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The FBI Investigates Mortgage Fraud!

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September 30, 2008

Cash Back Rebate Coupon Scheme Lands Terry Mahon in Jail for 13 Years

John C. Richter, the United States Attorney for the Western District of Oklahoma, announced last Friday afternoon that Terry Hugh Mahon, 69, of Broken Arrow, Oklahoma, has been sentenced to 13 years in federal prison in connection with a fraudulent investment scheme involving cash-back rebate coupons and home mortgages.

On March 26, 2008, a jury found Terry Mahon guilty on charges of conspiracy, mail fraud, and money laundering. Mahon has been incarcerated since the jury’s verdict in March. A co-defendant, Grover Harold Phillips of Stillwater, Oklahoma, pled guilty to conspiracy and money laundering on March 21, shortly before trial. His sentencing is pending.2008-10-01_0017.jpg

Mahon and Phillips concocted a scheme whereby they falsely promised buyers and homeowners that if they took out a new mortgage or refinanced their existing mortgage they could pay it off in just five years, but there was just one catch — they had to buy a bogus “cashback rebate coupons” which promised financial freedom but delivered nothing but misery.

Starting in the year 2000, Terry Mahon operated a Nevada corporation called Rebates International, Inc., with its office in Hollister, Missouri. Grover Phillips worked in tandem with Mahon through a Nevada business trust called Amsterdam Fidelity Business Trust (Amsterdam’s offices were located in Phillips’s home in Stillwater, Oklahoma).

The evidence at trial showed that from 2000 to 2003, Phillips and Mahon worked with other people, including Emzie Huletty of Oklahoma City, to sell cashback rebate coupons that would supposedly allow purchasers to pay off their home mortgages in five years.

Mahon and the other conspirators made false representations that if victims paid 17% of the value of their homes to them, they would receive rebate coupons worth the entire value of their homes. The money that they paid was to be invested in high-yield trading programs, according to court documents. At the end of five years, the victims could supposedly redeem these rebate coupons for face value and pay off their mortgages.

Many victims re-financed their homes to generate the 17% required to participate in the program.

According to U.S. Attorney Richter, the jury in Terry Mahon’s case heard more than two days of testimony, including evidence offered by victims who took out mortgages so that they could pay tens of thousands of dollars into the program. The evidence presented at trial demonstrated that the only investment in anything resembling a “high-yield” trading program was a $50,000 payment in April of 2002 to OsGold, a massive Ponzi scheme that folded in the wake of a federal investigation.

The jury in this case also heard evidence that Terry Mahon and other conspirators siphoned off hundreds of thousands of dollars that were supposedly to be invested for the benefit of coupon holders.

After deliberating just over an hour, the jury convicted Mahon on all four counts in which he was charged. These included conspiracy to commit mail fraud, using a commercial interstate carrier to commit fraud, engaging in a financial transaction over $10,000 in criminally derived proceeds, and engaging in a financial transaction designed to conceal the nature of the funds involved.

Terry Mahon was sentenced to 13 years in prison for his crimes. He was also ordered to pay $3,079,684.95 in restitution to hundreds of victims and is subject to a forfeiture order in the amount of $1,061,294.85.

Emzie Huletty, who operated EASE Corporation, Vision Services, Inc., and Sunset Financial Group, all located in Oklahoma City, pled guilty to mortgage fraud on March 24, 2006, and was sentenced to two years in prison.

Hats off to the great investigative work conducted by the FBI and the Criminal Investigative Division of the IRS with the assistance of the Oklahoma Department of Securities.

Posted By: Ralph Roberts @ 11:21 pm | | Comments (2) | Trackback |
Filed under: Cash Back at Closing,Oklahoma

September 24, 2008

Nationwide Mortgage Fraud Coordinator Act of 2008

If anyone is interested in reading or commenting on H.R. 6853, the Nationwide Mortgage Fraud Coordinator Act of 2008 (which was passed by Congress by a vote of 350-23 earlier this week), here is the full text:

Congress Vote for HR 6853.jpg

Nationwide Mortgage Fraud Coordinator Act of 2008 (Engrossed as Agreed to or Passed by House)

HR 6853 EH

2d Session
H. R. 6853


To establish in the Federal Bureau of Investigation the Nationwide Mortgage Fraud Coordinator to address mortgage fraud in the United States, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,


This Act may be cited as the `Nationwide Mortgage Fraud Coordinator Act of 2008′.


(a) Establishment- The Director of the Federal Bureau of Investigation shall assign the Chief of its Financial Crimes Section, Criminal Investigative Division, in addition to other assigned duties, to be the Nationwide Mortgage Fraud Coordinator.

(b) Duties of the Coordinator- The Nationwide Mortgage Fraud Coordinator shall oversee all Federal Bureau of Investigation activities related to the investigation of mortgage fraud, including the following:

  1. Establishing and operating regional task forces, consisting of the voluntary participation of Federal, State, and local law enforcement and prosecutorial agencies, to organize initiatives to investigate mortgage fraud, including initiatives to enforce all pertinent Federal and State mortgage fraud laws.
  2. Providing training to Federal, State, and local law enforcement and prosecutorial agencies with respect to mortgage fraud, including related Federal and State laws.
  3. Collecting and disseminating data with respect to mortgage fraud, including, to the extent practicable, Federal, State, and local data relating to mortgage fraud investigations and prosecutions.
  4. Preparing an annual report describing the Federal Bureau of Investigation’s efforts to combat mortgage fraud and the results of these efforts. This report shall be submitted by the Federal Bureau of Investigation to Congress. The initial report shall be submitted no later one year after the date of the enactment of this Act.
  5. Making recommendations to the Director as to the need for resources to combat mortgage fraud.

  6. Performing other duties as assigned that are related to the investigation and prosecution of mortgage fraud.

(c) Optional Functions- The Nationwide Mortgage Fraud Coordinator shall have the following optional responsibilities:

  1. Establishing a toll free hotline and other information systems for–
  2. (A) receiving reports of mortgage fraud;

    (B) providing the public with access to information and resources with respect to mortgage fraud; and

    (C) directing reports or allegations of mortgage fraud to the appropriate Federal, State, or local law enforcement and prosecutorial agency, including any appropriate regional task force.

  3. Creating a database with respect to suspensions and revocations of mortgage industry licenses and certifications to facilitate the sharing of such information by States.

(d) Optional Responsibility of the Department of Justice- The Department of Justice, upon consideration of any recommendations by the Nationwide Mortgage Fraud Coordinator, may–

  1. propose legislation to Federal, State, and local legislative bodies to assist in the detection, investigation, and prosecution of mortgage fraud, including measures to address mortgage loan procedures and property appraiser practices that provide opportunities for mortgage fraud; and
  2. make recommendations to Congress as to the need for additional resources to combat mortgage fraud.

(e) Sunset- This section shall sunset September 30, 2015.

Passed the House of Representatives September 22, 2008.

