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October 31, 2008

Chase Moves to Freeze Foreclosures

JPMorgan Chase & Co. (Chase) — the same company that up until earlier this year encouraged it’s own loan officers to fudge facts and figures on loan applications — announced today a voluntary loan modification program it says will help up to 400,000 homeowners over the next two years. Today’s announcement applies only to owner-occupied properties with mortgages owned by Chase, Washington Mutual (which Chase acquired a few weeks ago), or EMC (the loan-servicing company acquired in the takeover of Bear Stearns earlier this year).

Within the next 90 days, Chase, which just a few weeks ago accepted more than $20 Billion as a cash infusion from the U.S. government, will open regional counseling centers, hire additional loan counselors, introduce financing alternatives, reach out to borrowers to offer pre-qualified modifications, and commence a new process to independently review each of its loans.

Since early 2007, Chase claims to have helped about 250,000 families — with $40 billion in loans — avoid foreclosure, primarily by modifying their loans or payments.

Specifically, for Chase, WaMu and EMC customers, today’s announcement means Chase will:

  1. Systematically review its entire mortgage portfolio to determine which homeowners are most likely to require help — and try to provide it before they are unable to make payments.
  2. Proactively reach out to homeowners to offer pre-qualified modifications such as interest-rate reductions and/or principal forbearance. The pre-qualified offers will streamline the modification process and help homeowners understand that Chase is offering a specific option to make their monthly payment more affordable.
  3. Establish nearly 25 regional counseling centers to provide face-to-face help in areas with high delinquency rates, building on the success of one- and two-day Hope Now reach-out days.
  4. Add 300 more loan counselors — bringing the company’s combined total to more than 2,500 — so delinquent homeowners can work with the same counselor throughout the process, improving follow-through and success rates.
  5. Create a separate and independent review process within the company to examine each mortgage before it is sent into the foreclosure process (in order to validate that each homeowner was offered appropriate modifications). In order to pull this off, Chase will hire 150 dedicated staffers.
  6. Not add any more Chase-owned loans into its foreclosure process while enhancements are being implemented.
  7. Disclose and explain in plain and simple terms the refinancing or modification alternatives for each kind of loan. Chase also will use in-language communications, including local publications, to more effectively reach homeowners.
  8. Expand the range of financing alternatives offered to modify pay-option adjustable rate mortgages, including 30-year, fixed-rate loans with affordable payments, principal deferral and interest-only payments for 10 years. All the alternatives eliminate negative amortization.
  9. Offer a substantial discount on — or donate 500 homes — to community groups or through non-profit or government programs designed to stabilize communities.
  10. Use more flexible eligibility criteria on origination dates, loan-to-value ratios, rate floors and step-up features.

More than 765,000 homeowners received foreclosure notices during the 3rd quarter of 2008, the most since records began in January 2005, according RealtyTrac.

When you include Countrywide’s mandatory loss mitigation efforts, today’s announcement spells possible relief for some 800,000 Americans facing imminent foreclosure.

Posted By: Lois Maljak @ 9:02 pm | | Comments (5) | Trackback |
Filed under: JPMorgan Chase & Co

October 30, 2008

Countrywide and Mortgage Fraud

The criminal investigation covering allegations of real estate and mortgage fraud at Countrywide Home Loans now includes a serious focus on a sweetheart loan program for members of Congress and others that Flipping Frenzy first told you about back on the 16th of June:

Feds probe Countrywide’s ‘V.I.P.’ program
By Lisa Myers & Amna Nawaz, NBC News

The wide-ranging criminal investigation into wrongdoing at Countrywide - once the nation’s largest mortgage originator - now includes serious scrutiny of a loan program that provided special mortgage deals to the well-connected and powerful, including two U.S. senators.

NBC News has learned that Robert Feinberg - a former Countrywide loan officer who handled what were known as the “V.I.P.” mortgages - spent six hours last Thursday with a six-person team from the Justice Department. The team included prosecutors from the Public Integrity section, which handles investigations of possible public corruption.

“The Justice Department is making very serious inquiry into any possible wrongdoing that may involve (former Countrywide CEO) Anthony Mozilo, other Countrywide employees, Sen. Chris Dodd, Sen. Kent Conrad, (former Fannie Mae CEO) Franklin Raines or other public officials,” said Feinberg’s lawyer, Anthony Salvano. “Robert has always cooperated thoroughly with authorities and is strictly a witness in their investigation.”

‘Friends of Angelo’s’

Salvano said the prosecutors and FBI agents seemed focused on whether the preferential treatment given to V.I.P. costumers was part of an effort by Countrywide to buy influence - as well as on the conduct of each public official who received a mortgage from Countrywide.

