Editor’s Note: The following Guest Commentary was written exclusively for FlippingFrenzy.com by Larry Rubinoff, branch manager of a Clearwater Beach, Florida office of Mortgage Lending Direct, a dba of MLD Mortgage, Inc. Larry’s commentary is his and his alone and may not necessarily reflect the views or opinions of the management of FlippingFrenzy.com.

When he speaks in public, President Bush usually talks in a very measured tone. Yet late last week, at a private fundraising event in Houston, Texas, the President was more candid than ever before about the state of the U.S. economy:

“There’s no question about it,” President Bush said. “Wall Street got drunk (that’s one of the reasons I asked you to turn off the TV cameras) it got drunk and now it’s got a hangover,” Bush said last Friday, according to a video obtained by Houston’s ABC network affiliate, KTRK. “The question is how long will it [sic: take to] sober up?”

It is with those comments in mind that Guest Blogger Larry Rubinoff weighs in with the following:

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The Truth about Wall Street
By Larry Rubinoff

President Bush is right. Wall Street was drunk (with greed), and it opened the floodgates for the levees to burst, creating what can only be described as economic disaster of unprecedented proportions.

While drunk, Wall Street provided the vehicles for fraud, encouraged it and worse–closed a blind eye to it all the while profiting to the tune of hundreds of billions of dollars.

Not only are they complicit in the fraud we are learning about and fighting here through FlippingFrenzy.com, but Wall Street was instrumental in committing fraud against investors on a global scale… investors who bought the securities almost every mortgage was put into. Fannie and Freddie did the same. The rating agencies committed fraud by rubber-stamping each security issue “AAA,” never really looking at the integrity of the pools. Wall Street sold these securities knowing full well what the true worth and values of the pools were.

The government had full knowledge of what they were doing, and in fact, may have encouraged them to do so to keep our economy flourishing. This was, in fact, the case during the Great Depression.

President Bush admitted what many of us already knew, and that’s why he wanted the cameras turned off.

~ Larry Rubinoff

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Editor’s Note: You can read more of Larry Rubinoff’s thoughts and opinions on TheMortgageCorner.org
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Speaking to reporters by phone during this morning’s White House Press Briefing, White House spokeswoman Dana Perino said President Bush is now prepared to sign the American Housing Rescue & Foreclosure Prevention Act, H.R. 3221, which is expected to receive full Congressional approval by this time tomorrow. According the legislation, H.R. 3221 will help families facing foreclosure keep their homes, help other families avoid foreclosures in the future, and help the recovery of communities harmed by empty homes caught in the foreclosure process.

To shore up the housing market and ensure the availability of affordable home loans, H.R. 3221 would put a new, independent regulator in charge of housing Government Sponsored Enterprises (i.e., GSEs — Fannie Mae, Freddie Mac, and the Federal Home Loan banks), which is said to be vital to both the financial markets and homeowners. The new regulator is expected to be far better prepared than the current system is to quickly and effectively respond to issues affecting the safe and sound operation of Fannie Mae, Freddie Mac, and Federal Home Loan banks.

The centerpiece of the bill provides assistance to a large number of homeowners now in danger of losing their homes. Lower-cost government-insured mortgages–which Congressional leaders say come at no cost to the American taxpayer–will be offered if President Bush signs the Bill into law, but according to the Congressional Budget Office estimates, the plan could cost taxpayers around $25 billion.

Specifically, the American Housing Rescue & Foreclosure Prevention Act, H.R. 3221, includes the following provisions:

FHA Housing Stabilization and Homeownership Retention Act

1. Provides mortgage refinancing assistance to keep at least 400,000 families from losing their homes, to protect neighboring home values, and to help stabilize the housing market at no cost to American taxpayers.
2. Expands the FHA program so many borrowers in danger of losing their home can refinance into lower-cost government-insured mortgages they can afford to repay.
3. Protects taxpayers by requiring lenders and homeowners to take responsibility. This is not a bailout, legislators say; in order to participate, lenders and mortgage investors must take significant losses by reducing the loan principal.
4. In exchange for an FHA guarantee on the mortgage, borrowers must share any profit from the resale of a refinanced home with the government.
5. Contains critical protections for taxpayers’ dollars, including higher refinancing fees that establish a new FHA reserve to cover possible losses from defaults on these government-backed mortgages.
6. Only primary residences are eligible: NO speculators, investment properties, second or third homes will be refinanced.
7. Provides $180 million for financial counseling and legal assistance to help families stay in their homes.