Posted By: Ralph Roberts @ 10:44 am | | Comments (7) | Trackback |
Filed under: Legislation,Mortgage Fraud

September 23, 2008

Mortgage Fraud and the Housing Bailout

PaulsonFreddieFannieImage by robertodevido via FlickrAs everyone knows by now, late last week the U.S. government announced it would ask Congress for the authority to issue up to $700 billion of Treasury securities to finance the purchase of troubled assets, including residential and mortgage-related assets, which include mortgage-backed securities. The move–as defended today by Treasury Secretary Henry M. Paulson, Jr. before the U.S. Senate Banking Committee–purports to stabilize the U.S. economy, which I have long maintained is being rocked to its very core by real estate and mortgage fraud.

The news about the government’s proposal has been fast and furious, with objections popping up on an hour-by-hour basis since last Friday (which partly explains my silence over the last four days… literally, it has been difficult to tell what the latest proposal actually calls for or means to distressed homeowners and taxpayers alike).

While members of Congress have generally balked at rubber-stamping the Treasury’s plan to remove illiquid assets from the banking system, illiquid assets may be the result of the problem but they are not the problem itself. The problem is (and will continue to be, until something drastic is done to fix it) the fraudulent lending practices and sloppy underwriting oversight that placed disadvantaged borrowers and billions of dollars of bad loans into the stream of commerce via the secondary market. Banks, lenders, and investors are now all suffering from their own bad judgment and poor oversight, while the rest of us–the taxpayers–are going to foot the bill that eases their suffering.

The house of cards we’re all surrounded by was always going to fall (for evidence of this, look no further than to the fact that real estate and mortgage fraud has been classified as the “fastest-growing white collar crime in America” by the FBI for last four years). And if you can’t see a direct correlation between real estate and mortgage fraud and the housing crisis, the failure of AIG, and this $700 Billion bailout, then you’re either completely naive or you’re just not looking hard enough.

Take AIG for example. A lot of people may be wondering how a major insurance corporation’s failure can be tied to real estate and mortgage fraud. Well, as Lehman Brothers suffered a significant decline in its own share price last week, analysts began comparing the types of securities held by AIG and Lehman, and guess what? They found that AIG had valued its Alt-A and sub-prime mortgage-backed securities at 1.7 to 2 times the rates used by Lehman. Hello, can you say “panic!”

And this just in: The FBI has now opened an investigation into possible fraud involving AIG, Fannie Mae, Freddie Mac, and Lehman Brothers. Meanwhile, Congress just passed by a vote of 350-23, HR 6853 EH, otherwise known as the “Nationwide Mortgage Fraud Coordinator Act of 2008,” which provides the FBI with additional and dedicated resources for fighting real estate and mortgage fraud.

Stay tuned… there’s lots more to report and comment on!

Posted By: Ralph Roberts @ 11:52 pm | | Comments (8) | Trackback |
Filed under: Mortgage Fraud,Mortgage Meltdown

September 18, 2008

Real Estate Fraud and the New York Yankees

Details are now emerging from a Congressional subcommittee hearing that seem to suggest that the City of New York, along with the New York Yankees, may have committed real estate fraud in their attempt to pay for the construction of a new $1.3 Billion stadium in the South Bronx.

Richard Brodsky.jpg According to the Interim Report into Public Financial Assistance for the New Yankee Stadium, which was prepared for the House Oversight and Government Reform Committee’s Subcommittee on Domestic Policy by New York Assemblyman Richard L. Brodsky, City of New York officials intentionally misrepresented to the Internal Revenue Service (IRS) the value of the stadium’s property, which in turn helped the City secure special tax deals from the federal government.

Apparently, the City of New York used comparable land values in the borough of Manhattan rather than the Bronx to place a value for the new property upon which the stadium is being built. (The new ballpark is being constructed across the street from the current one, on the present site of Macombs Dam Park.)2008-09-18_1734.jpg

Today’s House Oversight and Government Reform subcommittee hearing in Washington, D.C., was called by Congressman Dennis Kucinich (Democrat, Ohio), Chairman of the Subcommittee on Domestic Policy, to examine whether the use of the federal tax code to subsidize the construction of professional sports stadiums and arenas furthers the public interest. It was the third hearing held by Kucinich’s group on this subject and the first to examine alleged improprieties in the financing process of the New York Yankees new stadium.

Dennis Kucinich.jpg “In the case of the new Yankee Stadium,” Congressman Kucinich said, “not only have we found waste and abuse of public dollars subsidizing a project that is for the exclusive benefit of a private entity, the Yankees, but also we have discovered serious questions about the accuracy of certain representations made by the City of New York to the federal government.”

Furthermore, Kucinich says that the Subcommittee on Domestic Policy has found substantial evidence of improprieties and possible fraud by the financial architects of the new Yankee Stadium.

As Flipping Frenzy readers know, inflated appraisals are often involved in the advancement of real estate and mortgage fraud. More often than not, a key player in an illegal flipping operation is the appraiser, who inflates the value of the house on paper to enable the buyer to qualify for a higher loan. Sometimes, a real appraiser is pulled into the scheme. In other cases, the appraisal is simply a phony document.

New Yankee Stadium.jpg

At issue for the City of New York, the New York Yankees, the IRS, and now the United States Congress, is the valuation of the land used for the site of the new stadium. Similar to residential real estate, municipal real estate developments require appraisals. In the case of Yankee Stadium, New York Assemblyman Brodsky and others–including members of Congress–believe that the value of the stadium land was grossly inflated and misrepresented to the IRS in order to justify more than $900 Million in tax-exempt bonds that were issued to finance construction of the stadium.

If in fact the allegations are true, the City of New York and the New York Yankees may just be key figures in the largest real estate fraud scam ever to be uncovered in the U.S.

Posted By: Ralph Roberts @ 8:44 pm | | Comments (10) | Trackback |
Filed under: New York,New York Yankees,Real Estate Fraud

September 17, 2008

Florida Pastor & Radio Show Host Rodney McGill Arrested for Mortgage Fraud

A Baptist church pastor and radio show host and his mortgage broker wife were arrested today on charges stemming from a State of Florida investigation into a $1 Million real estate fraud scam.

Rodney McGill.jpg Investigators with Florida’s Dept. of Financial Services’ Division of Insurance Fraud, along with the state’s Office of Financial Regulation, say the couple — Rodney McGill and Shalonda McGill — have been enjoying expensive leased vehicles, including a Rolls-Royce, and other luxuries while sticking their so-called clients with more than $1 million in mortgage debt. The two were arrested today on charges of Racketeering, Conspiracy to Commit Racketeering, Grand Theft (2 counts), and Obtaining a Mortgage by False Representation. The McGills are now being held in the Martin County (Fla.) Jail, with bond set for each at $1.4 million. Deputies with the Martin County Sheriff’s Department arrested the pair during a routine traffic stop. Shalonda McGill.jpg

Shalonda McGill and Rodney McGill sourced clients through various programs including the Young Millionaire’s Group, RSM Investment and Mortgage, and the New Hope Outreach Center, all of which operated out of a facility located at 2110 Arch St. in Jensen Beach, Florida. State corporation documents identify Rodney McGill as president and Shalonda McGill as vice president of the New Hope Outreach Center, which is incorporated as a nonprofit church with the McGills listed as pastors.