Feinberg says that Countrywide’s clients in this program were known by a nickname.

“We called them F.O.A.’s,” Feinberg told NBC News, “which were Friends of Angelo’s.”

“Angelo” is Countrywide’s then-CEO, Angelo Mozilo, who once called an ordinary borrower’s plea for help on his mortgage payments, “disgusting.”

But Mozilo seemed to have a different attitude toward people of influence. In fact, Feinberg says part of his job was to hammer home to the V.I.P. clients that they were getting special deals.

“You spoke in a manner that was different than you spoke with a regular customer,” said Feinberg. “‘Your loan has been specially priced by Angelo.’ ‘You’re getting special discounts because you’re in the V.I.P. loan department.”

So what would a “Friend of Angelo” get that an average customer would not? According to Feinberg, the possible benefits ran the gamut.

“They got a discount on the interest rate,” said Feinberg. “They got discounts on their fees. They got a free floatdown option before closing.”

In one instance of a “Friends of Angelo” deal, Mozilo sent an e-mail to Feinberg ordering him to “Take off one point” on a loan to Sen. Conrad. That one point equaled a savings of $10,700 in fees.

Feinberg’s client list also runs the gamut. Among those benefitting from the VIP program were four former Cabinet members spanning Democratic and Republican administrations: Henry Cisneros, Richard Holbrooke, Alphonso Jackson, and Donna Shalala. Two former CEO’s of Fannie Mae, James Johnson and Franklin Raines, heads of the government-sponsored entity which bought Countrywide’s mortgages - also received VIP mortgages from Countrywide.

All have denied impropriety and declined to elaborate to NBC News. Some say they had no idea they were getting favorable rates or any sort of discount.

But Feinberg insists part of his job was to make clear to VIP’s they were receiving special treatment.

“There were many, many taglines we used to let them know their level of importance to make sure that they understand where they’re located,” said Feinberg. “And nine times out of ten, once you mention ‘V.I.P’ the person’s gonna ask you ‘what am i getting for being in this V.I.P department?’ Or ‘what am I getting because I know Angelo?’ Or ‘I talked to Angelo and he said I’m getting this.’”

Senator Conrad says he never asked for, expected, nor was aware of any special treatment from Countrywide, and only found out about the discount after it had been reported in the press. He released and posted to his website all his mortgage documents, and donated all the money he saved to Habitat for Humanity.

Senator Dodd says he thought the VIP program just meant better customer service, and that he received market terms that he could have received from other lenders. The senator said in a press conference on the matter that if anyone had suggested at the time that he was receiving some kind of financial benefit on the loans because of his position, he would have terminated the relationship immediately.

Both Conrad and Dodd say they never sought any favors, and are cooperating with the Senate Ethics Committee investigation.

Feinberg says he’s not aware of any discounts linked to favors, but he did see e-mails noting the potential value of the relationships to Countrywide’s political and business interests. The e-mails noted one particular client was “of importance to Countrywide.” Another encouraged a discount, noting “they are incredibly important to us.” Yet another asked that the loan officer, “make an exception” in Countrywide’s lending rules, “due to the fact that the borrower is a Senator.”

Daniel Golden investigated the program for Condé Nast’s Portfolio magazine.

“There was a great variety of people who got special deals,” said Golden. “Many of them were figures in Congress or government or business partners of Countrywide - all of whom were in a position to help Countrywide in one way or another.”

To Golden, the company’s intention was clear.

“The purpose for Countrywide was to ingratiate itself with the people in Washington who might be able to help the company down the road,” said Golden.

But was any of it illegal? Legal experts say prosecutors will be looking into whether Countrywide was trying to buy influence, and into whether public officials were taking improper gifts, or gifts they should have disclosed.

Posted By: Ralph Roberts @ 11:25 pm | | Comments (7) | Trackback |
Filed under: Mortgage Fraud, Countrywide

October 28, 2008

Congressman John Conyers Letter to Attorney General Mukasey and FBI Director Mueller on Mortgage Fraud

Back on the 12th of June, I posted this blog entry about the FBI and U.S. Attorney General’s disagreement over how to fight real estate and mortgage fraud, and that in respect to the severity of the problem, U.S. Attorney General Michael Mukasey stated the following:

[We] won’t create a national task force to combat mortgage fraud as the government did with corporate crime after Enron. This isn’t that kind of phenomenon.

