To everyone who takes the time to read our blog, wage battle against real estate and mortgage fraud, and who believes in the power of new media journalism and citizen participation… we offer the following thoughts on how to observe this Thanksgiving:

Count your blessings instead of your crosses
Count your friendship and knowledge gains instead of your losses.

Count your joys instead of your woes
Count your friends instead of your foes.

Count your smiles instead of your tears
Count your courage to fight on instead of your fears.

Count your full years instead of your lean
Count your kind deeds instead of your mean.

Count your health instead of your wealth
Count on the power of all of us instead of just yourself.

Happy Thanksgiving!

Mary Reagan, 41, of Alpharetta, Georgia, was sentenced yesterday morning to serve almost five years in federal prison for her role in a multi-million dollar mortgage fraud scheme. Reagan pleaded guilty in July of this year. shortly before she was to go to trial, and agreed to assist the government in the prosecution of the scheme.

According to United States Attorney for the Northern District of Georgia and information presented in court:

• From mid-2004 through June 2006, Mary Reagan was an attorney, doing business as The Reagan Law Group, closing millions of dollars of fraudulently inflated mortgage loans being provided to unqualified straw buyers.
• Reagan was the attorney responsible for representing the mortgage lenders at the closing table. When the loans closed, Reagan instead transferred millions of dollars of the inflated loan proceeds to co-conspirators (Adriene Newby-Allen, Brinson Allen, and James Howard Bailey, III) by falsifying closing documents, such as the HUD-1 settlement statements, and concealing from the lenders the true recipients and purposes of payments made in connection with the closing.
• Reagan also concealed from lenders that the unqualified straw buyers did not make sizeable down payments required as a condition of closing. On one property, Reagan falsified title work and other documents to conceal from a lender that the property was already encumbered by two mortgages at an inflated price, ensuring that the lender’s security interest in the property was worthless.

From U.S. Attorney David E. Nahmias:

As is unfortunately true of many mortgage fraud schemes that we have seen, this case involves an attorney who should have known and done better. This prosecution serves as another warning to closing attorneys and others in positions of trust in the real estate industry. If you become involved in mortgage fraud, you will not just lose your license, you may end up in a federal prison.”

Mary Reagan was sentenced to four years, nine months in federal prison, to be followed by five years of supervised release, and was ordered to pay full restitution of more than $4,000,000.

The U.S. Attorney for the Southern District of California, Karen Hewitt, announced that former mortgage loan offers Rafael Santiago and Angel Armendariz pled guilty today in federal court in San Diego to conspiring to commit wire fraud in connection with a $16 Million mortgage fraud scam. Three other loan officers — Abner Betech, Said Betech, and Aviva Betech — already pleded guilty to conspiring to commit wire fraud.

According to court documents, Rafael Santiago, Abner Betech, Said Betech, Aviva Betech, and Angel Armendariz admitted to committing mortgage fraud. In 2005, Abner and Said Betech and others founded Creative Financial Solutions, Inc. (“CFS”), a mortgage brokering company formerly located at 707 Broadway Avenue, Suite 1720, San Diego. CFS was in the business of sending loan application packages and other documents to lenders for review and funding. CFS did not fund loans but received commissions from the lenders when the loans closed. All five also often received kickback payments when loans closed.

Rafael Santiago, Abner Betech, Said Betech, Aviva Betech, and Angel Armendariz admitted in court that CFS obtained mortgage loans for unqualified borrowers by, among other things, submitting false loan applications, false bank statements, and false income documentation.

In total, the victim lenders funded more than $16 million in loans on properties that have since foreclosed or are in the stream of foreclosure.

Sentencing for Rafael Santiago, Abner Betech, Said Betech, and Aviva Betech is scheduled for April 13, 2009, and sentencing for Angel Armendariz is scheduled for April 20, 2009. A sixth defendant, Lucette Montane, remains at large and is actively being sought by federal authorities.

Following a 14-day trial, two members of a foreclosure rescue scheme have been found guilty of conspiracy, wire fraud and bank fraud as a result of engaging in a $10 Million dollar mortgage fraud scheme. The former owners of Homes R Us USA — Andrea Moore and Michael Irving — were found guilty last Thursday (11/13/08) of participating in a foreclosure rescue scheme which defrauded homeowners who were facing foreclosure and banks and other lenders who made mortgage and home equity loans.