The investigation found that Rodney McGill, as president of the Young Millionaire’s Group, also solicited customers through a daily local radio program he hosted on WJFP 91.1 FM in Fort Pierce, FL. He told his listeners would teach teach and mentor them on how to buy and sell real estate without any out-of-pocket expense, with the goal of earning $50,000 in 90 days.

In July 2006, state investigators charge, Rodney McGill solicited listeners of his radio show to call in and qualify, based on their credit, to become one of his “Fab 5.” program. Callers allegedly were assured that they would learn McGill’s real estate investing “cash-out technique.”

The McGills purchased real estate in Martin and St. Lucie counties (Florida) by preparing and submitting fraudulent loan applications, and then flipped the properties to Fab 5 members for huge profits. Based on the fraudulent loan applications, four mortgages were obtained in excess of the property’s actual worth, and the McGills are said to have skimmed off the profits leaving three members of the so-called Fab 5 with more than $1.115 million in mortgage payments they were unable to make.

In one case, Florida investigators charge that the McGills paid $210,000 for a home at 1000 N.E. County Line Road in Jensen Beach, FL, in June of 2006. Three months later, they sold the home for $365,000 — a 74% increase at a time when home values in Florida were plummeting. In another scam, the McGills paid $147,000 for a house at 2814 S.W. Ann Arbor Road in Port St. Lucie, FL, according to property records, in August 2006. Three months later, they sold the house at a 56% increase ($229,000).

Florida officials say all of the McGills related properties are either in or are facing foreclosure. The buyers of course all believed they were part of the Fab 5 and were learning the McGill’s real estate investing techniques.

The investigation into Shalonda McGill and Rodney McGill’s fraudulent trappings is ongoing into other real estate transactions in which the McGills were involved. Anyone with information about the McGill’s is asked to contact Detective Ted Padich, (561) 837-5635, with Florida’s Division of Insurance Fraud, or Investigator Steve Brignola, (561) 837-5233, with Florida’s Office of Financial Regulation.

Scripps Treasure Coast Newspapers reported earlier this year that Rodney McGill was arrested in April on a child abuse warrant stemming from an incident involving allegations that beat his daughter with a household extension cord. The girl later recanted her story and the charges were dropped. The same newspaper service also reported that McGill led an October 2007 march from his church to his town’s city hall in which 300 people protested high utility bills.

Posted By: Ralph Roberts @ 8:27 pm | | Comments (6) | Trackback |
Filed under: Florida,Mortgage Fraud

September 16, 2008

Monty Kinman Sentenced in $15.8 Million Missouri Mortgage Fraud Scheme

John F. Wood, United States Attorney for the Western District of Missouri, announced that an Overland Park, Kansas, man was sentenced in federal court last Thursday (9/11/08) for his role in a nearly $16 million mortgage fraud conspiracy.

Monty J. Kinman, 27, of Overland Park, was sentenced by U.S. Chief District Judge Fernando J. Gaitan to two years and six months in federal prison without the possibility of parole. The court also ordered Kinman to pay a measly $2,500 fine.

Kinman was convicted at trial last November for the mortgage fraud conspiracy as well as one count of wire fraud related to the attempted sale of a residential property at 5034 Sunset Drive, Kansas City, Mo., at an inflated price. Kinman falsely represented to Fieldstone Mortgage that the sale price was $1.2 million, while in reality the actual sale price was $707,000 (by comparison, currently estimates the house to be worth $928,000). Kinman and others sought to obtain a loan to purchase the property through a fraudulent loan application and other fraudulent documents.

5064 Sunset Dr Kansas City MO.jpg
(5034 Sunset Drive, Kansas City, Missouri)

Kinman, formerly the regional manager and a loan officer at Soldi Financial in Overland Park, is the sixth co-defendant sentenced in this particular mortgage fraud scheme. Raymond Walter Zwego, Jr., 61, of Kansas City, Mo., pleaded guilty last October, to being the organizer and leader of the mortgage fraud scheme and awaits sentencing.

Zwego owned and operated Xpress Car Sales, Xpress Car Rental, North Mission Investments, Cobalt Blue, LLC, and Indigo Blue in North Kansas City. Zwego also pleaded guilty to 11 counts of wire fraud related to sending fraudulent documents in a series of facsimiles and email messages in furtherance of the conspiracy.

Zwego’s fraudulent real estate closings included 56 properties with loans totaling approximately $15.8 million. Each of the loans were structured in such a way that Zwego received excess funds from the loan closings as a result of inflated appraisals and numerous false and fraudulent documents. In total, the loans were financed by mortgages from 25 different lenders who sustained losses totaling approximately $6.2 million as a result of the scheme.

Seven other co-defendants have pleaded guilty and two were convicted at trial.

  • Rick A. Peterson, 34, of Lenexa, Kansas, was sentenced to five years in federal prison without the possibility of parole. The court also ordered Peterson to pay a $2,500 fine. Peterson was convicted at trial on Nov. 7, 2007, for his role in the conspiracy and for wire fraud. Peterson was a title insurance officer and loan closer from 2004 to 2007, first at Parkway Title in Overland Park, then at Freedom Title in Kansas City, Missouri, where he was the manager of the office.

  • James R. Rhoades, 48, of Kansas City, was sentenced to five years of probation and ordered to pay a $2,000 fine and more than $5 million in restitution $5,395,843 to be exact).

  • Jeremy A. Plagman, 30, of Lee’s Summit, Missouri, formerly an appraiser doing business as JET Appraisals in Lee’s Summit, was sentenced to two years of probation, a $2,000 fine, and 30 days of home detention under electronic monitoring. As a condition of his probation, Plagman may not be involved in the real estate industry.

  • Larry E. Barshaw, 57, and Linda M. Thompson-Barshaw, 59, of Kansas City, Kansas, were each sentenced to five years of probation, including six months of home detention. The court also ordered both to pay a $2,000 fine and $1,517,108 in restitution. The Barshaws were recruited as straw buyers, posing as purchasers of the property at 5034 Sunset Drive, Kansas City, Mo.. In reality, the Barshaws never intended to reside at the residence or to make payments on the mortgage. They were to be paid $40,000 for their role in the scheme. Linda Thompson-Barshaw (also known as Linda Barshaw or ) is the owner of Colormarc, Inc., a remodeling business that employs her husband, Larry Barshaw.

  • James E. Coleman, 60, of Kansas City, pleaded guilty on May 21, 2007, to his role in the mortgage fraud conspiracy and to wire fraud, and awaits sentencing. Coleman, a Certified Public Accountant who formerly served as president of the board of a Kansas City magnet school, also pleaded guilty to four counts of wire fraud.

  • Michael Rodd, 54, of Olathe, Kansas, pleaded guilty on June 27, 2007, to his role in the mortgage fraud conspiracy. Rodd was a real estate broker doing business as Heartland of America, Inc., in Olathe. Michael Rodd is currently a fugitive and a federal warrant has been issued for his arrest.

This case is being prosecuted by Assistant U.S. Attorneys Linda Parker Marshall and Gene Porter. It was investigated by the Federal Bureau of Investigation.