John Conyers Photo.jpg Now comes word that U.S. Congressman John Conyers (pictured left), Chair of the House Judiciary Committee — along with two of his Committee’s Subcommittee Chairs — sent a letter today to both Mukasey and FBI Director William Mueller suggesting they are not doing nearly enough to deal with the real estate and mortgage fraud crisis. In the letter, which you can read in its entirety below, Conyers, Congressman Robert Scott, and Congresswoman Linda Sanchez, state “A national crisis requires a national response, and the department has yet to convince us that it did, and is doing, its part to adequately and promptly respond.” The letter also conveys awe over the fact that states attorneys general — not the U.S. Justice Department — have taken the lead on dealing with the problem, and demanded information on the amount of resources the FBI is devoting to its investigations.

Dear Mr. Attorney General and Director Mueller:

We write to request detailed information about the Department of Justice’s investigation of mortgage fraud. Given the central role of mortgage fraud in our Nation’s current economic crisis, we are concerned that the Department’s action on this issue has been unduly delayed and underfunded. Recent news reports have indicated that the Department and the Bureau have only recently begun to devote additional resources to the investigation of mortgage fraud and that even with these increased resources, the Bureau might not have sufficient resources to investigate mortgage fraud and is struggling to handle this financial crisis.

This is of particular concern in that, as early as 2004, FBI officials warned that mortgage fraud posed a looming threat. Notwithstanding these early warnings and Bureau requests for additional resources to combat the problem, the Department and the Office of Management and Budget (OMB) rebuffed the requests for additional agents to investigate mortgage fraud, in favor of an increased focus on counterterrorism.

We are struck by the fact that the state attorneys general - not the Department of Justice - have appeared to take the lead in addressing legal aspects associated with some of the major lenders, as illustrated by the recent settlement agreement between certain states and Bank of America to modify the subprime and adjustable-rate mortgages that Countrywide Financial serviced.

We further note that the Department seemed resistant to devoting its resources to this serious problem when, earlier this year, it declined to create a U.S. Task Force to investigate mortgage fraud. At that time, Mr. Attorney General, you likened the problem to “white-collar street crime.” In short, a national crisis requires a national response, and the Department has yet to convince us that it did, and is doing, its part to adequately and promptly respond. Our concern regarding this issue is also buttressed by the recent October 20, 2008 bipartisan letter that more than thirty Members of Congress sent to you, Mr. Attorney General, requesting that you open criminal investigations into potential financial crimes that contributed to our economic crisis, including mortgage fraud.

It is in the context of these foregoing concerns that we request that you respond to the following questions and document requests:

Questions

  1. A recent New York Times article reported that “[the F.B.I. … has said that the [mortgage fraud] schemes it is investigating involve material misstatements, misrepresentations or omissions relied upon by an underwriter or lender to finance, purchase or insure a loan.” This description seems to focus primarily on fraud committed by the borrower in connection with loan applications. Absent is any reference to frauds committed by appraisers, loan officers, mortgage brokers, mortgage originators that sold these loans to the trusts (such as The Money Store and Ameriquest), and all the other entities involved in issuing loans and then marketing them to others. Please provide the guidelines (including the FBI memoranda that contain the definitions) that the FBI uses to describe what it considers “mortgage fraud,” and provide information as to how the FBI has prioritized and is prioritizing its investigations into the various types of fraud.
  2. Reports suggest that the Bureau intends to double the number of agents working on financial crimes by reassigning several hundred agents.
    1. Please provide information by an appropriate statistical measure as to the number of agents who have been assigned to mortgage fraud since 2004. (In addition, please provide information as to whether the agents assigned to “mortgage fraud” were exclusively assigned to that crime, or whether they were assigned more generally to “white collar” crime, of which mortgage fraud is simply one component.)
    2. Please provide information as to any recent or intended reassignments of personnel to combat mortgage fraud, including the nature of the reassignments, and the sections from which these resources have been reassigned.
    3. Please provide information as to the number of mortgage fraud investigations that have been opened/closed from 2004 to the present.

  3. Why did state attorneys general take the lead in reaching the settlement with Bank of America? What role, if any, did the Department play?
  4. What resources have been devoted to the FBI’s investigations into Freddie Mac, Fannie Mae, American International Group (AIG), and Lehman Brothers?

Document Requests

  1. Please provide copies of all documents (including, but not limited to, e-mails) from 2003 to the present relating to the Bureau’s requests for additional resources to investigate mortgage fraud, including, but not limited to, budget requests within the Bureau, budget requests that the Bureau sent to the Department and OMB, and Department and OMB responses (including, but not limited to, e-mails) to the Bureau’s budget requests.
  2. Please provide copies of all documents (including, but not limited to, e-mails), as well as materials and intelligence assessments used to brief the FBI Director, Deputy Director, and Assistant Directors regarding mortgage fraud for the years 2003 to the present.

