Emanuel County Couple Sentenced in Mortgage Fraud Scheme

STATESBORO, GA—BRIAN STEPTOE, 41, and NATASHA STEPTOE, 38, both from Emanuel County, Georgia, were sentenced yesterday in federal district court for their roles in a mortgage fraud scheme that occurred in Swainsboro, Georgia.

“The U.S. Attorney’s Office will continue to work with law enforcement partners to investigate and prosecute those who engage in financial crimes, especially crimes such as mortgage fraud, that affect the heartland of our country,” stated United States Attorney Edward J. Tarver.

Evidence presented during their guilty pleas revealed that the Steptoes, with the assistance of others, knowingly submitted a false loan application and other documentation to Bank of America with regard to a $400,000 home loan. The investigation revealed that the Steptoes’ scheme was to defraud Bank of America in order to pocket sizeable sums of money for themselves and others. The property went into foreclosure soon after it was sold and remains on the market to this day.

BRIAN STEPTOE was sentenced to fifty-four (54) months, $410,236.59 in restitution to be paid jointly and severally with his co-defendants, and five (5) years of supervised release. NATASHA STEPTOE was sentenced to twenty (20) months, $340,297.54 in restitution to be paid jointly and severally with her co-defendants, and three (3) years of supervised release.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

U.S. Attorney Tarver recognized the extensive efforts of the FBI in bringing this criminal activity to light, and particularly praised the efforts of Statesboro FBI Special Agent Cornelius Harris, who investigated this case.

Assistant United States Attorneys Natalie Lee and Frederick Kramer prosecuted this case. For additional information, please contact First Assistant United States Attorney James D. Durham at (912) 201-2547.

The lifting of the major banks’ “foreclosure moratoriums” — which had been instituted to stem the outcry over massive fraud in the processing of foreclosure documents — demonstrates the necessity for the working class to launch a struggle to win a genuine two-year moratorium on foreclosures and evictions predicated on the premise that housing is a fundamental human right.

With the federal government having essentially nationalized the mortgage industry, the president has the authority to implement such a moratorium through executive action.

Bank of America on Oct. 18 announced its intent to resume foreclosures in the 23 states which have judicial foreclosures. BOA had suspended foreclosures in those states on Oct. 1 due to revelations of fraud in the processing of foreclosure documents. BOA also announced it would resume foreclosures in a few weeks in the remaining 27 states. This move will likely encourage JP Morgan Chase and GMAC, who had similarly suspended foreclosures in the 23 judicial foreclosure states, to resume taking people’s homes. (New York Times, Oct. 18)

Barbara J. Desoer, president of Bank of America Home Loans, stated, “We did a thorough review of the process and we found the facts underlying the decision to foreclose have been accurate. We paused while we were doing that, and now we’re moving forward.”

While even bourgeois commentators treated this announcement with the cynicism and derision it deserved, Bank of America was emboldened to make this move with the backing of the federal government.

From the onset of the exposure of massive bank fraud, the Obama administration has opposed any calls for a national moratorium on foreclosures. When David Axlerod, President Barack Obama’s chief advisor, appeared on CBS’s “Face the Nation” Oct. 10, he came out against a national moratorium. He was followed by Housing and Urban Development Secretary Shaun Donovan, who published an article Oct. 17 in the Huffington Post that also rejected calls for a national moratorium, saying it would hurt the economy.

Billions for banks

Bank of America noted that the major holders of its mortgages, Fannie Mae and Freddie Mac, had been consulted during the review and had signed off on the decision to resume foreclosures. Of 14 million mortgages BOA services, one-half of them — worth $2.1 trillion — are owned by Fannie Mae and Freddie Mac, the giant mortgage holding companies controlled by the U.S. Treasury. (NYT, Oct. 18)

Fannie Mae and Freddie Mac were formerly government-sponsored enterprises, private corporations chartered by the federal government to give them enhanced standing to buy or back up mortgage loans.

However, in July 2008 Fannie Mae and Freddie Mac were taken over by the federal government due to massive losses they incurred as a result of the record rise in foreclosures caused by the fraudulent and predatory lending practices of the banks. The federal government placed Fannie Mae and Freddie Mac in trusteeship under the Federal Housing Finance Administration, guaranteeing up to $200 billion in federal tax dollars to back up their loans. That figure was raised to $400 billion, and is now uncapped.