Posted By: Ralph Roberts @ 5:07 pm | | Comments Off on Monty Kinman Sentenced in $15.8 Million Missouri Mortgage Fraud Scheme | Trackback |
Filed under: Missouri,Mortgage Fraud

September 15, 2008

Wells Fargo Sues Quicken Loans Over Fraudulent Loans

After reading the following article (from this week’s edition of Crain’s Detroit), see if you have the same reaction I had: Namely, that this is just the first of many lawsuits (between banks and mortgage originators) we’re likely to hear about:

Wells Fargo sues Quicken, claims fraudulent loans
By Tom Henderson and Daniel Duggan

Livonia-based Quicken Loans Inc. is being sued in U.S. District Court by Wells Fargo Bank N.A., in a dispute over what is claimed are fraudulent loans gone bad.

South Dakota-based Wells Fargo filed the suit in June, claiming that Quicken has refused to buy back more than $4 million in loans that didn’t meet underwriting standards, in violation of a 2001 contract between the two companies.

In August, Quicken filed its response, denying the allegations and demanding a jury trial.

In its complaint, Wells Fargo said that “Quicken made certain representations and warranties to Wells Fargo regarding the loans and lines of credit being sold, such as but not limited to the income and employment of the borrower and the fair market value of the real estate collateral.”

Wells Fargo said some loans had false representations and “were not eligible to be sold to Wells Fargo in the first place.”

The lawsuit said that as of June, the amount of bad loans Quicken refused to buy back totaled $4,047,000 and “to the extent additional repurchase demands are made by Wells Fargo and declined by Quicken, this sum will likely increase.”

There is currently no shortage of loans that are being disputed in the mortgage industry, said Tony Garritano, editor of Mortgage Technology, one of several niche publications focusing on the mortgage industry. It is owned by New York-based SourceMedia.

“It’s not uncommon right now for an investor to say “you misspelled this person’s name on line five, you have to buy the loan back,'” he said. “Lenders are being barraged by buy-back requests, and they’re all disputing them, saying they didn’t do anything wrong and were just following the guidelines.”

But Gibran Nicholas, president and chairman of the Certified Mortgage Planning Specialist Institute in Ann Arbor, an organization that certifies financial professionals to provide mortgage and real estate equity advice, said the lawsuit sends the wrong signal.

Nicholas said he’d expect such a dispute to be worked out before it hit federal court, and that it could spook other buyers of Quicken loans, who are already spooked by other developments in the mortgage industry.

“This could very easily turn into a crisis of confidence and have a domino effect. It’s like a run on the bank,” said Nicholas, who is also president and CEO of Nicholas and Co. Mortgage Planners.

Elizabeth Jones, Quicken’s vice president of communications, said the lawsuit won’t cause problems with others who buy its loans. She said Quicken merely followed Wells Fargo’s underwriting guidelines for the loans in question, that it was told it was not required to document income for borrowers who had high credit scores and whose loans had a low loan-to-value ratio.

“This matter, while it involves a very small number of loans originated and sold to Wells Fargo, most more than five years ago, still strikes a nerve as it is an attempt by Wells Fargo to retroactively rewrite its own underwriting guidelines more than five years after the fact,” she said.

“The Wells case is much worse than Monday-morning quarterbacking. … As long as the loans performed well, Wells enjoyed the income from the loans,” said Jones. “However, Wells apparently misjudged the increased risk associated with this type of stated income loan. As soon as Wells began to experience losses, they mounted a campaign of revisionist underwriting.”

Kevin Moss, executive vice president of Wells Fargo’s Home Equity Group, disputed Jones’ version.

“We disagree with these allegations. Wells Fargo has never demanded repurchase for loans from Quicken simply because they are stated income loans. The bulk of the loans that are the subject of this lawsuit involve substantial fraud. Contractually, Quicken Loans is responsible for the loans that they underwrote and sold to Wells Fargo.”

What a mess. On the one hand you have Quicken Loans saying it did nothing wrong, while on the other, Wells Fargo insists Quicken Loans blatantly ignored underwriting standards. I’ll be interested to see how this one plays out.

In the meantime, based on what you read above, who do you think is to blame and why?

A. Quicken Loans
B. Wells Fargo
C. Both
D. None of the above

Posted By: Ralph Roberts @ 10:38 pm | | Comments (12) | Trackback |
Filed under: Quicken Loans,Wells Fargo

September 12, 2008

Notaries and Mortgage Fraud in Michigan

Forged and counterfeit documents commonly play a role in real estate and mortgage fraud, and notaries form a front line of defense in these areas. With that in mind, the following email message arrived yesterday afternoon, and since it is categorized as an alert, I feel it is worth sharing here:

DATE: September 11, 2008
FROM: Tim Reiniger, Executive Director
TO: Concerned Notaries of Michigan
RE: Your Support Needed For Important Fraud-Fighting Legislation

As a Notary in a state where there is no record-keeping requirement, you know the importance of keeping Notary records. The FBI and law enforcement agencies across the nation have cited Notary records as vital evidence in the investigation and prosecution of mortgage fraud and identity theft crimes. Despite the downturn in the mortgage industry, mortgage fraud has actually risen. In fact, the Mortgage Asset Research Institute has ranked Michigan number three in the nation in mortgage fraud for the first quarter of 2008. Because you use a Notary journal, we are asking for your support of important fraud-fighting legislation currently pending in the state Legislature. Officially designated as HB 5448 (with similar companion bills HB 5379 and 5431), this bill would require Notaries in Michigan to keep a record of all their official acts to facilitate prosecution of identity thieves.

ACTION ITEM: Please contact your State Representative and urge this legislator to support HB 5448.

For information on finding and contacting your State Representative click here:

Curious about House Bill 5448, I visited the Michigan Legislature’s website. There, I found the entire Michigan Notary Public Act along with the proposed language referenced in Tim Reiniger’s email alert:






According to the National Notary Association (NNA), each year, countless civil and criminal court challenges are made to documents after they have been legally notarized. Claims of fraud, forgery, coercion and other misdeeds, real or not, are common. In some cases, an original document’s loss or theft makes the issue even more difficult to resolve.

A Notary’s journal, says the NNA, can prevent the frauds and many of the baseless lawsuits that burden our courts as well as safeguard personal rights when a valuable document is lost or fraudulently altered. The NNA also says the Notary’s journal supplies independent physical evidence that a particular document was signed or acknowledged on a specific day by a person who was positively identified by a Notary. Other benefits of the Notary’s journal (again, from NNA):

  • It deters forgers and impostors who are naturally unwilling to leave a signature (and a thumbprint) that would incriminate them.
  • A Notary journal protects the signer and other involved parties in the event the document is lost, challenged or fraudulently altered.
  • It protects the Notary from baseless allegations by showing reasonable care was exercised in identifying the signer and performing the notarial act.
  • A Notary journal provides critical evidence to law enforcement authorities in prosecuting frauds.
  • It discourages groundless lawsuits by showing that a signer appeared before the Notary and was properly identified.
  • A Notary journal can avert or quickly resolve litigation, helping unclog our over-burdened courts.