We request that you provide the requested documentary materials and other information to us by Monday, November 10, 2008. Responses and any questions should be directed to the Judiciary Committee office, 2138 Rayburn House Office Building, Washington, DC 20515 (tel: 202-225-3951; fax: 202-225-7680). Thank you for your cooperation in this matter.

John Conyers, Jr.
Chairman

Robert “Bobby” C. Scott
Chairman
Subcommittee on Crime, Terrorism, and Homeland Security

Linda Sánchez
Chairwoman
Subcommittee on Commercial and Administrative Law

Posted By: Ralph Roberts @ 6:18 pm | | Comments (5) | Trackback |
Filed under: Mortgage Fraud, John Conyers

October 23, 2008

Ray Mathoda on Who’s Really to Blame for the Mortgage Fraud Crisis?

= = = = = = =
Editor’s Note: The following Guest Commentary was written by Ray Mathoda, former Executive Vice President, Chief Administrative Officer of Indymac Bank — the last remaining national independent mortgage lender — until she resigned from her position during the summer of 2008. For more information on Ray Mathoda, please see her bio at the end of this post.
= = = = = = =

I worked at Indymac Bank for a little over 4 years till July 2008 when — after the FDIC took management control of the Bank after a “run on the Bank” was triggered by Senator Schumer’s leaked WSJ letter — I resigned from my position as Chief Administrative Officer. My role had put me in charge of the “People” and “Expense/Cost” functions of the Company…but thankfully (I guess — given the massive blame game going on against anyone involved in the lending industry) I was not involved in any way with making loans.

IndyMac Bank.jpg Headquartered in Pasadena, my Indymac was a performance focused/driven but family friendly place which was discrimination free at the highest levels (certainly, no “discriminating” CEO would have ever hired me, given all the minority categories I fall into!). All that mattered at work was “output” (i.e., what you got done) not politics. In fact, my Indymac experience included more “head” and “heart” than I’d personally expected to find in Corporate America (where I’ve been walking Executive hallways at “Fortune 1000” companies for about 12 years since I graduated from college).

I do believe fraud was a key contributing factor to the housing bubble that we have realized too late was both national and huge, and also believe we must find and punish those that perpetrated it because personal accountability is critical to the stable/smooth go forward functioning of the market. However based on my own personal experience at Indymac I have a strong instinct that the government is focusing its limited resources in the wrong places, and working in bureaucratic and inefficient ways. In particular, I believe the government has an excessive focus and has over-allocated resources to search for fraud by management, but is not pursuing the most efficient ways (e.g., interviewing other managers) to quickly find/punish any such “bad managers”. On the other side, the effort to investigate/prosecute perpetrators of individual fraud (i.e., at the transaction level) is woefully under-resourced (See this article on mortgage fraud and note the FBI was only able to investigate 2.6% of the over 46,000 suspicious activity reports submitted in 2007: http://www.consumeraffairs.com/news04/2008/05/mortgage_fraud_fbi.html).

What makes me think this? Well, I can tell you I didn’t see anything that looked or felt like fraud around me at Indymac. I say this as a member of Indymac’s Executive Committee (comprised of roughly the top 25 managers at the company) since late 2006, prior to which I was the CEO’s Chief of Staff (in which role I attended most of his meetings and reviewed most of his emails and other communications).

You’d think as a key member of management, I would have been interviewed after the FDIC took control of Indymac. It certainly looks like they are investing significant resources in investigating Indymac. For example, during the 48 hours after the FDIC takeover of Indymac, millions of pieces of paper were taken from Indymac’s Corporate Offices for review/investigation. I walked into my office on July 12th, the day after the FDIC took over Indymac, to find my office (and my Assistant’s filing cabinets) stripped of every piece of paper I had accumulated over the course of my 4 years at Indymac (and I can tell you I am highly organized…so there was lots of it).

No one really explained what was being investigated or why…just that conducting a detailed investigation was “standard protocol”. Given I had a lot of exposure to top management’s activities in the years preceding the companies’ failure I thought I would try to help, so mentioned to one of the top FDIC managers that they were welcome to interview me as I had spent a lot of time with the CEO (who was no longer at the Bank as part of the government takeover) and had read a lot (perhaps even most) of his communications for roughly a 2 year period (from fall 2004 to fall 2006). He nodded, but nothing happened.

