Frustrated by the wave of fraud that by one estimate took $750 million out of Utahns’ pocketbooks last year, regulators, law enforcement officials and attorneys are organizing a free “Fraud College” next month in Utah County for the public to call attention to the problem and to try to combat it.

But the one player that all agree has to lend its loud voice to the proceedings if they are to be as effective as possible will be largely silent — the LDS Church.

This is Utah, after all, where The Church of Jesus Christ of Latter-day Saints claims about 60 percent of residents as members. Beyond the numbers, there is the church’s organization into close-knit local wards led by male authority figures where members’ social and religious lives revolve around shared beliefs in the sacredness and uniqueness of their religion.

Those characteristics make Mormons vulnerable to what regulators and government investigators label “affinity fraud” in which groups who through shared associations develop bonds of trust that can be easily exploited by con artists. Though other faiths are similarly vulnerable, that is particularly true in the insular Mormon culture of Utah.

“There’s this notion that if you pay your tithing and do what you’re supposed to do, the windows of heaven will be open to you and God will pour you out a blessing such that there’s not room enough to receive it,” said Keith Woodwell, a church member and director of the Division of Securities, the state’s chief investigator of investment fraud. “So it’s very easy for someone who has [fraud] as their motive to use that doctrine and say, ‘Look, you’re a member in good standing and you pay your tithing and you’re entitled to be blessed.’ “

Choosing not to participate

But the church, after initially signaling to organizers that it would be a key player in the fraud conference that is drawing representatives of other faiths, has chosen not to send a high-ranking authority to speak.

A church spokesman declined to say why it was not participating.

Mark F. Zimbelman, a Brigham Young University professor of accounting who teaches a class about how frauds are committed, will be the LDS member on the interfaith panel at the Fraud College. But he said will not be speaking for the church.

The church’s decision is a disappointment for organizers, who wanted a strong LDS presence to send a message about safe investments.

“I don’t think any church has done enough, including the Mormon Church,” said attorney Brent Baker, a former Securities and Exchange Commission lawyer and a specialist in securities fraud cases.

Discouraged by the level of fraud in Utah and the inability of government to deal with the problem, Baker and fellow attorneys, state regulators and others saw the Fraud College set for June 30 at Utah Valley University in Orem as a way educate Utahns and give them the tools to evaluate pitches and make decisions about whether to invest.

The sessions will include an interfaith panel in which representatives of several faiths are scheduled to participate. But organizers saw the involvement of the LDS Church as crucial, given the level of fraud perpetrated in its ranks and what many perceive as its muted response to the problem.

“I think more needs to be done” by the church, said Francine Giani, a church member and executive director of the state Department of Commerce. “A couple of years ago we saw a statement that was read over the pulpit that I was happy about, but we should see more and we should see it often.”

By Tom Harvey – The Salt Lake Tribune

For anyone who assumed that the toughened real-estate appraisal rules imposed on the mortgage market last year would mean less monkey business in home valuations, here’s a shocker: Fraudulent appraisals soared in 2009, according to a lending-industry study released this week, and they now represent the fastest-growing form of home loan fraud.

The Mortgage Asset Research Institute found that, while overall incidences of loan fraud rose last year by 7 percent, the share of frauds involving property valuations increased 50 percent. MARI, a service of data company LexisNexis, collects information from more than 600 wholesale mortgage lenders who account for the vast bulk of loans originated in the country. Once a year, MARI reports its findings on fraud trends to the Mortgage Bankers Association.

Although the biggest source of mortgage fraud last year was intentional misinformation submitted by borrowers on their applications — bogus Social Security numbers or data on income, employment and assets — distorted valuations came in second. In previous annual reports, appraisal problems were far less prominent. As recently as 2006, just 16 percent of all mortgage fraud cases involved skewed property valuations. By 2008, 22 percent of reported fraud involved bad appraisals, whereas last year, that number rose to 33 percent, according to MARI.

The surge in appraisal shenanigans came despite the nationwide imposition of restrictions last year that were designed to limit interference in real estate valuations and to improve their accuracy. As of May 1, 2009, mortgage giants Fannie Mae and Freddie Mac prohibited loan officers and brokers from selecting appraisers, and effectively encouraged lenders to use “appraisal management companies” that assign appraisers from their own networks nationwide.

The new rules, known as the , stoked immediate controversy among mortgage brokers, appraisers, home builders and real-estate brokers. Critics charged that because management companies pay rock-bottom compensation to appraisers — often as little as $175 for an assignment that previously made them $350 to $450 — the new rules encouraged the use of inexperienced people, who frequently were not familiar with local market conditions.

Critics also charged that management companies forced appraisers to turn in their work within unrealistically short deadlines, even if they had to cut corners on quality and thoroughness.