According to a June 3, 2009, statement by FHFA Director James Lockhart, Fannie Mae and Freddie Mac own or guarantee 56 percent of single-family mortgages worth $5.4 trillion in the U.S. When combined with the Federal Housing Administration, the federal government backs or issues a whopping 75 percent of the country’s mortgages. (Associated Press, Sept. 9, 2008)

What this means is that when a borrower goes into foreclosure, the bank which made the loan gets paid off at the loan’s full value by Fannie Mae or Freddie Mac. In addition, the government pays the bank to process the foreclosure. Then the government takes over the home, evicts the homeowner and any tenants, places the home on the market, and sells it at a fraction of the loan’s value.

The difference in what the government paid the bank for the loan, and what the home sells for after foreclosure and eviction, is paid for by taxpayers. That arrangement amounts to a silent bailout of the banks.

For example, a home several doors from where this writer lives in Detroit sold for $137,000 in 2001. The home was then foreclosed and the loan was taken over by Fannie Mae. The home is now being listed by Fannie Mae for $31,000. The $99,000 difference between the $130,000 still owed on the home for which the bank received full value, and the $31,000 for which Fannie Mae is selling the home, is paid for out of taxpayer funds.

This bailout to the banks, which occurs with virtually every foreclosure, has already amounted to $145 billion.

While the FHFA estimated that the total cost of this bailout will be $221 to $363 billion, in 2009 the Congressional Budget Office estimated that Fannie Mae and Freddie Mac would require $389 billion in federal subsidies through 2019. (Bloomberg News, Oct. 21)

Barclays Capital Inc. analysts put the price tag as high as $500 billion, and Sean Egan, president of Egan-Jones Ratings Co., estimated that the total taxpayer bailout to the banks through Fannie Mae and Freddie Mac will total $1 trillion. (BN, June 13)

These figures do not include the additional hundreds of millions of dollars in federal subsidies on FHA-backed loans.

Still-soaring foreclosures, no relief for homeowners

The Obama administration has announced modest loan modification programs to help homeowners, such as the Home Affordable Modification Program, in exchange for this continued massive bailout.

HAMP and other programs are supposed to be mandatory for the banks. But the banks do not comply to help homeowners in any significant way. The government relies on the banks themselves to carry out these modifications, and the federal government and most courts have refused to enforce any sanctions for refusal to perform them.

With the banks knowing they will be getting paid full value on the loans after foreclosure, the banks have little incentive to modify loans and have sabotaged HAMP and led to the program’s virtual collapse. As of August less than one-sixth of the 3 million homeowners who were supposed to be helped have received loan modifications, and the number of borrowers being offered trial modifications has drastically declined. (NYT, Aug. 20)

It was recently exposed that Fannie Mae and Freddie Mac are using the same law firms that prepared the fraudulent documents for the major banks in their processing of foreclosures and evictions. Fannie Mae and Freddie Mac are sanctioning loan servicers if they do not toss people out of their homes within a short period of time. (NYT, Aug. 22)

Obama: Issue moratorium now!

Today the foreclosure crisis continues to intensify. An estimated 2.8 million foreclosures are projected across the U.S. during 2010, with foreclosures totaling 9 million for the years 2009 to 2012. The total lost home-equity wealth due to foreclosures is expected to be $1.9 trillion for the years 2009 to 2012. (Center for Responsible Lending, Aug. 20)

Foreclosures and evictions are a direct product of persistent high unemployment. Of the 1 million homeowners who received foreclosure counseling through the National Foreclosure Mitigation Counseling Program, 58 percent listed unemployment as the main reason for default. (HousingWire, June 1)

With the federal government controlling or backing the vast majority of mortgage loans, President Obama has the clear authority to implement a two-year moratorium on foreclosures and foreclosure-related evictions through an executive order.

A moratorium would let homeowners and tenants remain in their homes, stabilize communities and allow time to develop a long-term solution to this crisis. Then home loans could be restored to their proper value and housing for all guaranteed.

We must fight each foreclosure and eviction and begin implementing such a moratorium through direct action. During the Depression of the 1930s, move-ins reversed many evictions and led to foreclosure moratoriums being enacted in 25 states, which were upheld as constitutional by the U.S. Supreme Court.

What is needed is for the working class to launch a mass struggle to win this demand. It’s time to fight to reverse the government policies which place the well-being of the financial institutions ahead of the welfare of the people.

Jerry Goldberg is an anti-foreclosure attorney and a leader in the Detroit-based Moratorium NOW! Coalition to Stop Foreclosures, Evictions and Utility Shutoffs. Articles copyright 1995-2010 Workers World. Verbatim copying and distribution of this entire article is permitted in any medium without royalty provided this notice is preserved.

In a surprising turn of events, the NYFed—no less—has gone after the Bank of America for its fraudulent mortgage business. Yes, the former home to Treasury Secretary Geithner–the best friend Wall Street has ever had–is now acting like the lapdog that bites the hand that feeds.