To cut a long story short, I decided shortly thereafter to resign from the company…as the “head” and “heart” of the company was gone and I just couldn’t sit and watch the FDIC create a massive loss by fire-selling the company’s assets into the worst market for mortgage assets in 80 years. Before departing the company about a week later (with no ‘golden parachute’ or severance, I should note), I repeated my offer one more time. To this day, no one from the FDIC or any other governmental organization has called me to take me up on my offer.

So my hypothesis — based on my own personal experience — is that people’s ire and the government’s dollars are misdirected in the fraud category. I believe it is unlikely there was widespread fraud at the top levels of the (recently or currently distressed) financial institutions…and that in fact mortgage fraud was largely perpetrated at lower levels within companies and by individuals outside the financial institutions who were independent.

As a result, I believe the government should speed up the blame game by interviewing all the executives (remaining and departed) at the various distressed financial institutions. This process would take weeks, not years….and would be more effective at identifying management fraud than reviewing millions if not billions of pieces of paper. Then shift the resources currently deployed to read/review the millions of pages collected from these companies largely over to investigating and prosecuting individual fraud.

Copyright 2008 Rayman Mathoda. The above commentary was originally published on October 22, 2008 on Intent.com, and is used here by permission.

= = = = = =
About the Author: Rayman Mathoda was Executive Vice President, Chief Administrative Officer of Indymac Bank — the last remaining national independent mortgage lender — until she resigned from her position during the summer of 2008. In that role, she was responsible for managing all labor and non labor expense related infrastructure and functions for Indymac including recruiting, compensation, and global outsourcing/ workforce management, corporate communication and culture, real estate and purchasing, as well as Corporate Information Technology (IT). Ms. Mathoda joined Indymac Bank in May 2004, leading Indymac Bank’s company-wide Business Process Outsourcing program. Prior to joining Indymac, Ray worked at McKinsey & Company, a global management consulting firm focusing on strategic issues and performance transformation programs at Fortune 500 companies. While at McKinsey, Ray focused on the high-tech/internet and healthcare industries and was a co-leader of the Firm’s west coast payor-provider practice. Ray graduated with an A.B. with honors from the Woodrow Wilson School of Public and International Affairs at Princeton University. While at Princeton, Ray focused on studying Developmental Economics and South Asian politics. She also has an M.B.A. in Marketing and Entrepreneurship from the Kellogg School of Business at Northwestern University.

Posted By: Ralph Roberts @ 5:30 pm | | Comments (8) | Trackback |
Filed under: IndyMac

October 21, 2008

State Foreclosure Prevention Working Group Calls Foreclosure Prevention Efforts Profoundly Disappointing

SWG Cover I.jpg According to the State Foreclosure Prevention Working Group — a group of state attorneys general and state banking regulators working together under the Conference of State Bank Supervisors to prevent home foreclosures — industry efforts and measures to keep homeowners out of foreclosure have slipped.

Too many homeowners face foreclosure without receiving any meaningful assistance by their mortgage servicer,” the report concluded, “a reality that is growing worse rather than better, as the number of delinquent loans, prime and subprime, increases.

The State Foreclosure Prevention Working Group issued its third Analysis of Subprime Mortgage Servicing Performance, based on data collected from subprime mortgage servicers for February through May 2008. The report — which was issued late-September prior to the U.S. government’s $700 Billion Troubled Asset Relief Program and to Countrywide’s mandatory loan modification program — revealed nearly eight out of ten seriously delinquent homeowners are not on track for any loan work-out or loss mitigation assistance that might enable them to avoid foreclosure, a higher percentage than the Group found in its April 2008 report.

The September report concluded: “While some progress has been made in preventing foreclosures, the empirical evidence is profoundly disappointing.

Servicers appear to have reached the ‘low-hanging fruit’ of subprime loans facing interest rate resets, while not developing effective approaches to address the bulk of subprime loans which are in default before interest rate resets,” the report said. “Based on the rising number of delinquent prime loans and projected numbers of payment option ARM loans facing reset over the next two years, we fear that continued reactive approaches will lead to another wave of unnecessary and preventable foreclosures.

SWG Graph I.jpg

The report says “the number of loans on track for a loan modification has declined precipitously” in recent months. “The mortgage industry’s failure to develop systematic approaches to prevent foreclosures has only spurred declines in property values and further increased expected losses on mortgage loan portfolios,” according to the state officials’ new report.