Strengthening Regulations of the GSEs

1. Puts an independent regulator in place with what are said to be significant responsibilities and powers so that Fannie Mae and Freddie Mac can safely and soundly work to provide families with affordable housing.
2. The new regulator will have enhanced authority to raise capital standards, set strict prudential standards, including internal controls, audits, and to enforce these new standards and promptly take corrective action.
3. The new regulator will oversee, and can directly restrict, executive compensation at Fannie Mae and Freddie Mac.
4. Raises the GSE loan limits for single family homes to create more affordable mortgage loans for moderately priced homes by allowing GSE loans up to 115% of the local area median home price, and to make GSE loans effective in high cost areas by raising the permanent loan limit from $417,000 to $625,500.
5. Creates a new permanent affordable housing trust fund–financed by the GSEs and not by taxpayers–to fund the construction, maintenance and preservation of affordable rental housing for low and very low-income individuals and families nationwide in both rural and urban areas.

Backstopping Fannie Mae and Freddie Mac To Shore Up the Housing Market

1. Gives the Secretary of the Treasury the authority to increase the already existing line of credit to Freddie and Fannie for the next 18 months, as well as giving the Treasury Department standby authority to buy stock in those companies to provide confidence in the GSEs and stabilize housing finance markets.
2. Includes taxpayer protections directing the Treasury Department to take the following into account, when using these authorities: A) Taxpayers should be first in line for being paid back, before other shareholders; and, B) There should be restrictions on dividends for shareholders and on compensation for the executives of the GSE’s until taxpayers are fully reimbursed.
3. Strengthens oversight by requiring the Federal Reserve and Treasury to consult with the new regulator on issues concerning the safety and soundness of the GSEs and use of the standby authority.

Stabilizing Neighborhoods Hurt by the Foreclosure Crisis

1. Provides $4 billion in emergency assistance (CDBG Funds) to communities hardest hit by the foreclosure and subprime crisis to purchase foreclosed homes, at a discount, and rehabilitate or redevelop the homes to stabilize neighborhoods and stem the significant losses in home values of neighboring homes.
2. Foreclosed and rehabilitated homes would be sold or rented to moderate-income individuals and families–those whose incomes do not exceed 120% of the area median income. At least 25% of the funds would be targeted to house low-income and very low-income persons and families–those whose incomes do not exceed 50% of area median income.
3. Any profit from the sale, rental, rehabilitation or redevelopment of these properties must be reinvested in affordable housing and neighborhood stabilization.
4. Provides $180 million for pre-foreclosure counseling, to be distributed in grants by the Neighborhood Reinvestment Cooperation (NeighborWorks), with 15% targeted for low-income and minority homeowners and neighborhoods, and $30 million in grants for legal counseling to assist homeowners in foreclosure.

Preventing Future Abuses and Crises

1. Establishes a nationwide loan originator licensing and registration system that will set minimum standards for loan originator licensing substantially improving the oversight of mortgage brokers and bank loan officers.
2. Establishes improved mortgage disclosure requirements that will help ensure that mortgage borrowers understand their mortgage loan terms.

FHA Modernization

1. Expands affordable mortgage loan opportunities for families (many of whom would otherwise turn to subprime lenders) and for seniors through expanded access to reverse mortgages through Federal Housing Administration reform.
2. Raises FHA loan limits to create affordable mortgage loans for moderately priced homes by allowing FHA loans up to 115% of the local area median home price, and to make GSE loans more available in high cost areas by raising the permanent loan limit from $362,790 to $625,500.
3. Expands opportunities for seniors to tap into equity in their home through FHA reverse mortgage loans, by increasing the loan limit for the program, reducing and capping lender fees for such loans, and strengthening consumer protections limiting the sale of other financial products in conjunction with FHA reverse mortgage loans.
4. Prevents HUD from raising single family loan fees on lower and middle-income borrowers, and from raising loan fees on FHA rental housing loans.