As I point in my book “Protect Yourself from Real Estate & Mortgage Fraud: Preserving the American Dream of Homeownership,” given the right to notarize documents is a privilege that’s not to be taken lightly. To make notarization of documents less susceptible to abuse, in addition to what has been proposed for Michigan, I recommend the following:

  • Requirements for becoming a Notary should be much stricter. In some areas, becoming a Notary is easier than getting a cash advance at an ATM.
  • Notaries should have an electronic system that captures the signer’s information (thumbprint and driver’s license) and verifies the information.
  • Notaries should be required to pass a fraud-certification exam.
  • A notary’s thumbprint should be included on the notarized document or within the seal. (Notaries often claim that they are the victims of identity theft. Requiring a thumbprint would help prevent that from occurring.)
  • Notaries should receive newsletters in print or electronically keeping them informed of their responsibilities and any new fraud schemes that may exploit the powers of a notary.
  • Notaries should be legally prohibited from notarizing real estate or loan documents for family members.
  • Notaries should be legally prohibited from notarizing documents in transactions in which they have a direct or indirect beneficial interest. (Some states prohibit Notaries from notarizing documents in transactions in which the notary has a direct interest but provide no wording dealing with indirect interests.)
  • An additional witness should be required to verify the identity and signatures of those signing the documents and then sign as a witness.
  • Notaries should be required to obtain the thumbprint of the signatory in all transactions involving real property.
  • Notaries should be provided with the legal discretion to refuse to notarize a document if the Notary believes that the signer is under duress or the victim of fraud.
  • As is proposed in Michigan, all states should mandate that notorial logs be maintained.

Con artists will always find ways to exploit vulnerabilities in the system, but the system can and must fight back.

Posted By: Ralph Roberts @ 9:41 pm | | Comments (16) | Trackback |
Filed under: Michigan,Mortgage Fraud,Notary,Real Estate Fraud

September 10, 2008

State of Maryland Awards $165,500 to Fight Real Estate and Mortgage Fraud

When it comes to fighting real estate and mortgage fraud, the State of Maryland is putting its money where its mouth is.

The Governor’s Office for Crime Control and Prevention has awarded a $165,500 grant to Prince George’s County to be used to pay for a full-time prosecutor and an investigator to work exclusively on mortgage fraud-associated cases.

Statistically speaking, according to the FBI, Maryland’s mortgage fraud problems are epic. The Old Line State consistently ranks among the top 10 states based on active real estate fraud investigations, and currently ranks in the top 20 for foreclosures. Prince George’s County, which is located immediately north, east, and south of Washington, D.C., leads the the state in both categories.

To address these problems, a full-time Assistant State’s Attorney has already been hired to prosecute additional mortgage fraud cases in the County. Assistant State’s Attorney April Richardson will be able to devote 100% of her time and energy to going after fraudulent mortgage lenders, foreclosure scam artists and others who violate Maryland’s laws involving property, homes and real estate.

In addition to the Richardson hiring, an investigator has been brought on board as well. Sergeant Ted Jones is tasked with tracking down fraudsters through forensic accounting, on location investigations, and good old fashioned gumshoe detective work.

Flipping Frenzy tip’s it hat to Maryland General Assembly Delegate Doyle Niemann (he introduced the legislation that led to the grant) and Maryland Governor Martin O’Malley (he signed the measure into law).

Posted By: Ralph Roberts @ 11:55 pm | | Comments Off on State of Maryland Awards $165,500 to Fight Real Estate and Mortgage Fraud | Trackback |
Filed under: Attorneys,Maryland,Mortgage Fraud,Real Estate Fraud

September 9, 2008

Bear Stearns and EMC Mortgage Agree to Pay $28 Million Fine for Massive Violations

Bear Stearns Logo.jpg Bear Stearns and its subsidiary, EMC Mortgage, have agreed in principle to pay a multi-million dollar fine to settle Federal Trade Commission (FTC) charges that they engaged in unlawful practices while servicing consumers’ home mortgage loans. The FTC–which works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid the–charged the two companies with misrepresenting the amounts borrowers owed, charging unauthorized fees–such as late fees, property inspection fees, and loan modification fees–and engaging in unlawful and abusive collection practices.

EMC Mortgage Corp Logo.jpg The proposed settlement requires Bear Stearns and EMC to pay $28 million to redress consumers who have been injured by the illegal practices alleged in the complaint. In addition, the settlement bars both companies from future violations and imposes new restrictions and requirements on their business practices. Specifically, the settlement:

  1. Bars the defendants from misrepresenting amounts due and any other loan terms.
  2. requires them to possess and rely upon competent and reliable evidence to support claims made to consumers about their loans.
  3. Bars them from charging unauthorized fees, and places specific limits on property inspection fees even if they are authorized by the contract.
  4. Prohibits them from initiating a foreclosure action, or charging any foreclosure fees, unless they have reviewed all available records to verify that the consumer is in material default, confirmed that the defendants have not subjected the consumer to any illegal practices, and investigated and resolved any consumer disputes.
  5. Prohibits the defendants from violating the the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the Truth in Lending Act’s (TILA).

The settlement further requires Bear Stearns and EMC to establish and maintain a comprehensive data integrity program to ensure the accuracy and completeness of data and other information they obtain about consumers’ loan accounts, before servicing those accounts. They must also obtain an assessment from a qualified, independent, third-party professional within six months and then every two years, for the next eight years, to assure that their data integrity program meets the standards of the order.

In its complaint, the FTC pointed out the a prominent role Bear Stearns and EMC played in the secondary market for residential mortgages. During the explosive growth of the mortgage industry, both companies acquired and securitized loans at a rapid pace, but they also paid inadequate attention to the integrity of consumers’ loan information and to sound servicing practices. As a result, in servicing consumers’ loans, Bear Stearns and EMC neglected to obtain timely and accurate information on the loans, made inaccurate claims to consumers, and engaged in unlawful collection and servicing practices. (As an aside, these practices occurred prior to JP Morgan Chase & Co.’s acquisition of Bear Stearns, which became effective on May 30, 2008.)

According to the complaint, EMC is characterized as the mortgage servicer for many of the loans Bear Stearns and EMC acquired. Many of these loans are subprime or Alt-A (less than prime) loans, including nontraditional mortgages such as pay option adjustable rate mortgages (i.e., “pick-a-payment” loans), interest-only mortgages, negative amortization loans, and loans made with little or no income or asset documentation. EMC’s loan servicing portfolio has grown significantly in recent years; as of September 2007, it serviced more than 475,000 mortgage loans with a total unpaid balance of about $80 billion.

If the U.S. District Court for the Eastern District of Texas approves the settlement, consumers who are eligible for redress will be contacted by mail. The Commission’s consumer hotline regarding the settlement is 1-877-787-3941.

Posted By: Ralph Roberts @ 6:22 pm | | Comments (14) | Trackback |
Filed under: Bear Stearns,EMC Mortgage,FTC

September 8, 2008

Fannie Mae, Freddie Mac, and the F-word

While a lot will be written about the U.S. government’s takeover of Freddie Mac and Fannie Mae, very little is likely to be said about the role real estate and mortgage fraud played in the run-up to the takeovers themselves.