BofA has reacted as expected, trying to slap the little pipsqueak pet back into submission, announcing an end to its moratorium on foreclosure fraud and threatening to unleash its dark army of lawyers who are ready to do battle in the courts to maintain the myth that the junk banks securitized met required underwriting standards.

It is of course all high drama worthy of a mid-afternoon soap opera, with the Fed proclaiming dismay, nay, shock!, that banks sold it toxic waste. The over-acting would be hilarious if this were not such a serious issue.

In truth, it is all fraud, from start to end—from origination of the mortgages through the securitization, on to the duping of investors, and to the foreclosing on (mostly) innocent bystanding homeowners. The FBI warned of an epidemic of mortgage fraud in 2004, investigations demonstrate that 80% of the fraud is at the hands of lenders, and the fraud was no secret within the industry and within government long before the NYFed, USFed, and Treasury started bailing out the control fraud banks by purchasing their assets, guaranteeing their liabilities, lending against toxic waste, and buying their worthless equities—putting Uncle Sam on the hook in an amount estimated to total more than $20 trillion.

Meanwhile, the bank frauds have been kicking Americans out of their homes, manufacturing fake documents, and re-selling property to which they have no legitimate title.

But the past week has not been good for control fraud banks. State Attorneys General have gone after them, thumbing their collective noses at the weak-kneed Obama Administration that had done nothing more than to plead with the frauds to please be a tad bit nicer as they steal homes.

Judges have also gone after banks—noticing how amateurish the doctored and counterfeited documents looked, and they began to throw the bank plaintiffs out of court. We know that in many or most cases the banks do not have the borrowers’ notes—that are required in almost all states to take away someone’s home. Lots of bank officials and employees have committed crimes for which they can be prosecuted and for which they will serve real prison time.

All of this seems to have forced the Fed’s hand. Most bettors had put their money on Fannie and Freddie, not the Fed, to first call the bluff of the bank frauds. They have far more on the line—no doubt they are sitting on well over a trillion dollars worth of junk that does not meet the underwriting standards claimed by the securitizers. To be sure, they had taken some action, but it was the NYFed’s audacity that grabbed the headlines. Hey, there is, finally, the audacity of hope that President Obama used to talk about—funny that it should rest in the hands of the thoroughly compromised NYFed.

The banks, predictably, claim everything is fine. BofA supposedly spent a couple of hours during its self-imposed introspective moratorium to check through hundreds of thousands of foreclosures to ensure that all its procedures were appropriate. Surprise, surprise, it could not find a single mistake! Boy, these guys ARE good, even though they took over the mother of all control frauds, Countrywide Financial—inheriting its toxic waste. Yet, not one error! There is, again, a certain audacity there—perhaps one more in tune with the protect-Wall-Street-at-any-cost sort of song Karaoked so far at the White House.

Right—please sell me a Brooklyn bridge, or two, too. The fraud continues apace. The banks intend to continue to defraud both homeowners and investors in the toxic securities it sold.

How do we know it is all fraud?

Look, when lenders market “low doc”, “Ninja” and “Liar’s loans” (that accounted for half of all mortgages at the peak of the bubble), there is no question that the intent is to defraud investors. The appellations say it all. When lenders market “nuclear” hybrid loans with low teaser rates that blow up in two or three years, forcing borrowers into default, there is no question that the intent is to defraud borrowers. Fraud was the business model. Everyone in the industry knew that—from property appraisers to originators to credit raters to securitizers to insurers. Fraud, fraud, fraud. It is time to break out that F word and to use it liberally.

In an important piece by Felix Salmon (blogs.reuters.com/felix-salmon/2010/10/13/the-enormous-mortgage-bond-scandal/), a “smoking gun” is produced. The big investment banks (Goldman, Bear, Citigroup, Merrill, Lehman, Morgan, Deutsche) used Clayton Holdings to do “third-party due diligence” on the mortgages that were pooled into securities. Note that this was most certainly NOT done to protect the investors who would buy the securities—rather it was to SCREW them. Clayton would “taste sample” some of the mortgages (5% to 35%), typically finding that a third or more did not meet underwriting standards. The investment bank would then kick those out and go back to the originator to renegotiate the price on the entire mortgage pool. Since the investment bank had proof that the pool did not meet standards, it would be able to get a better price.