Preserving the American Dream for Our Nation’s Veterans

1. Increases VA Home Loan limit, as was done in the stimulus package, for high-cost housing areas so that veterans have more homeownership opportunities.
2. Helps returning soldiers avoid foreclosure and stay in their home by lengthening the time a lender must wait before starting foreclosure, from three months to nine months after a soldier returns from service and providing returning soldiers with one-year relief from increases in mortgage interest rates.
3. Requires the Department of Defense to establish a counseling program for veterans and active service members facing financial difficulties and provides a moving benefit to servicemen and women who are forced to move out because their rental housing was foreclosed on.
4. Increases benefits paid to veterans with disabilities, such as blindness, to adapt their housing and allows the Veterans Administration to provide for improvements to homes of veterans with service-connected disabilities.

Tax Provisions to Expand Refinancing Opportunities and Spur Home Buying (H.R. 5720)

1. Provides $15 billion in tax benefits, including tax credits to first-time homebuyers, a real property tax deduction for non-itemizers, an additional $11 billion in mortgage revenue bonds for states, and improves access to low-income housing.
2. Gives first-time homebuyers a refundable tax credit that works like an interest-free loan of up to $7,500 (to be paid back over 15 years) to spur home buying and stabilize the market. The credit will begin to phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return).
3. Provides taxpayers that claim the standard deduction with up to an additional $500 ($1,000 for a joint return) standard deduction for property taxes in 2008.
4. Temporary increase in mortgage revenue bond authority to allow for the issuance of an additional $11 billion of tax-exempt bonds to refinance subprime loans, provide loans to first-time homebuyers and to finance the construction of low-income rental housing.
5. Temporary increase in low-income housing tax credit and simplification of the credit to help put builders to work to create new options for families seeking affordable housing alternatives.

The Wall Street Journal reports this morning that President Bush’s support of the measure is a “dramatic split” for both Bush and congressional Republicans, many of whom the Journal says are “angrily opposed to the housing legislation, which they call a handout for irresponsible homeowners and unscrupulous lenders.” President Bush had voiced earlier objections to a provision that would give grants for local governments to purchase and refurbish foreclosed properties–a provision the White House feels amounts to nothing more than a bailout. But White House spokeswoman Perino said today that President Bush doesn’t feel this is the right time for a “…prolonged veto fight, but we are confident the President would prevail in one.”

The last seven day have proved to be quite fruitful in Colorado’s attempt to curb real estate and mortgage fraud. Around the same time Fredric “Rick” Dryer was found guilty on 44 out of 60 felony counts in a securities fraud case involving Dryer’s former company, Mile High Capital Group, LLC, another Denver, Colorado-based real estate con man was found guilty of ripping off the very people he once swore to help.

A jury in U.S. District Court in Denver has found Arvin Weiss, age 58, of Englewood, Colorado, guilty of mortgage fraud and witness tampering in a case involving Hispanic homebuyers (specifically, Weiss was found guilty of 16 counts, including eight [8] counts of mail fraud, five [5] counts of wire fraud, and three [3] counts of witness tampering).

The guilty verdict came after a 13-day trial before a Senior U.S. District Court Judge, where the jury deliberated for less than one day.

Arvin Weiss, who is currently is free on bond, faces five years in federal prison and/or a $250,000 fine per count of mail fraud and wire fraud. In addition, he faces 10 years in federal prison, and/or a $250,000 fine per count for witness tampering. A status conference is scheduled for October 22, 2008, at which time the judge will set a sentencing date.

Arvin Weiss was originally indicted by a federal grand jury in Denver on April 20, 2005. The indictment was superseded on September 27, 2007. The trial began on June 23, 2008.

According to the indictment, as well as facts presented during the government’s trial, from June 1998 through January 2002, Weiss ran a scheme that fraudulently obtained money and property from mortgage companies which funded federally insured loans. Weiss, a licensed real estate broker, bought and sold properties as Reserve Capital Funds, Inc.

Reserve Capital Funds acquired numerous single-family residences in the Denver area at low prices. Within a few months, and after some improvements had been made, Weiss resold the properties at substantially higher prices to unsophisticated low-income buyers. The buyers Weiss targeted were Hispanics who knew little or no English, many of whom were living in the United States illegally.