With real estate fraud still labeled by the FBI as the “fastest-growing white collar crime,” and with a high percentage of mortgage loans containing overwhelming evidence of fraudulent claims, one would think that now would be the time that interviews with Treasury Secretary Henry M. Paulson Jr. would touch upon the F-word. Sadly though, it’s business as usual at all of the national media outlets covering this story. It’s as if they don’t even know to ask about real estate fraud, which of course is utterly insane:

At the very beginning of the current mortgage meltdown and resulting foreclosure epidemic, a small group of people–myself included–pointed out the true main cause of this mess–fraud. Most people I talked with either didn’t understand or disagreed, including a lot real estate professionals and–not surprising–members the national media. Most still think today’s mess had more to do with irresponsible lending on the part of consumers, the popularity of poorly conceived mortgage loan products, and a long overdue market correction in property values.

The truth then as it is now, is that fraud is at the very root of the problems we’re experiencing.

Unfortunately, getting the national media or the real estate and mortgage industry to admit to this fact is nearly impossible. For the national media, it appears to be too easy for them to just tell the story as it is being fed to them by the government (in other words, they’re either lazy or don’t have the resources to dig just a little deeper). And for the real estate and mortgage industry, well, they just have too much to lose by admitting the truth. If fraud is a proven contributing factor to a borrower’s defaulting on a loan, the mortgage lender is required to buy the bad loan back from Fannie Mae, Freddie Mac, or the Wall Street Firms who sold the loan to investors.

Fraud has been and continues to be so rampant that acknowledging its role in this mess would lead to the mortgage banks having to buy back billions of dollars in bad loans, which they simply cannot afford to do.

The current state of denial about fraud is only making the problem worse. Until the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), and the real estate and mortgage loan industry all wake up and admit to the problem, the fraudsters will be free to continue in their ways with no thought of the future mess they’re causing.

Posted By: Ralph Roberts @ 7:34 pm | | Comments (3) | Trackback |
Filed under: Fannie Mae,Freddie Mac,Mortgage Fraud,Mortgage Meltdown,Real Estate Fraud

September 5, 2008

United States Government Set to Take over Fannie Mae and Freddie Mac

Senior White House officials, along with top brass from the Federal Reserve, met earlier this evening with executives from Freddie Mac and Fannie Mae and reportedly told them that the U.S. government is preparing to place the two government sponsored enterprises (GSEs) under federal control. The plan, as outlined by The New York Times, would place both companies into a conservatorship, which means that their boards of directors and top executives would be replaced and shareholders would almost entirely be wiped out, but that the GSEs would continue operations with the federal government standing behind their debt.

Fannie Mae and Freddie Mac are privately owned but publicly chartered, and are considered critical to the stability of the U.S. housing and mortgage markets. Their current troubles have threatened to worsen the bursting of the housing bubble, which along with significant levels of fraud, has led to a surge in foreclosures.

The U.S. Treasury Department and the Federal Reserve recently took steps to increase confidence in both organizations, including granting them access to low-interest loans and removing the prohibition on the Treasury to purchase the GSEs’ stock. Despite these efforts, in the last year alone, publicly held shares of Fannie Mae and Freddie Mac have fallen more than 75%.

Just last week, Fannie Mae announced that the company’s chief financial officer, Stephen Swad, was being replaced by David C. Hisey, and that former Executive Vice President of Capital Markets, Peter Niculescu, would take on an expanded role as the new Chief Business Officer to replace Robert J. Levin, who is retiring as Executive Vice President and Chief Business Officer. The company also announced Michael Shaw would be appointed as the new chief risk officer and Daniel Mudd, the company’s embattled president and chief executive officer, would remain in place after a vote of confidence from the Board of Directors.

Tonight’s news of a government takeover comes just hours after the Mortgage Bankers Association released its latest National Delinquency Survey, which shows that the rate of U.S. home mortgages overdue or in foreclosure rose again in the second quarter. Among mortgages for one- to four-family homes, nearly 10% are currently at least one month overdue or in foreclosure.

From The New York Times:

Just five weeks ago, President Bush signed a law to give the administration the authority to inject billions of dollars into the companies through investments or loans. In proposing the legislation, Treasury Secretary Henry M. Paulson Jr. said that he had no plan to provide loans or investments, and that merely giving the government the authority to backstop the companies would provide a strong shot of confidence to the markets. But the thin capital reserves that have kept the two companies afloat have continued to erode as the housing market has steadily declined and the number of foreclosures has soared.

As their problems have deepened — and the marketplace has come to expect some sort of government rescue — both companies have found it difficult to raise new capital to absorb future losses. In recent weeks, Mr. Paulson has been reaching out to foreign governments that hold billions of dollars of Fannie and Freddie securities to reassure them that the United States stands behind the companies.

Posted By: Ralph Roberts @ 10:52 pm | | Comments (4) | Trackback |
Filed under: Fannie Mae,Freddie Mac,Mortgage Bankers Association,Mortgage Meltdown

September 4, 2008

GMAC Financial Services to Close 200 Offices and Layoff 5,000 Real Estate Industry Professionals

GMAC Logo.jpgJust one week after The Financial Services Roundtable–a trade association representing 100 of the largest integrated financial services companies–named GMAC Financial Services “Company of the Week,” GMAC says it will cut 5,000 at its struggling mortgage lending arm, Residential Capital (ResCap), as well as shut all 200 of its GMAC Mortgage retail offices around the United States.

According to GMAC, approximately 3,000 employees will receive layoff notification this month with the majority of the remaining 2,000 reductions expected to occur by the end of the year. All told, GMAC is reducing ResCap’s workforce by nearly 60%.

Sources close to the situation at ResCap tell that ResCap Chairman and CEO Tom Marano notified ResCap associates of the “streamlining” initiative yesterday afternoon. In a press release issued around the same time, Marano said:

While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment. Conditions in the mortgage and credit markets have not abated and, therefore, we need to respond aggressively by further reducing both operating costs and business risk.

Moving forward, according to the source close to the situation, the company will only originate loans that are:

  • Supported by GSE programs such as Fannie Mae, Freddie Mac and Ginnie Mae, or which can be sold to another guaranteed investor partner; and
  • Originated through the following ResCap channels: GMAC Bank correspondents, including support for lenders with warehouse lines of credit; GMAC Mortgage direct; ditech call centers; and the GMAC Mortgage Charlotte, N.C., call center.

In addition to shuttering all GMAC Mortgage retail offices across the country, ResCap will close its Homecomings Wholesale division and stop all loan originations through brokers.

Tom Morano.jpgIf ResCap Chairman and CEO Tom Marano’s name or picture (right) is familiar to you, here’s why… Marano was most recently in charge of mortgages and asset-backed securities at Bear Stearns, the global investment bank and securities trading and brokerage firm that nearly collapsed in March of this year.