Major findings from the Analysis of Subprime Mortgage Servicing Performance report include:

  1. Nearly eight out of ten seriously delinquent homeowners are not on track for any loss mitigation outcome. Previously, seven out of ten homeowners were not on track for any loss mitigation outcome. “This already disappointing ratio has become even worse, with 40,000 fewer loans in loss mitigation in May 2008 than in January 2008, the report said.
  2. New efforts to prevent foreclosures are on the decline, despite a temporary increase in loan modifications through the 2nd Quarter of 2008. The number of homeowners working toward a loan modification has fallen to a level not seen since late in 2007. This 28% decline of loan modifications in process between January and May stands in stark contrast to the 51% increase in loan modifications closed over this same period. This declining trend of new loans in process suggests that current loan modification approaches have been tailored to a limited group of homeowners. Instead of expanding loan modification options to reach a broader set of homeowners, more loss mitigation is being directed to selling homes short of foreclosure. In January, modifications in process outnumbered short sales in process by four to one; in May, that ratio had dropped to two to one.
  3. One out of five loan modifications made in the past year is currently delinquent. The high number of previously-modified loans currently delinquent indicates that a significant number of modifications offered to homeowners has not been sustainable. Recent reports identify that many loan modifications are not providing any monthly payment relief to struggling homeowners. “We are concerned that unrealistic or ‘band-aid’ modifications have only exacerbated and prolonged the current foreclosure crisis, the report said.
  4. 300,000 subprime loans were in the process of foreclosure as of the end of May 2008. Thirty-eight percent (38%) of seriously delinquent subprime loans are in the process of foreclosure, with over 131,000 foreclosures completed on subprime loans in May 2008 alone.

Since October 2007, the State Foreclosure Prevention Working Group has been collecting data from the largest subprime mortgage servicers, with 13 of the largest 20 servicers participating, representing approximately 60% of subprime mortgage loans serviced. The Group includes representatives of the Attorneys General of 11 states (Arizona, California, Colorado, Iowa, Illinois, Massachusetts, Michigan, New York, North Carolina, Ohio and Texas), two state banking departments (New York and North Carolina), and the Conference of State Bank Supervisors.

Posted By: Ralph Roberts @ 9:47 pm | | Comments (3) | Trackback |
Filed under: State Foreclosure Prevention Working Group

October 20, 2008

Benjamin Osmanson and Jillian Protzman Indicted for $26 Million Mortgage Fraud Scam

Highgate Manor Inn.jpg The former operators of an elegant Victorian-style bed & breakfast in northwestern Vermont have been indicted for mortgage fraud. Benjamin Osmanson, 29, of Sarita, Texas, and Jillian Protzman, 26, of Essex, Vermont, stand accused by the Office of the U.S. Attorney for the District of Vermont of obtaining more than $26,000,000.00 in fraudulent loans for the purchase of approximately 50 properties in California, Florida, Kentucky, and Vermont. According to the U.S. Attorney’s Office, Osmanson and Protzman owned The Historic Highgate Manor Inn (pictured above), located about 40 miles north of Burlington, VT, and 60 miles south of Montreal, Canada.

On Thursday, October 2, 2008, a federal grand jury in Burlington returned an eleven-count indictment charging Osmanson and Protzman with, among other offenses, conspiracy to commit wire fraud and money laundering. Benjamin Osmanson was arrested on 10/1/08 in Texas, while Jillian Protzman surrendered to the FBI in Burlington a week earlier.

The indictment alleges that from at least as early as January 2006 through at least April 2007, Osmanson and Protzman orchestrated the purchase of at least 50 properties in Vermont, California, Kentucky, and Florida in the names of at least 10 investors, obtaining more than $26,000,000.00 in loans to support the purchases. In Collier County, Florida alone, the pair is accused of obtaining more than 20 different residential properties.

According to the court documents, Ben Osmanson recruited friends, family members, and acquaintances to invest in real estate. Osmanson and Jillian Protzman then submitted fraudulent loan applications in the names of the investors to obtain fully-financed mortgage loans. The indictment states that Osmanson, Protzman, and others sought loans from multiple lenders and closed the loans for each investor within a short period of time in order to preserve the appearance of the investor’s good credit until the transactions were complete.

The indictment further alleges that Osmanson and Protzman enriched themselves with rebates, fees, and commissions connected to the fraudulent property purchases, and continued to recruit investors and submit applications for new loans even after the loans to the initial investors began to fail.

Relatively speaking, Vermont is far removed from the rest of the nation when it comes to real estate and mortgage fraud and foreclosure rescue scams. According to the latest U.S. Foreclosure Market Report™ published by RealtyTrac, Vermont continues to document the nation’s second lowest state foreclosure rate, with only one in every 17,198 households receiving a foreclosure filing in August.