Many of Weiss’ Hispanic buyers did not understand the mortgage loan process, but wanted to purchase their own homes even though they could not legitimately qualify for mortgages. Weiss arranged for buyers to acquire mortgages insured by the Federal Housing Administration (FHA), so they could purchase homes his company owned. Knowing that the buyers he targeted could not afford to buy houses or legitimately qualify for home loans, Weiss allegedly arranged for false information about the buyers’ qualifications and the sources of their down payments to be provided to various mortgage companies and HUD, making it appear that the buyers were qualified to receive FHA insured loans when they were not.

Operating under the name of Fairfax Homes, Ltd., Fairfax Express Corporation, or just Fairfax (all of which Weiss controlled), Weiss would represent to prospective buyers that he had houses or could find houses the buyers could purchase, and that he and an assistant would take care of all the necessary paperwork. He also told buyers they would not have to make down payments using their own funds, despite a requirement by HUD to do so.

The buyers would provide their personal information directly to Weiss or an assistant. Weiss would then provide information about the borrowers, some of which was true, but material portions of which were false, to the mortgage companies and HUD, injecting false information about the borrowers’ qualifications when necessary to enable them to qualify for the loans.

Weiss would secretly provide the funds for the down payments for the borrowers to be presented by the borrowers at closing. Weiss signed numerous false certifications that he had not and would not pay or reimburse the borrowers for any part of their cash down payments.

Weiss usually sold his properties for two or three times what Reserve Capital Funds had recently paid for them. The buyers typically did not have the option of competitive pricing and did not contest his asking price, because they could not legitimately qualify for the loans. In some cases, Weiss did not disclose the true purchase price to the buyers until closing. In many cases, by encouraging the buyers to move into the properties rent free prior to closing, Weiss minimized the possibility that they would back out of their purchase agreements when they were informed of the properties’ true cost.

Updated: 7/21/08 / 10:16 p.m. ET

Criminal charges were filed earlier this week against Richard Allison, age 36, of Camp Springs, Maryland, in connection with an alleged mortgage fraud scheme prosecutors say falsely promised to help homeowners facing foreclosure keep their homes and repair their damaged credit.

According to the court filing, in October of 2005, Mr. Allison took a job with the Metropolitan Money Store in of Lanham, MD, where he provided legal services to Joy Jackson, her husband Kurt Fordham, Jennifer McCall, her husband Clifford McCall, their companies and others. Prosecutors say that from December 2005 through June 2007, Allison conspired with Jackson, Fordham, the McCalls, and others, operating through several companies–including the Metropolitan Money Store which was controlled by Joy Jackson and Jennifer McCall–in a scheme which fraudulently promised to help homeowners avoid foreclosure, keep their homes and repair their damaged credit.

Allison and the others would direct homeowners to allow title to their homes to be put in the names of third-party purchasers (i.e., straw buyers) for one year, during which time Jackson, Fordham, and the McCalls would help the homeowners obtain more favorable mortgages, improve their credit rating and eventually return title to their homes to them. This of course never happened.

Allison and his co-conspirators told the homeowners that the equity withdrawn from the properties would be used to pay the mortgage and expenses on their homes and to repair their credit.

Prosecutors say Richard Allison and his co-conspirators:

• Acted as straw buyers for the loans used to acquire the homeowners’ properties
• Made false statements as to the personal and financial information of the straw buyers on loan documents so they could qualify for mortgages
• Obtained fraudulently inflated loans on the properties in the straw buyers names
• Stripped away the bulk of the homeowners equity proceeds and converted that money to their own personal use
• Stopped making the mortgage payments on the homes, resulting in the homes being foreclosed upon

According to court documents, Richard Allison and his co-conspirators spent the money from the mortgage loan proceeds to pay monthly mortgage payments on properties already purchased, pay for their personal expenses, and divert cash to themselves. Also according to the charging document, in March of 2006, Allison agreed to be a straw purchaser for two properties; completed and signed mortgage and other loan documents for those properties which contained false financial and personal information; and, received a $10,000 check for each of the two transactions.

Richard Allison faces a maximum sentence of 30 years in prison and a $1 million fine for the conspiracy. No court appearance has been scheduled.

As an aside, The Washington Post earlier reported that a separate 25-count indictment was unsealed in June, alleging that Jackson, Fordham, and six others used money from another elaborate real estate scheme to pay for a “lavish lifestyle that included luxury cars, houses, jewelry, fur coats and travel.” According to the Post, the June indictment mentioned Jackson and Fordham’s wedding at a high-end hotel where music legend Patti LaBelle sang to more than 350 guests while dinning on expensive seafood drinking Cristal champagne. Jackson told friends that the wedding cost nearly $800,000, according to the first indictment.