According to the evidence presented at trial and other documents obtained by Flipping Frenzy:

• From September 2004 through April 2005, Andrea Moore and Michael Irving engaged in a fraud scheme targeting homeowners whose homes, primarily in Brooklyn and the Bronx, were in foreclosure or facing foreclosure.
• Homeowners were offered a plan to “save” their homes, including by refinancing their debt with new, larger mortgages.
• Because the distressed homeowners typically had poor credit and were not eligible to refinance their debt at favorable terms, Andrea Moore and Michael Irving induced them to sell their homes to straw buyers who would apply for loans to be used to “save” the home.
• Andrea Moore and Michael Irving promised that once the straw buyer obtained the mortgage, the proceeds would be used to pay off the homeowners’ old debt and make one year’s worth of payments on the new loans.
• The homeowners were told that, during that year, they could continue to live in their homes and work on improving their finances and credit.
• Finally, Moore and Irving explained to the homeowners that, at the end of the year, the title to their homes would be returned to them by the straw buyers, with their credit repaired and their homes saved.

There were also cases in which Moore and Irving did not explain to homeowners that the plan to “save” their home required them to deed their house to a third party an did not obtain permission to deed the homes to others. In such cases, Andrea Moore and Michael Irving effectively stole the property of the homeowners by forging the homeowners’ signatures on various documents that transferred the homes to straw buyers without the homeowners’ knowledge.

As a part of the scheme, Andrea Moore and Michael Irving submitted loan applications to various banks and lending institutions on the straw buyer’s behalf. In submitting these applications, they regularly used documents containing false or misleading information, including information concerning the straw buyer’s income, assets, and existing debt, to improve the straw buyer’s credit-worthiness.

In addition to false statements concerning the straw buyers’ financial profile, Moore and Irving misrepresented to lenders that the straw buyers intended to reside in the property that would secure each mortgage or loan, when, in fact, the properties were already occupied by the distressed homeowners.

Moore, who directed the daily operations of the scheme, and Irving, who served as a recruiter and later as a partner to Moore in the scheme, obtained numerous home mortgages and/or equity loans valued at well over $10 million. In some instances, Andrea Moore and Michael Irving failed to make even one payment on the loans, causing the loans to default immediately; in nearly every other case, they eventually failed to make the payments and defaulted on the loans, thereby “cashing out” on the properties. As a result, the distressed homeowners lost the titles to their homes and faced eviction, the straw buyers owed the lenders hundreds of thousands of dollars that they were unable to repay, and the lenders suffered losses from the defaulted loans.

Profits of the fraudulent scheme consisted of the difference between the value of the new and old loans, and they also earned hundreds of thousands of dollars in fees.

Moore was found guilty of one count of conspiracy to commit bank and wire fraud, four counts of wire fraud and one count of bank fraud. Irving was found guilty of one count of conspiracy to commit bank and wire fraud and one count of wire fraud. The conspiracy and bank fraud counts carry a maximum prison term of thirty years and a maximum fine of the greatest of $1,000,000 or twice the gross pecuniary gain or loss resulting from the crimes. The wire fraud counts carry a maximum prison term 20 years and a maximum fine of the greatest $250,000 or twice the gross pecuniary gain or loss resulting from the crimes.

In addition, Moore and Irving — who are scheduled to be sentenced on February 18, 2009 — are required to pay restitution to the victims of their crimes.

According to Michael Irving’s attorney, Christopher Chang, “Irving was the government’s scapegoat for a debacle which was the making of lenders and bankers who not only have escaped accountability for their grossly irresponsible conduct but now are bailed out of mess they created,” Chang said in an e-mail sent to the Associated Press. Chang, according to the AP, says he plans to appeal.

From James Lockhart, director of the Federal Housing Finance Agency (FHFA):

As housing prices have fallen, delinquencies on mortgages have tripled, not just for subprime and Alt-A, but also for prime mortgages. Foreclosures have increased almost 150% from two years ago. Foreclosures hurt families, their neighbors, whole communities and the overall housing market. We need to stop this downward spiral.

Today we are announcing a major program designed to greatly reduce preventable foreclosures with a simplified, streamlined loan modification program to get struggling homeowners into mortgages that they can afford. It is an achievable goal if homeowners, banks, mortgage servicers, investors, Fannie Mae and Freddie Mac all work together.

As the regulator of Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBanks), the Federal Housing Finance Agency (FHFA) strongly supports the Enterprises’ leadership role in setting industry standards for assisting “at risk” borrowers who could lose their homes to foreclosure.