Here’s the kicker. The investment bank did not, and did not want to, examine the whole pool in order to reject all the bad loans. Indeed, it WANTED a bad pool–a package of mortgages that contained many mortgages that did not meet underwriting standards–because this allowed it to reduce the price paid. Then it would tell the investment buyers of the securities “Oh, yes, we did due diligence, using an expert third party”. Of course the investment bank would not pass along the price discount it had obtained from the originator, and would not tell the buyer that the pool still contained an untold amount of junk mortgages. That would defeat the whole purpose of the third party “due diligence”—which was done only for the benefit of the investment bank in order to screw more profits out of the investor. Amazingly, the banks turned “due diligence” into a mechanism for fraud. These guys ARE audacious. They ARE good!

So here we are. The Fed, Fannie and Freddie, Pimco, and other big holders of the securities are now going after the banks. This is going to get really fun.

There is no better time to declare a bank holiday to try to unravel this mess. The banks will not survive the onslaught. The only question is how long do we really want to drag this out? Should we go through years of court battles while the economy suffers and Americans lose their homes? Or do we just get it over this weekend by shutting down the control frauds? Void all the fraudulent paper, let occupants keep their homes and negotiate fair “rents” in lieu of unaffordable mortgages. Swiftly deal with the fall-out. Pursue, prosecute, and incarcerate the guilty. Return the nation to the rule of law.

By L. Randall Wray

In the still-developing “mortgagegate” scandal, the Obama White House is pledging its loyalties to the letter of the law, vowing Tuesday to hold “accountable” any bank that engaged in foreclosure fraud.

“As institutions are determining their next steps in addressing these issues, we remain committed to holding accountable any bank that has violated the law,” White House Press Secretary Robert Gibbs told reporters.

“Mortgagegate,” as it’s been dubbed in the media, centers around the use of unqualified workers given jobs as “mortgage experts,” who were then tasked with signing off on thousands of documents required by courts in foreclosure proceedings.

Many times, paperwork was not properly examined. In some cases, according to sworn statements, bribes of jewelry, cars and even houses were offered if an employee would forge documents or notary seals.

And all of it, according to the allegations, happened in an effort to speed up the foreclosure process.

It was enough for attorneys general in all 50 states to initiate investigations. Only 23 states currently require a court approval before a bank may foreclose on a home.

Now, the Obama administration has directed its Financial Fraud Enforcement Task Force to find out whether banks that used so called “robo-signers” actively mislead government housing agencies, or if they committed mail or wire fraud by submitting false paperwork.

“The administration’s Federal Housing Administration and Financial Fraud Enforcement Task Force have undertaken their own regulatory and enforcement investigation into the foreclosure process,” Gibbs explained Tuesday.

It is possible the investigation will result in criminal charges, The Washington Post noted.

In the wake of the “robo-signing” revelations, several major lenders froze foreclosures temporarily to review paperwork, Bank of America being the largest. The institution said Monday it would be resuming foreclosures this week.

The Obama administration has resisted calls for a national moratorium on foreclosures, with spokesman Robert Gibbs warning of the “unintended consequences” of such an action.

While many House Democrats, including Speaker Nancy Pelosi (D-CA), have called for a congressional investigation into foreclosure fraud, Congress is widely expected to attempt legislation retroactively forgiving the mortgage industry for its abuses.

Up to 1.2 million homes are expected to be foreclosed upon this year, according to data provided by RealtyTrac Inc.

By Stephen C. Webster

* Analysis of available law enforcement and industry resources indicates that the top ten mortgage fraud areas are California, Florida, Georgia, Illinois, Indiana, Michigan, New York, Ohio, Texas, and Utah. Other areas significantly affected by mortgage fraud include Arizona, Colorado, Maryland, Minnesota, Missouri, Nevada, North Carolina, Tennessee, and Virginia.
* There is a strong correlation between mortgage fraud and loans which result in default and foreclosure.

Emerging Schemes

* Recent statistics suggest that escalating foreclosures provide criminals with the opportunity to exploit and defraud vulnerable homeowners seeking financial guidance.
* Perpetrators are exploiting the home equity line of credit (HELOC) application process to conduct mortgage fraud, check fraud, and potentially money laundering-related activity.

FBI and Industry Respond to Escalating Mortgage Fraud

* The FBI is proactively working with the mortgage industry in an effort to curb mortgage fraud crimes. The FBI signed a memorandum of agreement with the MBA to promote the FBI’s Mortgage Fraud Warning Notice.

Introduction

The Prieston Group, a risk management solutions provider that administers an insurance product covering losses due to fraud and misrepresentation, calculated that losses attributed to mortgage fraud will most likely reach $4.2 billion for 2006. This figure does not take into account another estimated $1.2 billion spent on fraud prevention tools. – The Prieston Group, 2006 Data, 16 February 2007,and 2 April 2007.