Posted By: Ralph Roberts @ 5:49 pm | | Comments (2) | Trackback |
Filed under: GMAC

September 3, 2008

FBI Responds to LA Times Article on Mortgage Fraud

In a recent Los Angeles Times article about the FBI’s role in the run-up to the current housing crisis, staff writer Richard Schmitt wrote:

Today, the damage from the global mortgage meltdown has more than matched that of the savings-and-loan bailouts of the 1980s and early 1990s. By some estimates, it has made that costly debacle look like chump change. But it’s also clear that the FBI failed to avert a problem it had accurately forecast.


The FBI and its parent agency, the Justice Department, are supposed to act as the cops on the beat for potentially illegal activities by bankers and others. But they were focused on national security and other priorities, and paid scant attention to white-collar crimes that may have contributed to the lending and securities debacle.

As you can see from their response, the FBI didn’t take too kindly to Schmitt’s assessment:

Letter to the Editor Regarding the Mortgage Crisis

Your 8/25 story on the mortgage crisis (“FBI saw threat of mortgage crisis,” L.A. Times, August 25, 2008) implied that if the FBI had made more arrests for mortgage fraud, the crisis could have been averted. To even suggest that is a cry for a lesson in both civics and basic economics.

The story’s premise was built around a 2004 quote from an FBI official who said he was confident the FBI could prevent fraud from becoming a massive problem. In context, Assistant Director Chris Swecker meant he believed the FBI could stay focused on mortgage fraud to prevent fraud from becoming the major driver that would cause a collapse of credit in the housing market. We believe by a good measure, the Bureau did that.

The FBI’s Criminal Division has arrested 1000 suspects and targeted 180 criminal enterprises since 2004. We targeted those lenders and buyers involved in multiple frauds or cases where the profits went to drug crews, gangs or organized crime. More investigations are ongoing. But the FBI is a law enforcement and intelligence agency, we are not banking regulators.

In the end, most economists have attributed the crisis to very aggressive lending practices and too little risk management throughout the financial services industry. As far as mortgage fraud was concerned, the FBI had the right intelligence and provided the right warnings to the industry, but fraud alone does not appear to be the straw that broke the mortgage camel’s back.

In the boom and bust of the mortgage business, to suggest that making more arrests would have averted the mortgage crisis is to confuse the root cause with the side-effects. It is not a fair or realistic assessment.

Kenneth Kaiser, Assistant Director
Criminal Investigative Division
Federal Bureau of Investigation

If you missed the Los Angeles Times article that Assistant Director Kaiser refers to above, here it is in its entirety:

FBI saw threat of mortgage crisis
A top official warned of widening loan fraud in 2004, but the agency focused its resources elsewhere.

By Richard B. Schmitt, Los Angeles Times Staff Writer
August 25, 2008

Long before the mortgage crisis began rocking Main Street and Wall Street, a top FBI official made a chilling, if little-noticed, prediction: The booming mortgage business, fueled by low interest rates and soaring home values, was starting to attract shady operators and billions in losses were possible.

“It has the potential to be an epidemic,” Chris Swecker, the FBI official in charge of criminal investigations, told reporters in September 2004. But, he added reassuringly, the FBI was on the case. “We think we can prevent a problem that could have as much impact as the S&L crisis,” he said.

Today, the damage from the global mortgage meltdown has more than matched that of the savings-and-loan bailouts of the 1980s and early 1990s. By some estimates, it has made that costly debacle look like chump change. But it’s also clear that the FBI failed to avert a problem it had accurately forecast.

Banks and brokerages have written down more than $300 billion of mortgage-backed securities and other risky investments in the last year or so as homeowner defaults leaped and weakness in the real estate market spread.

In California alone, lenders have foreclosed on $100 billion worth of homes over the last two years and are foreclosing at a rate of 1,300 houses every business day, according to a recent report from

Most observers have declared the mess a gross failure of regulation. To be sure, in the run-up to the crisis, market-oriented federal regulators bragged about their hands-off treatment of banks and other savings institutions and their executives. But it wasn’t just regulators who were looking the other way. The FBI and its parent agency, the Justice Department, are supposed to act as the cops on the beat for potentially illegal activities by bankers and others. But they were focused on national security and other priorities, and paid scant attention to white-collar crimes that may have contributed to the lending and securities debacle.

Now that the problems are out in the open, the government’s response strikes some veteran regulators as too little, too late.

Swecker, who retired from the FBI in 2006, declined to comment for this article.

But sources familiar with the FBI budget process, who were not authorized to speak publicly about the growing fraud problem, say that he and other FBI criminal investigators sought additional assistance to take on the mortgage scoundrels.

They ended up with fewer resources, rather than more.

In 2007, the number of agents pursuing mortgage fraud shrank to around 100. By comparison, the FBI had about 1,000 agents deployed on banking fraud during the S&L bust of the 1980s and ’90s, said Anthony Adamski, who oversaw financial crime investigations for the FBI at the time.

The FBI says it now has about 200 agents working on mortgage fraud, but critics say the agency might have averted much of the problem had it heeded its own warning.

“The FBI correctly diagnosed that mortgage fraud was epidemic, but it did not come close to meeting its announced goal,” said William K. Black, who was a federal regulator during the S&L crisis and now teaches economics and law at the University of Missouri-Kansas City.

“It used everyday procedures and woefully inadequate resources to deal with an epidemic,” he said. “The approach was certain to bring symbolic prosecutions and strategic defeat.”

The mortgage debacle has laid bare a system marked by dubious practices at every stage of the process. Lenders often made loans to borrowers who had limited ability to repay them but little desire to pass up the dream of homeownership. Many loans lacked basic documentation, such as information about borrowers’ incomes.

Still, mortgage companies could hardly sell them fast enough, packaging the loans as investment securities and peddling them to eager buyers on Wall Street.

The FBI defends its handling of the crisis, with officials contending that as home prices were rising several years ago, the trouble brewing in the mortgage market — and the potential crimes behind it — was not immediately apparent.

Officials said they began approaching mortgage companies and others in an attempt to raise awareness about the growing fraud problem. But the lenders had little incentive to cooperate because they were continuing to make money. Black says that in many cases, they were part of the fraud.

“Nobody wanted to listen,” Sharon Ormsby, the chief of the FBI’s financial crimes section, said in an interview. “We were dealing with the issue as best we could back then.”

Over the last three years, the FBI and other agencies have brought dozens of mortgage-fraud cases. The bureau has rooted out foreclosure rescue schemes in which homeowners are tricked into signing over the deeds to their homes to operators who buried the properties even deeper in debt. Agents have disrupted cases of identity theft in which criminals open — and exhaust — home equity lines of credit and leave homeowners stuck with the bill.

Many of the cases have been relatively small, however, with about half the investigations involving losses of less than $1 million — the size of two or three loans.

But the tepid response also reflects a broad realignment of law-enforcement priorities at the Justice Department in which mortgage fraud and other white-collar crimes have been subordinated to other Bush administration priorities.

That has reflected, in part, the ramp-up in national security and terrorism investigations after the Sept. 11 attacks. But the administration has also put more support behind efforts against illegal immigration and child pornography.