This streamlined modification program with uniform eligibility requirements will be supported by a consistent, efficient process approved by key industry participants. This program resulted from a unified effort among the Enterprises, Hope Now and its twenty-seven servicer partners, the Department of the Treasury, the Federal Housing Administration (FHA) and FHFA.

Fannie Mae and Freddie Mac own or guarantee almost 31 million mortgages, which equates to about 58% of all single family mortgages. Although these mortgages only represent 20% of serious delinquencies, Lockhart believes Fannie Mae and Freddie Mac’s leadership role will spread the modification approach throughout the whole mortgage loan servicing industry.

More from Lockhart:

The performance of private label mortgage backed securities that were sliced and diced and sold to investors is just the opposite of Fannie Mae’s and Freddie Mac’s. Private label securities represent less than 20% of the mortgages but 60% of the serious delinquencies. As the regulator of the housing GSEs that own over a quarter of a trillion dollars of private label securities, I ask the private label MBS servicers and investors to rapidly adopt this program as the industry standard. Not only will this streamlined program assist borrowers, but broad acceptance and effective implementation could stabilize communities and property values.

The program targets the highest risk borrower who has missed three payments or more, owns and occupies the property as a primary residence, and has not filed for bankruptcy. To be considered for the program, a seriously delinquent borrower should contact his or her servicer and provide the requested income information. The program creates a fast-track method of getting troubled borrowers to an affordable monthly payment where “affordable” is defined as a first mortgage payment, including homeowner association dues, of no more than 38 percent of the household’s monthly gross income. This affordable payment will be achieved through a mix of reducing the mortgage interest rate, extending the life of the loan or even deferring payment on part of the principal. Servicers will have flexibility in the mix used to get there, but the goal is to create a more affordable payment.

If the servicer is unable to create an affordable payment with this streamlined program, it will further evaluate the borrower’s situation through a customized process. The key to success is the borrower’s ongoing cooperation and communication with the servicer. Borrowers shouldn’t fear working with servicers. They have dedicated personnel who are experienced in working with borrowers who are struggling with finances, but who are eager to keep their homes.

The streamlined modification program complements existing loss mitigation programs. We expect that it could significantly increase the number of modifications completed. Borrowers who participate will be strongly encouraged to seek financial counseling through HUD-approved agencies – particularly, if the default is a result of being overextended or due to financial mismanagement.

Focusing for a moment on this (from above): “Borrowers shouldn’t fear working with servicers. They have dedicated personnel who are experienced in working with borrowers who are struggling with finances, but who are eager to keep their homes.… how long do you think it will take for “Loan Modification Fraud” to become part of the common vernacular!

Back in April of this year, I posted a blog entry titled “Idaho Fares Better Than Most Other States on Mortgage Issues.” My how times have changed!

According to RealtyTrac’s September 2008 U.S. Foreclosure Market Report, Idaho’s luck recently changed, and not in a good way. The number of housing units in Idaho receiving a foreclosure filing during the month of September was up nearly 40% from the previous month and up a whopping 65% from one year ago. With the state’s foreclosure problems now causing it to be ranked the 14th worst in nation, a new manual to help Idaho consumers avoid mortgage fraud and foreclosure has just been made available from state’s Attorney General’s office.

The publication, simply titled “Mortgage Fraud and Foreclosure,” is free and includes information about mortgage fraud, foreclosure rescue schemes, and foreclosure prevention. It also describes consumers’ rights and remedies under related laws, such as the Real Estate Settlement Procedures Act (RESPA) and the Home Ownership Equity Protection Act, and provides contact information for a variety of real estate-related resources for consumers.

“Mortgage Fraud and Foreclosure” is available free to anyone with Internet access. Idaho residents may be able to receive a free copy in the mail by calling the Idaho Attorney General’s office at (208) 334-2424.

A 45-year-old Houston, Texas, mortgage broker has been indicted and charged with conspiracy, wire fraud and money laundering in connection with an alleged scheme to defraud lenders out of more than $12 million in residential mortgage loans.

Clarence Lewis, III, who operates Motown Mortgage Group in Houston, stands accused of recruiting people to purchase residential properties with the intent to deceive mortgage lenders concerning their ability and incentive to repay the loans. Lewis and others prepared and provided to mortgage lenders, according to allegations in the indictment, falsified documents to support loan applications. Furthermore, appraisals used as evidence of the value of the properties in questions were allegedly created by someone other than an licensed appraiser, yet a licensed appraisers name and license were consistently and fraudulently used.

Proceeds from Clarence Lewis’ loans were deposited into bank accounts in business names associated with Lewis, including Motown Mortgage Group and Astro Construction Company. Some of the funds were also used to pay individuals who provided services necessary to promote and perpetuate the scheme.