Mortgage Fraud is defined as the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan. Although no central repository collects all mortgage fraud complaints, statistics from multiple sources indicate that mortgage fraud is on the rise. Some industry explanations for this increase point to recent high mortgage loan origination volumes that strained quality control efforts, the persistent desire of mortgage lenders to hasten the mortgage loan process, the escalation of home prices in recent years, and the introduction of non-traditional loans which contain fewer quality control restraints such as low documentation and no documentation loans1.

Mortgage loan fraud is divided into two categories: fraud for property and fraud for profit. Fraud for property/housing entails minor misrepresentations by the applicant solely for the purpose of purchasing a property for a primary residence. This scheme usually involves a single loan. Although applicants may embellish income and conceal debt, their intent is to repay the loan. Fraud for profit, however, often involves multiple loans and elaborate schemes perpetrated to gain illicit proceeds from property sales. It is this second category that is of most concern to law enforcement and the mortgage industry. Gross misrepresentations concerning appraisals and loan documents are common in fraud for profit schemes and participants are frequently paid for their participation. Recent events likely resulted in an increase in mortgage fraud as higher housing prices tempted borrowers to commit fraud for property in order to qualify for a mortgage loan. Also, mortgage fraud perpetrators likely seized the opportunity to take advantage of the relaxed lending practices to commit fraud for profit.

The most common form of mortgage fraud is illegal property flipping which entails false appraisals and other fraudulent loan documents (see figure 1). Combating mortgage fraud effectively requires the cooperation of law enforcement and industry entities. No single regulatory agency is charged with monitoring this crime. The FBI, Department of Housing and Urban Development-Office of Inspector General (HUD-OIG), Internal Revenue Service, Postal Inspection Service, and state and local agencies are among those investigating mortgage fraud.

Mortgage fraud is a relatively low-risk, high-yield criminal activity that tempts many. However, according a May 2006 Financial Crimes Enforcement Network (FinCEN) report, finance-related occupations, including accountants, mortgage brokers, and lenders, were the most common suspect occupations associated with reported mortgage fraud2. Perpetrators in these occupations are familiar with the mortgage loan process and therefore know how to exploit vulnerabilities in the system.

Victims of mortgage fraud may include borrowers, mortgage industry entities, and those living in the neighborhoods affected by mortgage fraud. Lenders are plagued with high foreclosure costs, broker commissions, reappraisals, attorney fees, rehabilitation costs, and other related expenses when a mortgage fraud is committed3. As properties affected by mortgage fraud are sold at artificially inflated prices, properties in surrounding neighborhoods also become artificially inflated. When property values increase, property taxes increase as well. Legitimate homeowners also find it difficult to sell their homes as surrounding properties affected by fraud deteriorate.

During boom periods, high mortgage loan volume impacts expedited quality control efforts which often focus on production. Therefore, perpetrators may submit loans based on fraudulent information anticipating that the bogus information will be overlooked. On the other hand, loan officers, brokers, and others in the industry are paid by commission and may be tempted to approve questionable loans when the housing market is down to maintain current levels of income.

Analysis of mortgage originations indicates a decrease in demand. As a result of the declining housing market, mortgage fraud perpetrators may take advantage of eager loan originators attempting to generate loans for commission. Mortgage loan originations, including purchases and refinances declined during 2006 across the United States. The Mortgage Bankers Association (MBA) estimates that mortgage loan originations will reach $2.28 trillion during 2007 (see figure 2)4. According to an MBA December 2006 report, total home sales during 2006 decreased by approximately 10 percent from 2005 sales. New home sales declined by 17 percent and existing home sales dipped by 8 percent. In response to a decrease in demand for housing, builders reduced single-family starts (through November 2006) which were 14 percent lower than during the same time period in 2005. The MBA estimates that the oversupply of housing will continue to affect new home construction, home sales, and home prices until mid-20075.

Top Areas for Mortgage Fraud

Data was compiled and analyzed from law enforcement and industry sources to determine those areas of the country most affected by mortgage fraud during 2006. Information from the FBI, HUD-OIG, FinCEN, Mortgage Asset Research Institute (MARI), Federal National Mortgage Association (Fannie Mae), RealtyTrac Inc. (foreclosure statistics), and Radian Guaranty Inc., indicate that the top ten mortgage fraud areas for 2006 were California, Florida, Georgia, Illinois, Indiana, Michigan, New York, Ohio, Texas, and Utah. Other areas significantly affected by mortgage fraud include Arizona, Colorado, Maryland, Minnesota, Missouri, Nevada, North Carolina, Tennessee, and Virginia (see figure 3).

Analysis of available information indicates that mortgage fraud is most concentrated in the north central region of the United States. The north central region is followed by the southeast and west regions.

