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.

Vijay K. Taneja, the 47-year-old president of the now bankrupt Fairfax, Virginia-based Financial Mortgage, Inc., (FMI) plead guilty this week to conspiracy to commit money laundering in connection with a massive mortgage fraud scam that grossed over $33 Million. Just a few years ago, Taneja was on top of the entertainment and mortgage lending worlds. In October of 2005, Taneja coordinated a press release in conjunction with his participation at the 92nd Annual Mortgage Bankers Association’s Convention and Expo stating:

Financial Mortgage, Inc., has chosen to outsource closing coordination, title and escrow, post-closing and subservicing vendor coordination and delivery to Guardian Mortgage Services (GMS) in order to better manage fixed costs, improve salability on the secondary market and fuel even faster growth. Financial Mortgage, Inc., a 15-year industry veteran with retail and wholesale operations, currently has seven branch locations and plans to quadruple its volume over the next year.

According to the Washington Business Journal, Taneja invested millions of dollars into Indian movies and concerts and was the head of Elite Entertainment Inc. , a company which promotes celebrities from the Indian film industry here in the U.S. and Canada.

Now, just three years later, Vijay Taneja is headed to jail!

According to court documents, before Taneja/FMI sold its mortgages to financial institutions as long-term investors, FMI utilized warehouse lenders to temporarily fund the mortgages before they were sold. Beginning in 2001, FMI began defrauding a series of warehouse lenders and eventually two other financial institutions serving as long-term investors, causing an accumulated loss of at least $33 million to the following financial institutions:

- First Tennessee Bank
- Franklin Bank
- Wells Fargo Bank
- EMC Mortgage Corporation

Vijay Taneja accomplished his scheme by:

1. Creating fictitious loans with bogus loan closings.
2. Selling the same legitimate loan to multiple investors.
3. Pocketing the proceeds generated from refinancing loans, when the bulk of those proceeds were intended to payoff prior mortgages on the same properties.

Court documents also show that for at least part of the time Taneja operated the scheme, he conspired with the owner of TitlePro, a Fairfax title company that went out of business in May of 2008.

Sentencing for Vijay Taneja is set for January 30, 2009. The maximum potential penalty for conspiracy to commit money laundering is 20-years incarceration and a fine of $500,000.

The investigation was conducted by Special Agents of the FBI and the Internal Revenue Service. The prosecution of the case is being handled by Assistant United States Attorney Stephen Learned.

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.

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.

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.

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.

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

= = = = = = =
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.

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….an