Citing widespread evidence submitted by members about lowball and incompetent appraisals, the National Association of Realtors waged a lobbying campaign to persuade Congress to put the rules imposed by Fannie and Freddie on ice for 18 months. Congress has not acted on the matter.

Bill Garber, government affairs director for the Appraisal Institute, the largest trade group representing the industry, said the surge in bad appraisals last year “demonstrates what happens when lenders hire appraisers solely based on low prices and quick turnaround times.”

“This should send a loud signal to lenders to hire ethical and competent appraisers” if they want to avoid fraud in their loans, Garber said.

Freddie Mac spokesman Brad German offered a different view. Because the MARI study made no specific reference to the rule changes by Freddie and Fannie or to the use of appraisal-management companies, “we see no connection between [the code] and appraisal fraud.” Fannie Mae officials declined to comment.

Jeff Schurman, executive director of the Title/Appraisal Vendor Management Association, which represents the appraisal management industry, had no immediate comment on the findings, pending a review of the data.

The fraud report covered every major type of valuation method lenders use to underwrite mortgages, including traditional appraisals, electronic valuations and broker price opinions supplied by real estate agents, among others.

The biggest game fraudsters play: messing with or fabricating the information on “comparables” that form the basis of most appraisal reports. Rather than selecting nearby properties with broadly similar physical characteristics and recently recorded selling prices, bad appraisers typically come up with houses and characteristics that better fit their purposes.

Sometimes, they just left out the negatives. A hypothetical example: The property they were valuing was located near a busy and noisy highway or railroad tracks that would normally depress its value significantly. No problem. Poof — the appraisal report could omit those issues.

What did fabrications like these achieve? Primarily custom-tailored property valuations that were often off-base by 15 to 30 percent or more and allowed the sales contract and loan application to be approved. This, in turn, left lenders holding the bag when the mortgage went sour, raising losses and making the national foreclosure crisis even worse.

Kenneth Harney, WSJ

ATLANTA, GA—EDGAR J. BEAUDREAULT, JR., 61, of Alpharetta, Georgia, and HOWARD A. SPERLING, 45, of San Diego, California, were sentenced today by United States District Judge Clarence Cooper to federal prison on charges of conspiracy to commit wire fraud for their part in a scheme to defraud a California corrections facility operator of nearly $13 million.

United State Attorney Sally Quillian Yates said, “These defendants were part of an elaborate fraud scheme that ironically involved the construction of a prison. They will now experience how business is conducted inside a real prison.”

BEAUDREAULT was sentenced to three years, five months in prison to be followed by three years of supervised release, and ordered to pay restitution in the amount of $5,417,500. BEAUDREAULT pleaded guilty to the charges on December 17, 2008.

SPERLING was sentenced to five years, 10 months in prison to be followed by three years of supervised release, and ordered to pay restitution in the amount of $5,417,500. SPERLING pleaded guilty to the charges on February 2, 2009.

Both BEAUDREAULT and SPERLING cooperated with the government, and in February 2010, testified in the trial of co-defendant ROBERT B. SURLES, which resulted in guilty verdicts on 16 counts of conspiracy and wire fraud. SURLES is scheduled to be sentenced by Judge Cooper on June 22, 2010.

According to United States Attorney Yates, the charges and other information presented in court: From August 2003 through January 2004, BEAUDREAULT, SPERLING and SURLES conspired to defraud “Cornell Corrections of California, Inc.,” a private company that operates corrections facilities for various governmental units. In June 2003, Cornell Corrections contracted to have a corrections facility built in Canon City, Colorado for $13 million. The $13 million purchase price was to be held in an escrow account until the facility was completed.

In August 2003, the defendants induced Cornell Corrections to transfer its $13 million to an account in Atlanta, which they controlled, by falsely representing to Cornell that the account was an escrow account that was administered by a reputable bank. Upon receipt of Cornell Corrections’ $13 million, the defendants wire transferred the majority of Cornell’s $13 million to other accounts, to be used for their own purposes. Under the terms of their contract, the defendants were also to obtain a construction loan on behalf of “Western Comfort, Inc.” the general contractor who began construction of the facility. No loan was secured, making Western Comfort another victim of this scheme.

This case was investigated by special agents of the Federal Bureau of Investigation.

Assistant United States Attorneys Bernita B. Malloy and David E. McClernan prosecuted the case.

For further information please contact Sally Q. Yates, United States Attorney, or Charysse L. Alexander, Executive Assistant United States Attorney, through Patrick Crosby, Public Affairs Officer, U.S. Attorney’s Office, at (404) 581-6016. The Internet address for the HomePage for the U.S. Attorney’s Office for the Northern District of Georgia is www.justice.gov/usao/gan.