Regional analysis of FBI pending mortgage fraud-related investigations as of FY 2006 reveals that the north central region of the United States led the nation with the most pending investigations. The north central region was followed by the southeast, west, south central, and northeast, respectively (see figure 4).

The aggregate amount of ARM loans containing fraudulent misrepresentations is unknown. However, since mortgage fraud perpetrators hope to inflate the value of their properties and quickly sell them, they would likely gravitate towards mortgage loans that offered low and short-term interest rates such as those offered by ARMs.

Delinquency, Default, and Foreclosure: Potential Fraud Indicators

Mortgage loans based on fraudulent information usually result in delinquency, default, or foreclosure in a bear market. According to the MBA, both delinquency and foreclosures rates increased during 2006 and were largely concentrated in adjustable rate mortgage (ARM) loans, especially sub-prime ARMs. This is partly attributable to the recent rise in interest rates, placing a strain on ARMs borrowers6.

BasePoint Analytics, a fraud analytics company, analyzed more than 3 million loans and found that between 30 and 70 percent of early payment defaults (EPDs) are linked to significant misrepresentations in the original loan applications7. Radian Guaranty, Inc. is a leading provider of mortgage insurance which protects lenders against loan default. Of the top ten states Radian Guaranty Inc. ranked highest for mortgage fraud, seven of them also ranked in the company’s top ten for EPDs. This suggests that EPDs are a good mortgage fraud indicator.

During 2006 there were more than 1.2 million foreclosure filings nationally, which represents a 42 percent increase from 2005 figures. The foreclosure rate for 2006 was one foreclosure filing for every 92 households8. Foreclosures for 2006 surpassed foreclosures for 2005 during every month of the year9.

Foreclosure Fraud

Recent statistics suggest that escalating foreclosures provide criminals with the opportunity to exploit and defraud vulnerable homeowners seeking financial guidance. The perpetrators convince homeowners that they can save their homes from foreclosure through deed transfers and the payment of up-front fees. This “foreclosure rescue” often involves a manipulated deed process that results in the preparation of forged deeds. In extreme instances, perpetrators may sell the home or secure a second loan without the homeowners’ knowledge, stripping the property’s equity for personal enrichment.

While foreclosure scams vary, they may be used in combination with other fraudulent schemes. For instance, perpetrators may view foreclosure-rescue scams as a new method for fraudulently acquiring properties to facilitate illegal property-flipping and equity-skimming.

Home Equity Lines of Credit

According to a DOJ press release, Mi Su Yi and her husband, Paul Amorello, were sentenced in California in July 2006 for operating a $3 million bust-out scheme involving business lines of credit and HELOCs. The couple accessed lines of credit that had been obtained by others and paid the balances with worthless checks. They subsequently withdrew cash from the lines of credit before the checks were returned for insufficient funds. The couple laundered their proceeds through bank accounts opened under three false identities. In an attempt to avoid detection, the couple deposited cash amounts of less than $10,000 into these accounts. -US DOJ, “New Jersey Residents Sentenced to Prison for Running a $3 Million ‘Bust-Out’ Scheme,” Press Release, 25 July 2006, available at http://www.usdoj.gov

Individuals and criminal groups are exploiting the home equity line of credit (HELOC) application process to conduct multiple-funding mortgage fraud schemes, check fraud schemes, and potentially money laundering-related activity. HELOCs differ from standard home equity loans because the homeowner may borrow against the line of credit over a period of time using a checkbook or credit card. HELOCs are aggressively marketed by lenders as an easy, fast, and inexpensive means to obtain funds. HELOC funds are normally withdrawn on an as-needed basis to conduct home repairs or to pay bills, but fraud perpetrators may withdraw the entire amount within a short time period. Lenders typically focus on property equity prior to funding HELOCs. As such, many lenders do not demand a full property appraisal or a full property title search.

Perpetrators apply for multiple HELOCs to different lending institutions for a single property within a short time period. Prior to providing the funding, lenders conduct searches to determine if the property is encumbered by a lien. However, liens on a property may not be recorded for several days or months and thus cannot be immediately verified. Consequently, lenders do not discover that they hold a third, fourth, or fifth lien on a property (rather than the expected second lien) until later. The money obtained from the multiple HELOCs totals more than the original property purchase price, exceeding the out-of-pocket expenses incurred to secure the property.

Perpetrators conducting check fraud schemes may manipulate HELOC accounts and cause lenders to incur losses. For example, a perpetrator secures a HELOC and withdraws the entire allotted amount. A fraudulent check is then used to pay the balance owed on the HELOC. However, the perpetrator quickly withdraws the check amount from the HELOC before the bank realizes the check is worthless. When the check is returned for insufficient funds, the line of credit surpasses its maximum limit and the lender experiences a loss. HELOC accounts have also been used in common check frauds where perpetrators stole HELOC checks, fraudulently completed them, and deposited the funds into their own personal accounts.