Updated: 9:05 P.M. ET, July 17, 2008

According to reports out of Denver, Colorado, Fredric “Rick” Dryer has been found guilty on 44 out of 60 felony counts in a securities fraud case involving Dryer’s former company, Mile High Capital Group, LLC. From Bob Mook at the well-respected Denver Business Journal:

Dryer– the self-described multimillionaire, real estate guru and founder of Mile High — was found guilty on counts of violations of the Colorado Organized Crime Control Act, conspiracy to commit securities fraud, securities fraud and theft. He was found not guilty of 14 counts of securities fraud and two counts of theft.

Dryer sat expressionless as the verdicts were read. He faces a maximum sentence of 24 years for each criminal count.

Dryer was convicted of 44 felony counts including violating the Colorado Organized Crime Control Act (racketeering), securities fraud, and theft. The jury found him not guilty on 15 additional counts.

Dryer and two co-defendants were indicted in 2006, accused of duping hundreds of investors who invested in his companies, Mile High Capital Group and Replacement Property Solutions. Denver’s Chief Deputy District Attorney Joe Morales and Deputy District Attorney Kandace Gerdes prosecuted the case, which spanned 12 days of testimony and three days of jury deliberations. According to Morales, after the jury was discharged, Dryer, who had been out on bond, was led from the courtroom in handcuffs to be held in custody pending sentencing on September 12, 2008 at 1:30 P.M Mountain Time in Denver District Courtroom 10.

Dryer now faces from between eight to 528 years in prison under the watchful eye of the Colorado Department of Corrections.

Dryer’s two co-defendants pleaded guilty earlier. Richard Darrow, 43, pleaded guilty to violating the Colorado Organized Crime Control Act and was sentenced to a suspended 20-year prison term that requires two years in the Denver County Jail and 10 years on probation. He was also ordered to pay $1,150,048.00 in restitution. Jeffrey Dietz, 38, pleaded guilty to securities fraud and was sentenced to two years probation and ordered to pay $990,406.00 in restitution.

In 2000, Rick Dryer launched Mile High Capital Group, LLC (MHCG)–a builder and developer of single-family homes, at the time specializing in mountain building. It was in late 2002, when Dryer was approached by out of state investment clubs looking for a reputable Colorado builder/developer, that the business model changed. Dryer didn’t think mountain properties were suitable for income property, so he began to research what would work.

Over the next two years, MHCG evolved into a builder of just such properties. Its reputation grew. Infinity Broadcasting sent its program directors to ask MHCG to sponsor its Rich Dad Poor Dad Real Estate Workshops, with Dryer as the main speaker with Robert Kiyosaki. Dryer’s research and experience evolved into what was to become his Right Place Right Time Real Estate Investment Strategies syllabus.

MHCG grew with Dryer’s reputation. The company planned to develop subdivisions around the country on the edges of high-growth areas where demand for rental properties was expected to be high. MHCG would then sell the rental properties to investors. The plan was to make it easy for real estate investors to purchase revenue-generating properties.

As far as real estate investment gurus go, Dryer had a track record and reputation that was good and getting better. Typical real estate investment gurus charge thousands of dollars for information that’s worth no more than about $50. They pitch risk-free, get-rich-quick schemes. They encourage people who are in no position to invest in real estate to become full-time investors. Most of these gurus are not successful real estate investors themselves–if they could make millions in real estate, they would not be spending their time pushing seminars.

Dryer was different. His Right Place Right Time Real Estate Investment Strategies were well known in the industry, and he had a solid public record of accurate predictions about emerging markets and trends. He became a popular and frequent speaker at Robert Kiyosaki’s Rich Dad Poor Dad real estate investor workshops around the country before starting his own workshops. He seemed to know his stuff and was said to careful remind people that investing in real estate carries risk. Dryer seemed like the real thing, and MHCG seemed like a legitimate company offering genuine real estate investment opportunities.