Osmanson and Protzman, whose trial date has not been determined as of yet, face maximum possible terms of five years on the conspiracy count, 30 years on each count of wire fraud, and 10 years for each count of money laundering. However, as astute Flipping Frenzy readers know, the actual sentence in the event of a conviction will be determined in accordance with the federal sentencing guidelines.

Posted By: Ralph Roberts @ 4:19 pm | | Comments (5) | Trackback |
Filed under: Mortgage Fraud, Arrest, Vermont

October 17, 2008

Finally for Michigan, a Multi-Agency Mortgage Fraud Task Force

The U.S. Attorney’s Office for the Eastern District of Michigan has finally created a multiagency task force to deal with real estate and mortgage fraud in eastern Michigan. As mortgage fraud continues to have significant consequences that affect the housing market, law enforcement in Michigan has decided now is the time to formally step up its commitment to fighting what for the last three years has been the fastest-growing white collar crime in America.

Participating agencies and financial institutions include:

  • Bank of America
  • Federal Bureau of Investigation (FBI)
  • Federal Deposit Insurance Corp. – Inspector General Office
  • Flagstar Bank
  • Internal Revenue Service
  • JP Morgan Chase Bank
  • Oakland County Register of Deeds
  • Small Business Administration- Office of Inspector General
  • State of Michigan Attorney General’s Office
  • State of Michigan Office of Financial Regulation
  • U.S. Department of Agriculture- Office of Inspector General
  • U.S. Dept. of Housing & Urban Dev. – Office Inspector General
  • U.S. Trustee Program
  • United States Postal Inspection Service
  • Washtenaw County Clerk/Register of Deeds
  • Wayne County Register of Deeds – Deed Fraud Unit
  • Wayne County Sheriff’s Department
  • Wayne County Prosecuting Attorney

The acting U.S. Attorney for the District, Terrence Berg, issued a press release stating:

I want to commend the leadership of the FBI in Detroit for taking the initiative on this project, and also recognize the participation of our private sector partners. I am very encouraged by the commitment of the Task Force members.

Rather than congratulating themselves for the task force’s formation, as Berg does above, perhaps the U.S. Attorney’s office for the Eastern District of Michigan — along with the other agencies and the banks involved in this new effort — should apologize to the residents of Michigan for taking this long to act in a coordinated way.

As Flipping Frenzy has relentlessly reported over the years, Michigan’s real estate and mortgage fraud woes are legendary. In August of this year, the Mortgage Asset Research Institute (MARI) reported Michigan ranked 3rd in the nation for loans containing alleged fraud or serious material misrepresentation (and just in case you’re wondering, MARI ranked the state #12 in 2001, #8 in 2003, and #5 in 2004). For its part, the FBI’s most recent index of the worst states for mortgage fraud puts Michigan in the slot: #3.

Recognizing that roughly 90% of all reported real estate and mortgage fraud losses involve collaboration or collusion by real estate industry insiders, the Mulit-Agency Mortgage Fraud Task Force will concentrate their efforts on fraud for profit, which everyone knows by now involves the skimming of equity, falsely inflating the value of the property through false appraisals, and the issuance of loans on fictitious properties.

To report real estate and mortgage fraud in Detroit or anywhere in Michigan, Flipping Frenzy readers can call the Detroit Metro Mortgage Fraud Hotline at (313) 237-4530, or contact the Wayne County Register of Deeds’ Deed Fraud Hotline at (313) 224-5869.

Posted By: Ralph Roberts @ 6:05 pm | | Comments (5) | Trackback |
Filed under: Mortgage Fraud, Real Estate Fraud, FBI, Michigan, Wayne County Register of Deeds Office

October 16, 2008

Mortgage Fraud and Collateralized Debt Obligations

For Flipping Frenzy readers interested in diving a little deeper into the role mortgage-backed securities played in the current credit crunch, take a look at this short video about Collateralized Debt Obligations (CDOs):


For the uninitiated, CDOs are an unregulated type of asset-backed security and structured credit product. Some news and media commentary blame our current financial woes on the complexity of CDO products and the failure of risk and recovery models used by credit rating agencies to value these products. Between 2003 and 2006, new issues of CDOs backed by asset-backed and mortgage-backed securities had increasing exposure to subprime mortgage bonds. As delinquencies and defaults on subprime mortgages occur as a result of real estate fraud, mortgage fraud or predatory lending, CDOs backed by subprime collateral experience severe rating downgrades and possibly future losses.

