FBI official says cities like Gary are still reeling from recent unscrupulous lending tactics
GARY, IN – The effects of the mortgage fraud that helped bring down the nation’s economy and resulted in the financial industries’ federal bailout are still being felt throughout Northwest Indiana.
That was part of the message FBI official Michael Prendergast delivered to members of the Gary Chamber of Commerce during the group’s monthly luncheon meeting at The Buffet & Grill. Prendergast has been assigned to the Gary/Merrillville FBI office for the past 19 years. Among this duties are investigating political corruption, civil rights violations and fraud, including mortgage and securities fraud.
Mortgage fraud became prevalent when mortgage loans were given to people who were not credit-worthy and unable to make those payments. It was a far-reaching scheme that originated with a network of those who could manipulate the system, Prendergast said. In some cases, this fraud included real estate agents, appraisers, title companies, mortgage companies and bank employees.
Many of these mortgage schemes grouped four, five or more residential properties together and obtained loans for more than the properties were worth, Prendergast said.
“They used a model from Las Vegas where the market was manipulated and properties were marked up,” he said. “They promised people who took out the loans that they would provide renters. Well, the renters disappeared after two months, and the owners were left holding the bag.”
Eventually as big banks, such as Chase and Wells Fargo, began buying these mortgages on the secondary market, officials realized the people who had title to the properties couldn’t pay for the loans.
In addition, insurance companies began selling securities based on these mortgages to investors.
Federal money from the Department of Housing and Urban Development also ended up in these schemes.
“Up here in blighted areas like Gary, East Chicago and Hammond, there were multiple schemes to get people to invest in abandoned properties,” Prendergast said. “Some investors got money for rehabbing, but the work was never done and the money skimmed off.”
These faulty mortgages often didn’t include property taxes, so the owners were dunned for back taxes and the property ended up foreclosed and in the sheriff’s sale.
The ripple effect has been a new wariness about investing in places like Gary, Prendergast said. Tighter controls and credit requirements are also freezing some borrowers out of the market, even for single-family primary residences.
Banks are cooperating in the FBI investigation, Prendergast said, and the FBI is going after those who took out the mortgages.
“We may have to be hard on victim-buyers to get information on who organized these mortgage frauds,” he said.
Another problem has arisen because of the amount of money the federal government has given Gary that still hasn’t been accounted for, Prendergast said.
“The federal government gives money out like a faucet turned on, but they don’t track it,” he said. “Tracking funds in Gary is difficult.”
People want to invest in Gary and have good motives, Prendergast said, but because of the misuse of funds, these efforts are being stymied.
By Lu Ann Franklin