Through his seminars, Dryer promoted MHCG to attendees, and they were eager to buy these rental properties. The risk seemed negligible. After all, Dryer had a proven system in place for identifying areas where rental properties would soon be in high demand. His system was so successful, in fact, that many celebrities had bought into the program, including:

• Gary Eldred, PhD, author of Investing in Real Estate and professor of Trump University
• Richard Florida, PhD author of The Rise of the Creative Class and professor in the School of Public Policy at George Mason University
• Richard Karlgaard Publisher of Forbes magazine and author of Life 2.0
• Dan McCabe, Esq., CES of the Investment Exchange Group
• David Bach, New York Times and Wall Street Journal best-selling author of The Automatic Millionaire; Start Late, Finish Rich; and the entire Finish Rich series
• Mark Victor Hansen, New York Times and Wall Street Journal best-selling co-author of the Chicken Soup series

Having these big names involved added to Dryer’s and his company’s credibility, and the list of customers began to grow as investors spread the word to their friends and relatives of Dryer’s Right Place seminars. Money was pouring in. Under the direction of founder and CEO Rick Dryer, MHCG had risen from its humble beginnings to become a $150 million real estate business in just five years. According to court documents, MHCG had over a quarter billion dollars in sales by 2005.

Unfortunately, the product being sold was never delivered, and today Dryer was found guilty of committing some pretty serious real estate fraud-related acts.

If you’ve been following the Cay Clubs’ mess here on FlippingFrenzy.com, you’re already familiar with a former JPMorgan Chase & Co. (NYSE: JPM) loan officer named Ross Pickard. According to a number of Cay Club investors, including Carisa and Craig Urban, unbeknownst to them, while working at Chase, Ross Pickard intentionally fudged their income and assets in order to get their Cay Clubs-related loans approved. As a result, according to the Urban’s, as recently as April of this year, there was a task force looking into Mr. Pickard’s practices, and it may only be a matter of time before he is possibly charged with a real estate or mortgage fraud-related crime.

Fast forward three months and we’re just now learning that Ross Pickard is employed in a loan officer-related role at Wells Fargo. As near as we can tell (from phone calls to placed to Mr. Pickard’s own office), Ross Pickard now works for Wells Fargo Private Client Services‎, which is located at 5625 Strand Blvd. in Naples, Florida.

We’re not sure about anyone else, but we sure are surprised that Wells Fargo chose to engage Mr. Pickard when he stands to lose so much as a result of these alleged bad acts. Inflated incomes and assets–both by homeowners and loan officers–created a lot of our current mortgage mess in the first place, and if Mr. Pickard is doing the same under Wells Fargo’s roof, they too may become caught up in something they just didn’t bargain for when agreeing to work with the likes of Ross Pickard.

Five people–including a licensed real estate broker, a mortgage loan processor, and a licensed mortgage agent–have been charged and entered guilty pleas in a Las Vegas mortgage fraud scheme that federal government say caused over $17 million in losses to federally-insured banks. As previously reported here on FlippingFrenzy.com, Eve Mazzarella, a Las Vegas REALTOR® who ironically was named by REALTOR® Magazine in 2007 to it’s “Top 30 Under 30” list, her husband–Steven Grimm–and four other loan officers and mortgage brokers are currently awaiting trial on federal conspiracy and fraud charges for their alleged role in the scheme, which involved straw buyers, fraudulent mortgage loan applications, and shell companies.

• Daicy Vargas, 23, of Las Vegas, pleaded guilty to one count of misprision of a felony, admitting that from about November 2005 to 2007, she assisted Steven Grimm in the diversion of the illicit proceeds of the fraud and failing to report the fraud as soon as possible to appropriate authorities.
• Benjamin Labee, 27, a mortgage loan processor, and his wife, Shauna Labee, a.k.a. Shauna Dyphibane, a licensed mortgage agent in Nevada, both of Salt Lake City, Utah, pleaded guilty to one count of conspiracy.
  

• The Labees admitted that from about April 1 to December 31, 2006, they conspired with Steven Grimm to recruit straw buyers to pose as property purchasers and that they placed false information in loan applications which allowed straw buyers to qualify for loans for which they would not have otherwise qualified.
• Craig Christians, 39, a licensed Nevada real estate broker in Las Vegas, pleaded guilty to one count of misprision of a felony. Christians admitted that from about January 1, 2006, to March 12, 2008, he allowed his company, Western Pacific Funding, to be used as a conduit for the fraud.
• Robert Samora, 41, of Las Vegas and a licensed Nevada mortgage agent, pleaded guilty to one count of money laundering. Samora admitted that from about 2006 to 2007, he assisted Grimm by diverting illicit proceeds of the mortgage fraud scheme, namely loan officer commissions, to Grimm.

