Strodtman and people who worked with him falsified their employment information, annual earnings and gave them money to temporarily deposit in their bank accounts to make it seem as if they had more money."

"Homeowners also claimed Strodtman gouged the prices on the homes before selling them as much as $70,000 more than market price in some cases."

"Homeowners said they worked with Jessica Feliciano and Charles Brandt, with JC Distinguished Finance, to get approved for the homes. Brandt refused comment and Feliciano could not be reached for comment."

"Strodtman said he hires outside sources to do the loans because he is not a lender, mentioning Creative Mortgage, Professional Mortgage Solutions, among others he works with. He said it was not his job to do the loan process and terms, but says he worked with Brandt and Feliciano on many of the homes."


"San Diego law firm Lerach Coughlin Stoia Geller Rudman & Robbins LLP announced that a class action has been commenced in the United States District Court for the Northern District of Georgia on behalf of purchasers of Beazer Homes USA, Inc. common stock during the period between July 27, 2006 and March 27, 2007."

"The complaint alleges that during this period, defendants issued false and misleading statements regarding the Company's business and prospects and failed to disclose to the investing public the following adverse facts:"

(a) the Company lacked requisite internal controls over its lending practices, which, as a result of its improper lending practices prior to and during the Class Period, would lead to numerous foreclosures and other problems;

(b) the Company's business was growing in large part due to its improper lending practices to low-income borrowers;

(c) many of the Company's buyers would not be able to pay their loans after the first two years, which would lead to decreased sales and earnings and numerous foreclosures; and

(d) given the increased volatility in the lending market, the Company had no reasonable basis to make projections about its 2007 results and as a result, the Company's 2007 projections issued during the Class Period were at a minimum reckless. As a result of defendants' false statements, Beazer stock traded at artificially inflated prices during the Class Period, reaching a high of $48 per share in December 2006, and the Company's CEO and CFO were able to sell over $9.7 million worth of their Beazer stock.


"State officials on Tuesday announced the formation of a task force to better coordinate efforts to root out mortgage fraud in Missouri."

'“Mortgage fraud affects lenders, mortgage brokers, Realtors, appraisers and, most important, consumers,” said Doug Ommen, director of the Missouri Department of Insurance, Financial Institutions & Professional Registration."

"The Missouri effort takes place against a backdrop of growing concern nationally. Many subprime lenders, who were all-too willing to make risky loans at high interest rates in boom times, are now facing rising defaults threatening their existence."

"Recent estimates place the annual losses caused by mortgage fraud at more than $4 billion, more than triple the estimates of a year ago. Investigators have rated Missouri sixth nationally in the number of mortgage fraud cases."

"The Mortgage Bankers Association Tuesday said it had jointly approved with the FBI a mortgage fraud warning notice to be used by its members. Ommen said a big challenge to stopping the fraud is that it usually involves a clandestine web of conspirators that include unethical mortgage brokers, appraisers, investors, real estate agents and lenders."

'“What this group is looking for are ways to identity the problems at an earlier stage,” he said."


"The two men stood on a front lawn they both thought was theirs. They avoided eye contact and did not speak. A sheriff's deputy took the house key from one man and told him he risked a trespassing charge if he returned."

"The other man walked into the home he had once made beautiful and found it in disrepair.
"He was my best friend," he said of the man who had left. Now he felt like killing him."


"Teri Allen and her mother, Jacquie, thought Edward Seung Ok would rescue them from losing their Anaheim Hills home after they'd gotten behind on their house payments. Instead, he transferred title to their house to a sham buyer, borrowed huge sums against it and pocketed the loan proceeds, the Allens would later allege in a fraud lawsuit."


"Leif Brogren’s employer, Kitty Hawk Air Cargo, had filed bankruptcy nearly two years before. But now the company was saying the Fort Wayne operation could close and workers could be out of their jobs. With three children at home and the possibility of a layoff looming, Brogren searched for alternative income. He turned to the real estate market, thinking he could make money renting out houses."

"As he explored breaking into the rental business, he was introduced to Rex Wells, one of the biggest landlords in Fort Wayne’s rental market, who promised to help him get started."

"Five years later, the 70 houses Brogren bought from Wells have been foreclosed on, Brogren has filed bankruptcy, the mortgage brokerage that secured the loans for him has been dissolved, more than a dozen participants in the deals are defendants in a federal lawsuit, and Wells’ sales of 149 homes are under investigation by a federal grand jury and the FBI ."


"Three Anchorage residents have pleaded guilty to charges that they were part of a mortgage fraud ring. The three are part of a group of seven Anchorage residents federal prosecutors have charged with deceiving mortgage lenders by overstating income and assets on loan applications."

"The ring used the money to buy residential properties and then sell them at higher prices, federal charging documents say. Altogether, the group netted at least $750,000 in profits from those sales, federal prosecutors assert."

"The conspiracy started in 2002 and involved loan amounts ranging from $156,000 to $796,000, according to the government's charging documents. Hasipi, Dorman and Marquiss each admitted before Chief U.S. District Judge John W. Sedwick this week that they had acted as "nominee borrowers," or stand-ins for a co-conspirator, who was the true beneficiary of the transactions, Cohen said."

"In December, federal prosecutors accused Kourosh Partow of being the ringleader, falsifying documents while he was a manager at the Anchorage branches of national mortgage companies Countrywide Home Loans and American Home Mortgage."


"According to one research group, the state of Utah is the worst in the country when it comes to home mortgage fraud. After years in the top five, the state overtook Florida to move into the No. 1 spot based on 2006 data compiled by the Mortgage Asset Research Institute (MARI)."

"On a per-capita basis, Utah has 2 1/2 times the national average of loans containing alleged fraud or serious misrepresentation, said Jim Croft of MARI. In the category of subprime loans made to people with marginal credit, the rate of fraud is even worse - three times the national average, he said. Many people don’t realize they’re being scammed until it’s too late."

"Sean Anderson was sold on a deal to build a house and earn fast equity.“It sounded like a great deal,” says Sean. “They hooked us up with the mortgage company, hooked us up with the appraisal, which came in um at $464,000. And I built the house for $425,000.”'

"Sean was told he could use the equity to make the payments.What he didn’t know was the agent and lender used an inflated appraisal.“I can’t make the payments,” says Sean. “There was no equity.” Cases like Sean’s put Utah at the top for mortgage fraud."

"Mortgage fraud takes many forms. A buyer lies on a loan application. A mortgage lender inflates someone's income so they can qualify for a loan. A crook uses someone else's Social Security number and uses it to buy a home."

COMMON TYPES OF MORTGAGE FRAUD

* Application fraud: Buyers lie on a loan application or supporting documents to ensure they qualify for a home loan, or so they can borrow a larger amount of money. '

* Straw' buyers: Crooks use someone else's identity to obtain a mortgage and can pursue a related type of fraud called equity skimming, in which they cash out of any equity in the property.

* Lender fraud: Lenders want so badly to make a loan, they lie on a loan application to ensure it will be approved.

* Lease scams: Buyers may think they are getting a home but are actually signing long-term lease agreements with an option to buy the home sometime in the future.

"MARI is the most comprehensive collection agency for mortgage fraud. The agency collects data not only from cases of fraud being pursued by legal and regulatory agencies, but those not reported to authorities."

"Another source of information about fraud is the website www.perfecthomeliving.com. They are a nonprofit group that tracks fraud and tries to educate consumers about the problem."