Each of Lewis’ wire fraud counts carries a maximum possible penalty of 20 years imprisonment and $250,000 fine. A conviction for money laundering carries a maximum sentence of 20 years and a $500,000 fine. The maximum possible sentence for engaging in a financial transaction involving more than $10,000 in criminally derived property, is 10 years imprisonment and a $250,000 fine.

The criminal charges against Clarence Lewis, III are the result of a joint investigation conducted by special agents of the FBI and the Internal Revenue Service—Criminal Investigations Division. The case is being prosecuted by Assistant U.S. Attorney Melissa J. Annis (Eastern District of Texas).

Bloomberg.com is reporting that more than 10,000 Californians who defaulted on home loans may now face prosecution for providing false information when applying for their mortgages. If all goes according to plan, the U.S. Attorney for the Northern District of California — Joseph Russoniello — could begin filing charges as early as December, according to Bloomberg. Russoniello (pictured left) told Bloomberg he is investigating homeowners who walked away from their loans and abandoned properties, not those who are keeping up with their monthly payments.

From Bloomberg:

U.S. Prosecutor Targets Cheating Borrowers for Mortgage Fraud

By Karen Gullo and Peter Blumberg

Oct. 31 (Bloomberg) — Thousands of Californians who defaulted on their home loans may face prosecution for providing false information to qualify for the mortgages, San Francisco U.S. Attorney Joseph Russoniello said.

Russoniello, 67, leads a task force of 20 federal, state and local law-enforcement officials that is looking into as many as 11,000 cases of mortgage fraud in the San Francisco Bay area. Borrowers who overstated income or concealed debt when they took out loans are partly to blame for the housing crisis, he said.

“We need them to take responsibility for their actions,” Russoniello said in an Oct. 29 interview. “Everyone would love to find some bull that was responsible, but there is literally no one that has clean hands.”

Russoniello expects to start filing criminal charges in early December. Accused cheaters may avoid prison time by agreeing to pay a fine and restitution equal to the difference between the loan amount and the value of the home assumed by the lender, he said. If brokers or community groups helped borrowers commit fraud, they also may be prosecuted, Russoniello said.

The U.S. attorney said he is targeting borrowers who “walked away” from their loans and abandoned properties, not those who are keeping up with their monthly payments.

Priority List

“We’re suggesting to people that if they stay in their homes, they will drop very low on the priority list,” he said.

Some community activists said Russoniello should be focusing on banks and mortgage brokers, not borrowers.

“It’s picking on the weakest and least consequential because you can put away a victory,” said Robert Gnaizda, general counsel of the Greenlining Institute, a Berkeley, California-based advocacy group for low-income and minority communities. “I don’t think he’s up to the task of addressing the kind of fraud that Wall Street has committed.”

Russoniello said the task force, which includes agents from the Federal Bureau of Investigation and the Internal Revenue Service, is scrutinizing potential fraud by lenders, brokers and real-estate appraisers, as well as borrowers.

New York-based investment banks already face probes by U.S. attorneys in Manhattan, Brooklyn and Newark, New Jersey. In Southern California, federal investigators in Los Angeles are reviewing the practices of lenders including Countrywide Financial Corp., which was the largest U.S. mortgage lender before its takeover by Bank of America Corp.

Bottom Steps

“If there are 10 steps in the process, we’re looking at the four bottom steps,” Russoniello said.

In some cases, Russoniello said, evidence of a borrower’s cheating may come from lenders who discovered false information in paperwork while processing defaults. Particular lenders or brokers may be in trouble if multiple borrowers describe a pattern of suspicious activity, he said.

California accounted for 210,845 foreclosure filings, or 27 percent of the U.S. total, from July through September, according to data compiled by Irvine, California-based RealtyTrac.

Russoniello’s task force, formed in May, focuses on coastal Northern California, including foreclosure hot spots such as Monterey County, about 80 miles (129 kilometers) south of San Francisco, and Alameda and Contra Costa counties, both on the east side of San Francisco Bay.

There are more than 20,000 bank-owned properties in those three counties, according to RealtyTrac.

Russoniello, who held the same job under President Ronald Reagan, was brought back last year by President George W. Bush to replace Kevin Ryan, one of nine federal prosecutors ousted by the White House.

He may not have long to implement his plan following next week’s election. U.S. attorneys serve at the pleasure of the president, and a new administration may replace him soon after taking office in January.