In a way, the mortgage debacle could not have come onto the FBI radar screen at a worse time. Just as Swecker was making his doomsday forecast, the FBI, under pressure from Congress and the White House, was creating a crime-fighting brain drain, transferring hundreds of agents from its criminal investigations unit into its anti-terrorism program. About 2,500 agents doing criminal work — 20% or so of the entire force — were affected.

Even as the number of new white-collar cases started declining, the Justice Department did pursue some high-profile corporate prosecutions, such as those arising from the collapse of Enron Corp. But some former prosecutors question the administration’s current commitment to pursuing complex, high-stakes cases.

“I think most sitting U.S. attorneys now staring at the subprime crisis find scant resources available to pursue sophisticated financial crimes,” said John C. Hueston, a Los Angeles lawyer who was a lead federal prosecutor in the trials of Enron executives Kenneth L. Lay and Jeffrey K. Skilling.

Absent a major shift in priorities and resources, he said, it is likely that the Justice Department and the FBI will continue on their current path of focusing on simple cases “that don’t go to the heart of the problem.”

The FBI says it has 21 open investigations into possible large-scale fraud related to the subprime meltdown. The Times reported last month that a federal grand jury in Los Angeles had subpoenaed records from three large California lenders: Countrywide Financial Corp. (now part of Bank of America Corp.), New Century Financial Corp. and IndyMac Federal Bank.

Among other possible targets, the FBI has said, are investment firms that sold billions in securities backed by shaky subprime mortgages and credit rating agencies that gave high marks to the now-worthless securities and failed to protect investors.

But it may be hard to jump-start such probes. Trying to prove that a major mortgage company intended to defraud buyers of its securities, for example, could take years of digging into records and testimony.

Moreover, some of those involved may have special legal protection: Credit rating firms have in other cases successfully asserted that their opinions about the values of securities are protected by the 1st Amendment.

“I am happy to have investigations going on, but these investigations should have taken place years ago,” said Blair A. Nicholas, a San Diego lawyer representing investors who lost money in the collapse of several subprime mortgage lenders. “They seem to always get involved after the horse has left the barn. It is always cleaning up the mess rather than being proactive.”

Could the crisis have been averted, or at least mitigated, if the FBI had intervened more forcefully?

“Until there is a catastrophic loss, there is no incentive to investigate criminal conduct,” said Cynthia Monaco, a former federal prosecutor in New York. “Nor are there people coming forward with evidence” such as angry investors or whistle-blowing corporate employees, she said.

Even now, Monaco added, it is far from clear whether the damage — suffered by investors and homeowners alike — was the product of clear-cut fraud.

Ormsby says the FBI is more actively working with other federal investigative agencies in the hope they will pick up the slack. The Secret Service, for example, in a departure from its traditional missions of protecting presidents and heads of state and investigating counterfeiting, has assigned more than 100 agents to examine mortgage fraud, said spokesman Edwin Donovan.

The Justice Department is also starting to mobilize. The department offered what it described as a “basic seminar” on mortgage fraud cases to about 100 prosecutors last week at its national training academy in South Carolina.

Posted By: Ralph Roberts @ 10:49 am | | Comments (10) | Trackback |
Filed under: FBI,Mortgage Fraud

September 2, 2008

Virginia Mortgage Fraud Update: Rajasekhar Marni and a Venture Capitalist in the news

Two newsworthy real estate fraud items out of the state of Virginia (which according to the FBI ranks as one of the top 10 hot spots/states for mortgage fraud) :

Real Estate Broker Rajasekhar Marni Pleads Guilty to Defrauding Clients

Rajasekhar Marni, 47, of Reston, Virginia, pled guilty on August 21st in United States District Court to federal wire fraud and money laundering charges in connection with a real estate fraud scheme that took place in 2005 and 2006. Chuck Rosenberg, U.S. Attorney for the Eastern District of Virginia, and Joseph Persichini, Jr., Assistant Director in Charge, FBI, Washington Field Office, made the announcement. Marni faces up to 30 years in federal prison, three years of supervised release, a fine of at least $500,000, and full restitution when he is sentenced by U.S. District Judge T.S. Ellis, III on October 31, 2008.

According to court documents, Rajasekhar Marni was the president of Loanworth Corporation, Inc., a Vienna, Virginia-based real estate firm. He defrauded three sets of clients resulting in a loss to those victims of approximately $1.14 million. In March 2006, Marni arranged to purchase a Fairfax Station, Virginia home for $889,000. The homeowners agreed to finance Marni’s purchase. Marni had the victims transfer title to him while he signed a deed of trust setting out the terms of the loan. Marni recorded with Fairfax County documentation transferring title to the property to him but never recorded the documentation related to the loan. Marni then sold the property to a third party and used the proceeds to, among other things, buy a house for himself in Vienna, Virginia.

As part of the plea, Rajasekhar Marni admitted to also defrauding a Lorton, Virginia couple, whom he convinced in November 2005 to transfer title to their property to Loanworth for six months while he tried to sell the property to a third party. During that time, without the homeowners’ knowledge, Marni took out loans against the property totaling $227,778. He never repaid the loans, which subsequently went into default. In June 2006, title in the home, which Marni had not sold to a third party, was returned to the original owners. Less than four months later, one of Marni’s lenders foreclosed on the home, resulting in a loss of the victims’ equity in the property.

Marni also admitted to defrauding a Silver Spring, Maryland couple of $23,000 that was to be used as a down payment on an undeveloped parcel of land.

Assistant United States Attorney Timothy D. Belevetz is prosecuting the case on behalf of the United States.

Also out of Virginia…

Former Venture Capitalist Scott E. Luellen Sentenced to Seven Years for Orchestrating Real Estate Investment Scheme

Scott E. Luellen, 35, of Washington, D.C., was sentenced late last week (August 29, 2008) to seven years in federal prison for orchestrating a real estate investment scheme in northern Virginia and Delaware. Chuck Rosenberg, U.S. Attorney for the Eastern District of Virginia, and Jeffrey Irvine, Special Agent in Charge, United States Secret Service, Washington Field Office, made the announcement after Luellen was sentenced by United States District Judge Liam O’Grady. Luellen pled guilty to one count of money laundering on May 13, 2008.

According to court documents, Luellen was the former Managing Director of Ideal Ventures, LLC and the Virginia Heritage Foundation II. From September 2004 through to November 2007, Luellen convinced approximately 20 potential investors, including a private equity firm, to invest millions of dollars in fraudulent real estate projects. Specifically, Luellen made material false representations concerning real estate development projects to induce investors to provide him with funds. Luellen received approximately $1.7 million from investors during the course of his scheme. Luellen then used those funds to finance a lavish lifestyle, which included living at the Ritz Carlton in Georgetown .

Assistant United States Attorney G. Derek Andreson prosecuted the case on behalf of the United States.

Posted By: Ralph Roberts @ 3:11 pm | | Comments Off on Virginia Mortgage Fraud Update: Rajasekhar Marni and a Venture Capitalist in the news | Trackback |
Filed under: Mortgage Fraud,Real Estate Fraud,Virginia