HELOCs may also be used as a means of depositing and withdrawing laundered proceeds to further conceal the original funding source. As long as withdrawals from the HELOC do not exceed the line of credit limit, payments deposited into the account may be withdrawn later.

FBI and Industry Respond to Escalating Mortgage Fraud

The FBI is proactively working with the mortgage industry in an effort to curb mortgage fraud crimes. On March 8, 2007, the FBI signed a memorandum of agreement with the MBA to promote the FBI’s Mortgage Fraud Warning Notice. The Notice states that it is illegal to make any false statement regarding income, assets, debt or matters of identification, or to willfully inflate property value to influence the action of a financial institution. Under the agreement, the MBA and the FBI will make the notice available to mortgage lenders to use voluntarily as a means of educating consumers and mortgage professionals of the penalties and consequences of mortgage fraud.10

The recent revelations of massive fraud in the processing of foreclosures by major banks demonstrate the urgent necessity for activists to press the demand for an immediate declaration of a two-year moratorium to halt all foreclosures and evictions in the U.S.

On Sept. 22 it was reported that GMAC announced it was suspending the evictions of homeowners in the 23 states governed by judicial foreclosures. This was followed by similar announcements by JPMorgan Chase and Bank of America.

The states affected by this suspension of foreclosure activity are Connecticut, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Wisconsin.

The basis for these announcements was the uncovering of massive fraud by the banks in the processing of foreclosures. In states covered by judicial foreclosure — where the banks have to take borrowers to court to seize their homes — the lenders were filing motions for summary judgment to speed the process, accompanied by affidavits stating that the signers had personal knowledge that the loans were in fact owned by the bank and were in default.
Foreclosures & lost wealth

Mortgage delinquencies and foreclosures:

State foreclosure projections: 2010: 2.8 million

State foreclosure projections (2009-2012): 9 million

Total state foreclosure starts (Q1-2008 through Q1-2010): 4.9 million

Total state foreclosure sales (Q1-2008 through Q3-2009): 1.3 million

Total state foreclosure inventory (end Q1-2010): 2.1 million

Total state past due mortgages (end Q1-2010): 6.2 million

Annual change in foreclosure starts in the state (ending Q1-2010): -10 %

Change in state foreclosure starts (Q3-2006 to Q1-2010): 162 %
Lost wealth:

U.S. lost home equity wealth due to nearby foreclosures, 2009-2012: $1.9 trillion

Number of homes experiencing foreclosure-related decline: 91.5 million

Average loss per home affected: $20,288

Source: Center for Responsible Lending, August 2010

During legal depositions in several cases, it was revealed that the signers of the affidavits had, in fact, no personal knowledge of the facts being sworn to. They were working for foreclosure mills.

A Sept. 22 New York Times article noted that Jeffery Stephens, working on behalf of GMAC (now Ally Bank), was signing 10,000 affidavits a month over the past last five years despite not having reviewed the files to determine whether banks were entitled to enforce their liens.

The New York Times on Oct. 4 went even further, pointing out that many signatures on the affidavits appeared to be forged and the notarizations improper.

The foreclosure suspensions by GMAC, JPMorgan Chase and Bank of America were to give them time to clean up their acts. But the revelations of this massive fraud by some of the country’s largest financial institutions are symptomatic of the overall foreclosure crisis devastating the working class.

What can stop the crisis?

Virtually every government program announced to help homeowners with modifications is collapsing. The programs are based on the premise that the same banks that will not even take the time to properly carry out foreclosure activity, which is their primary concern, will treat borrowers who seek loan modifications in a fair manner.

The programs are all based on the borrower calling the lender to request the mandated modification. However, borrowers are stymied by the fact that the lenders either have no one to answer the call, or when they do, the banks routinely deny the modifications in violation of their agreements with the federal government to carry them out.

For example, on Aug. 20 the New York Times reported the collapse of President Barack Obama’s Making Home Affordable modification program. It said that of the 3 million households that were intended to benefit from the program, only one-sixth had actually had their loans modified. In July, some 96,000 individuals were denied permanent modifications, while only 17,000 were placed into new trial modifications, signaling the program’s demise.

In July, the state of Michigan announced it had received $184 million from the federal government for the Helping Hardest Hit Homeowners program, a program geared to keeping unemployed workers in their homes. While the funding for this program has increased to $500 million, the program has been a dismal failure thus far, with only 230 homeowners being helped out of the 30,000 that were expected to qualify.