Led by Steven Grimm and Eve Mazarrella, the scheme allegedly included an astonishing 432 straw buyer transactions involving more than 225 properties with a total purchase price of over $107 million. Grimm and Mazzarella defaulted on mortgage payments on many of the loans which not surprisingly caused the properties to go into foreclosure. At least 143 of the approximately 225 properties purchased by the defendants are in default causing losses to the banks estimated at more than $17 million.

Regular Flipping Frenzy readers may recall back around the end of last year and the beginning of this year when I posted several blog entries under the header of “Mile High Monday.” For background information or if you’re new to the blog or just forgot, click on any of the following links:

• December 10, 2007: Rocky Mountain Monday Continued — Said Differently: Mile High Monday
• December 17, 2007: Mile High Monday, Second Installment
• December 24, 2007: Mile High Monday, Fourth Installment: The Indictment
• December 31, 2007: Mile High Monday — the Fifth Installment: Introducing the Key Players
• January 7, 2008: Mile High Monday — the Sixth Installment: Introducing the Key Players
• June 2, 2008: Mile High Capital Group’s Richard Darrow Sentenced

Word today out of Colorado is that Dryer’s trial is nearly over. From Bob Mook at the Denver Business Journal:

Closing arguments in the criminal securities fraud trial of Mile High Capital Group founder Fredric “Rick “ Dryer were made Monday and the case sent to the jury.

Dryer, a flamboyant, self-described real estate “guru” who pitched investments in duplex projects at lavish sales promotions around the country, is charged with 60 felony counts — including violations of Colorado’s organized crime control act, securities fraud, conspiracy to commit securities fraud and theft.

Dryer pleaded “not guilty” to all charges. If convicted, he faces up to 24 years for each felony count.

Prosecutors alleged in a month-long trial that Mile High and its affiliated companies collected more than $44 million from about 1,200 investors from across the United States but completed just over 40 rental duplex units promised to investors between August 2003 and October 2005.

“It takes a lifetime for some people to make the kind of money he took. And that’s why we’re here,” Denver Deputy District Attorney Joe Morales said. “He knew he was a failure and he knew he was a convicted failure … but he took the money anyway.”

Dryer and other Mile High executives booked luxury hotels and convention centers to put on heavily advertised seminars promoting the value of investing in the company’s alleged real estate projects in high-growth areas of the country.

Dryer promised solid financial returns for each $16,500 initial payment on…

For more on this developing story, read the rest of Mook’s article, Mile High case goes to jury.

The Federal Reserve Board today approved a “final rule” for home mortgage loans it says will better protect consumers and facilitate responsible lending, but not until October of 2009. The new final rule prohibits unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices. The final rule also establishes advertising standards and requires certain mortgage disclosures to be given to consumers earlier in the transaction.

The final rule, which amends Regulation Z (Truth in Lending) and was adopted under the Home Ownership and Equity Protection Act (HOEPA), largely follows a proposal released by the Federal Reserve Board in December of 2007, with enhancements that address ensuing public comments, consumer testing, and further analysis.

Essentially, the new final rule adds four protections for a newly defined category of “higher-priced mortgage loans” secured by a consumer’s principal dwelling. For loans in this category, the Fed says these protections will:

• Prohibit a lender from making a loan without regard to borrowers’ ability to repay the loan from income and assets other than the home’s value. A lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan. To show that a lender violated this prohibition, a borrower does not need to demonstrate that it is part of a “pattern or practice.”
• Require creditors to verify the income and assets they rely upon to determine repayment ability.
• Ban any prepayment penalty if the payment can change in the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years. This rule is substantially more restrictive than originally proposed.
• Require creditors to establish escrow accounts for property taxes and homeowner’s insurance for all first-lien mortgage loans.

In addition to the rules governing higher-priced loans, the rules adopt the following protections for loans secured by a consumer’s principal dwelling, regardless of whether the loan is higher-priced:

• Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home’s value.
• Companies that service mortgage loans are prohibited from engaging in certain practices, such as pyramiding late fees. In addition, servicers are required to credit consumers’ loan payments as of the date of receipt and provide a payoff statement within a reasonable time of request.
• Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer’s principal dwelling, such as a home improvement loan or a loan to refinance an existing loan. Currently, early cost estimates are only required for home-purchase loans. Consumers cannot be charged any fee until after they receive the early disclosures, except a reasonable fee for obtaining the consumer’s credit history.