Posted By: Ralph Roberts @ 8:21 pm | | Comments (0) | Trackback |
Filed under: Mortgage Fraud, Collateralized Debt Obligations

October 14, 2008

Mortgage Fraud at Washington Mutual

If you weren’t up late last night to catch it, Nightline — ABC’s nationally televised late-night news program — featured a segment that included an interview with a former Washington Mutual (WaMu) senior risk manager who says company executives ignored significant warnings about real estate and mortgage fraud and encouraged reckless lending:

Exclusive: WaMu Insiders Claim Execs Ignored Warnings, Encouraged Reckless Lending Ex-Washington Mutual Risk Manager: Execs ‘Took the Brakes Off and Drove Over a Cliff’

By PIERRE THOMAS and LAUREN PEARLE
Oct. 13, 2008—

With Americans reeling from a global financial crisis, dozens of former Washington Mutual insiders have come forward to expose what they claim were calamitous executive decisions that led to the biggest bank failure in U.S. history.

These former WaMu employees, 89 of them who worked throughout the company and around the country, described a bank eager to profit from a housing boom and lending frenzy that seemed to have contributed to the credit crunch and housing bust now plaguing the economy. Some of them spoke to ABC News, all of them are confidential witnesses in a recently filed shareholder class action lawsuit against WaMu.

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In court documents, the insiders said the company’s risk managers, the “gatekeepers” who were supposed to protect the bank from taking undue risks, were ignored, marginalized and in some cases, fired. At the same time, some of the bank’s lenders and underwriters who sold mortgages directly to home owners said they felt pressure to sell as many loans as possible and push risky but lucrative loans onto all borrowers, according to insiders who spoke to ABC News.

And this is “only the tip of the iceberg,”a former high-level executive claimed in the lawsuit.

A company representative told ABC News that Washington Mutual Inc. would not comment for this story.

Former Risk Manager: WaMu ‘Took the Brakes Off the Car’

Dale George, a former WaMu senior risk manager who spoke exclusively to ABC News, explained that risk managers are like the brakes on a car. WaMu executives “took the brakes off and drove over a cliff,” he said.

George described how he said senior management willfully ignored warnings from its own “gatekeeper,” the bank’s risk management group. He and other company insiders claimed that risk managers were brushed aside while the business units adopted a strategy of dangerous and reckless lending that eventually took down the company.

George, an MBA with three decades of experience in banking and risk management, said that the WaMu he joined in 2003, “was all about good old-fashioned banking.” He described a company with a rigorous risk management program and sensible loan production. It was a bank he said he was proud to work at.

But as the housing bubble swelled and high-risk mortgage lending became more lucrative, the bank changed, according to George. WaMu began approving as many loans as it could. “Everything was refocused on loan volume, loan volume, loan volume,” he told ABC News.

And to further boost profit, WaMu increased its share of higher-risk subprime and option adjustable rate loans, known as “option arms,” said George. These loans offer low introductory rates and let borrowers defer interest payments, but can strap them with significantly higher interest rates and payments in the future.

George said WaMu was competing with subprime giant Countrywide, which also imploded. “They were in a neck-and-neck race.” and “both went off the cliff together, one after the other,” he said. This high-risk, high-return game turned a century-old traditional bank that made steady but modest returns into “just an arm of Wall Street,” said George.

WaMu executives knew of these risks but chose to ignore them, according to statements by former WaMu insiders cited in the lawsuit. In a September 2005 confidential “Corporate Risk Oversight Report” obtained exclusively by ABC News, WaMu’s own risk management team found that the future performance of popular loans like Option Arms was “untested” and created “major and growing risk factors in our portfolio.”

This document shows that the top WaMu executives “were on notice that their own risk management systems had no ability to even measure, let alone control, the extraordinary risks that they were taking,” according to Chad Johnson from Bernstein Litowitz Berger & Grossmann LLP, attorneys for the plaintiff shareholders.

But rather than heeding this warning, George said risk managers were told to “lay off.” In an October 31, 2005 e-mail also obtained by ABC News, one WaMu executive told risk managers about a “cultural change” at the bank, and urged them to “lead the charge in modifying the perception of compliance and risk oversight from a regulatory burden to a competitive advantage.”

George said this had a chilling effect: It told risk managers that they “could not raise meaningful issues” and “really had to sweep negative findings under the carpet.”

George told ABC News that he refused to sweep away his findings. He claimed “there were a number of instances where I was pressured to fix a certain rating or upgrade the rating.”

In one case, he said he refused to improve the risk rating on a $50 million commercial loan, an improvement that would have allowed the bank to significantly increase th