According to an August report by the Center for Responsible Lending, the home equity wealth lost in the U.S. due to nearby foreclosures for 2009-2012 is projected to be $1.9 trillion. Nine million homes are expected to be lost to foreclosure during the same period.

The immediate necessity is for the federal government to declare a national two-year moratorium on all foreclosures and evictions. With the majority of home loans now either owned or backed up by the federal government through Fannie Mae, Freddie Mac or the Federal Housing Authority, President Obama has the authority to declare such a moratorium by executive order.

The time is ripe for housing activists to press this demand in light of the current revelations. Sign the online petition in support of a two-year moratorium at: www.bailoutpeople.org/moratoriumpetition.shtml.

By Jerry Goldberg

Goldberg is an anti-foreclosure attorney and an organizer in the Moratorium NOW! Coalition to Stop Foreclosures, Evictions and Utility Shutoffs.

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The scope of foreclosure fraud may not be limited to GMAC and not just to JPMorgan Chase; it may be every bank you can think of, including mortgages held by government-sponsored enterprises Fannie Mae and Freddie Mac. Any bank whose foreclosures have been handled by a law firm specializing in foreclosure services — a “foreclosure mill” — may be affected.

A paralegal at the foreclosure mill of David Stern gave a deposition to Florida’s Attorney General Bill McCollum’s office indicating that virtually every affidavit, assignment or other sworn document coming out of that firm is faked.

It’s over 100 pages, and it will curl your hair. Two thousand foreclosure files were processed each day by just this one firm and the entire lot appears to have been a sham. Go read the transcript for yourself. If this happened at one foreclosure mill, it’s hard to believe this wasn’t happening at all the other foreclosure mills.

Ohio’s attorney general is suing for $25,000 in fines for each fraudulent affidavit; at this rate, he could solve his state’s budget gap.

By the way, Florida’s assistant attorneys general conducted a very nice line of questioning; Mr. McCollum owes them a pat on the back. The states of Ohio and Florida are showing how it’s done, the rest of you states’ attorneys general and U.S. Attorneys need to get on the stick.

By: Cynthia Kouril

NEW YORK CITY-State Attorney General Andrew Cuomo on Thursday filed suit against Bank of America and its former CEO Kenneth Lewis and former CFO Joseph Price, charging that the banking giant misled shareholders and federal regulators over its merger with Merrill Lynch. The suit comes as the Securities and Exchange Commission announced a settlement with BofA.

Cuomo’s complaint, filed Thursday in state Supreme Court in Manhattan, charges that BofA hid Merrill’s “staggering losses” that had reached $16.2 billion by the time shareholders voted in December 2008 to approve the merger. Following the shareholders’ approval, BofA’s management then manipulated the federal government by falsely claiming that they would back out of the deal through a clause in the merger agreement unless they received billions of dollars in Troubled Assets Relief Program funds, according to the complaint.

“This was an arrogant scheme hatched by the bank’s top executives who believed they could play by their own set of rules,” Cuomo says in a statement. “In the end, they committed an enormous fraud and American taxpayers ended up paying billions for Bank of America’s misdeeds.”

A BofA spokesman tells GlobeSt.com that the bank is “disappointed” that Cuomo filed the charges, “which we believe are totally without merit. The evidence demonstrates that Bank of America and its executives, including Ken Lewis and Joe Price, at all times acted in good faith and consistent with their legal and fiduciary obligations. In fact, the SEC had access to the same evidence” as the New York AG, but reached the conclusion “that there was no basis to enter either a charge of fraud or to charge individuals. The company and these executives will vigorously defend ourselves.”

Earlier on Thursday, the SEC and BofA announced a settlement whereby BofA would pay $150 million and strengthen its corporate governance and disclosure practices to settle SEC charges that the company failed to properly disclose employee bonuses and financial losses at Merrill before shareholders approved the merger. Under the terms of the proposed settlement—subject to approval by Judge Jed S. Rakoff of US District Court, who is presiding over the SEC’s suit against the bank—the $150-million penalty will be distributed to BofA shareholders who were harmed by “the bank’s alleged disclosure violations,” according to an SEC statement.

The settlement also stipulates that the bank agrees to a series of new oversight provisions. They include: hiring an independent auditor and outside counsel to monitor financial statements and disclosure; a provision guaranteeing that BofA’s CEO and CFO personally review all annual and merger proxy statements; and a requirement that directors on the bank’s compensation committee follow a “super independence” standard to prevents them from accepting other compensation from the bank. In a statement, BofA said Thursday that it has also settled with the North Carolina attorney general over an investigation related to the Merrill merger.