For all mortgages, the rule also sets additional advertising standards. Advertising rules now require additional information about rates, monthly payments, and other loan features. The final rule bans seven deceptive or misleading advertising practices, including representing that a rate or payment is “fixed” when it can change.

The rule’s definition of “higher-priced mortgage loans” will capture virtually all loans in the subprime market, but generally exclude loans in the prime market. To provide an index, the Federal Reserve Board will publish the “average prime offer rate,” based on a survey currently published by Freddie Mac. A loan is higher-priced if it is a first-lien mortgage and has an annual percentage rate that is 1.5 percentage points or more above this index, or 3.5 percentage points if it is a subordinate-lien mortgage. This definition overcomes certain technical problems with the original proposal, but the expected market coverage is similar.

One element of the original proposal has been withdrawn. The Federal Reserve Board had proposed for public comment certain requirements pertaining to so-called “yield-spread premiums.” During the intervening period, the Board engaged in consumer testing that cast significant doubt on the effectiveness of the proposed rule. As part of its ongoing review of closed-end loan rules under Regulation Z, however, the Board will consider alternative approaches.

In finalizing the rule, the Board carefully considered information obtained from testimony, public hearings, consumer testing, and over 4,500 comment letters submitted during the comment period. “Listening carefully to the commenters, collecting and analyzing data, and undertaking consumer testing, has led to more effective and improved final rules,” Governor Kroszner said.

The new rules take effect on October 1, 2009. The single exception is the escrow requirement, which will be phased in during 2010 to allow lenders to establish new systems as needed.

In a related move, the Fed will be publishing for public comment a proposal to revise the definition of “higher-priced mortgage loan” under Regulation C (Home Mortgage Disclosure), which requires lenders to report price information for such loans, to conform to the definition the Board is adopting under Regulation Z.

Less than 48 hours after federal regulators seized IndyMac Bank, the Board of Governors of the United States’ Federal Reserve System announced today that it has granted the Federal Reserve Bank of New York the authority to lend to Fannie Mae and Freddie Mac should such lending prove necessary.

Any lending would be at the primary credit rate and collateralized by U.S. government and federal agency securities. This authorization is, according to the Fed, intended to supplement the Treasury Department’s existing lending authority and to help ensure the ability of Fannie Mae and Freddie Mac to promote the availability of home mortgage credit during a period of stress in financial markets.

For the uninitiated, Freddie Mac is a stockholder-owned corporation established by the United States Congress in 1970 to provide liquidity, stability and affordability to the nation’s residential mortgage markets. Freddie Mac raises capital on Wall Street and throughout the world’s capital markets to finance mortgages for homeowners across U.S. Over the years, it has been estimated that Freddie Mac has made homeownership possible for one in six homebuyers.

For his part, Freddie Mac chairman and CEO Richard Syron, had this to say about today’s development:

We are heartened by today’s announcement and the steps outlined by the U.S. Department of the Treasury and the Federal Reserve Board. This affirmation of the important role of the GSEs, and that we should continue to operate as shareholder-owned companies, should go a long way toward reassuring world markets that Freddie Mac and Fannie Mae will continue to support America’s homebuyers and renters. I applaud Secretary Paulson and Chairman Bernanke for their leadership and encourage Congress to act quickly to pass the new legislative proposals.

Freddie Mac and the Office of Federal Housing Enterprise Oversight (OFHEO) say the company is adequately capitalized, has a large liquidity portfolio and access to the world’s debt markets. The company is in the process of finalizing its June 30, 2008 financial results and says they will show that Freddie Mac has a substantial capital cushion above the 20% mandatory target surplus established by federal regulations.

Speaking on behalf of the United States government, the Secretary of the U.S. Department of the Treasury, Henry Paulson, said:

Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction.

Below, when Paulson refers to “GSEs” he’s talking about government sponsored enterprises, which are a group of financial services corporations created by the United States Congress. Their function is to enhance the flow of credit to targeted sectors of the economy and to make those segments of the capital market more efficient and transparent.

GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore we must take steps to address the current situation as we move to