A Columbus mortgage broker was sentenced today to six years in federal prison for his involvement in a far-reaching house-flipping scheme in central Ohio.  Jonathan L. Boyd is the last of 10 people sentenced in what has been described as the largest mortgage-fraud case ever prosecuted here.

U.S. District Judge Algenon L. Marbley sentenced Boyd, 41, to concurrent sentences of 60 and 72 months for the fraud he committed in 2003 and 2004.  Marbley also ordered him to pay back $469,000 to 12 lending institutions.  Boyd apologized in court.  “I’m sorry to all the people I hurt,” he said. “I guess I just became greedy.

In a complicated Ponzi scheme investigated by The Columbia Dispatch since July 2009, Somnath Ganguly is alleged to have stolen more than $1.5 million from them in real-estate schemes.

Columbus police have traced at least $500,000 in thefts by Ganguly and have turned the case over to the Franklin County prosecutor’s office. A grand jury has yet to review the case.

On December 29, 2009 Ganguly appeared before a U.S. Bankruptcy Court trustee to begin the process to erase nearly $850,000 owed to mortgage companies for investment properties, credit-card companies and former friends who invested with him.

Some of those investors attended the hearing, too, hoping that what is owed them will stick with Ganguly and not be eliminated by bankruptcy.

Ganguly has denied that he stole anything. He blames his former friends for ruining his plans to strike it rich by turning rental properties into condos.

Those friends and associates Ganguly, 47, of southern Delaware County, has left them penniless and buried in their own mountains of debt.

One woman was there with a copy of a $45,000 judgment against Ganguly. She and her elderly husband gave Ganguly more than $127,000 to invest and lost it all. She now works as a cashier to help make ends meet while her husband battles cancer.

Another was there hoping to recoup about $20,000 he invested.

“It’s amazing what devastation one single person can do,” said Raj Chakrabarti, who drained his savings account, mortgaged his house and borrowed from relatives to keep a 60-unit apartment complex in Worthington from falling into foreclosure. His efforts failed.

All were duped in a complex, Ponzi-like scheme in which Ganguly persuaded them to provide down payments on investment properties that he promised to fix up for resale or to turn into condominiums.

No property was ever renovated. At least five houses and two apartment complexes have faced foreclosure. County records show that the properties were mortgaged at their full value, meaning no down payment was made.

In the meantime, the investors hope to keep Ganguly on the hook. “These creditors represent thefts,” said Thomas Conkle, a Columbus lawyer who represents Chakrabarti and another investor.

Debts accumulated because of fraud cannot be forgiven by bankruptcy.

Aristotle R. “Rick” Matsa, of Worthington, OH, was arrested on a 20-count federal indictment of tax fraud, obstruction of justice, and witness tampering on December 21st.

It is not clear whether Matsa will represent himself.  (Matsa is licensed to practice law in the state of Ohio.)  Matsa, in addition to being a lawyer, is a licensed real estate broker, a licensed architect, and a licensed minister.      

The 20-count indictment includes setting up a series of foreign trust entities to disguise his income and earnings, preparing fraudulent tax returns that omitted the income and earnings he hid in those entities, and tampering with a witness and giving a false statement to derail the federal investigation of his activities.

According to a Department of Justice press release, Matsa also claimed fraudulent tax deductions and used funds from the trusts to buy a farm in Hocking County as well as a house in Worthington during the past decade. Matsa also involved his mother, Loula Matsa, and close friend and Urbana lawyer George Z. Pappas in his schemes, using his mother’s bank account to hide income and naming his law practice after Pappas to hide its ownership.

Pappas then lied to a grand jury about this ownership, leading to his arrest on a federal charge of making a false statement. This charge normally carries a maximum sentence of five years in prison, a $250,000 fine, and three years’ supervised release, but Pappas agreed to a plea bargain in exchange for providing the information that led to Matsa’s arrest.  It is likely that Pappas’ sentence will be considerably reduced.

If Matsa is convicted, he could face 90 years in prison, a fine of $5,000,000, and supervised release of 5 years (at which point the 53-year-old will be 143 years old if he serves the maximum). It’s possible Matsa’s arrest will spur federal investigations into Matsa’s other activities, including his real estate companies Spectrum Companies, Landmarks U.S.A., and Protidea Ltd., his architectural-services company Architects Spectrum Ltd., and the several churches he incorporated in Ohio.

Julian M. Hickman, 32, now of East Cleveland, appeared before U.S. District Judge Michael Barrett. Hickman was sentenced Thursday, Dec. 10, to 33 months in federal prison for his role in an extensive mortgage fraud scheme that affected 210 residential properties, including 205 in Montgomery County.

According to Carter M. Stewart, U.S. Attorney for the Southern District of Ohio, the scheme affected 63 investors and led to foreclosure against owners of more than 90 percent of the properties.

He is the second of six co-defendants to be sentenced; the first, Jessica A. Zbacnik, who was sentenced Dec. 3 by Barrett to 30 months in prison.

Hickman pleaded guilty in December 2008 to two counts of conspiracy and three counts of willful failure to file income tax returns.

In a statement of facts filed with his plea, Hickman admitted that, between March 2002 and June 2008, he and others recruited unsuspecting individuals to buy residential properties, many of them dilapidated, at prices artificially inflated above legitimate fair-market values.

Hickman admitted that he participated in 107 separate fraudulent real estate closings between March 2002 and June 2006. He and his co-conspirators netted more than $3.8 million from the deals.

Hickman failed to file federal income tax returns in 2003, 2004 and 2005. In 2003, Hickman received gross income in excess of $680,000. In 2004, Hickman received gross income in excess of $830,000. In 2005, Hickman received gross income in excess of $200,000.

Zbacnik, 42, of Mason, pleaded guilty July 29 to one count of conspiracy to commit money laundering and one count of conspiracy to commit mail fraud, wire fraud and money laundering.

According to the statement of facts filed in court, Zbacnik admitted that she had helped arrange, facilitate and manipulate documents associated with real estate sales and closings. The purpose was to fraudulently obtain excess mortgage loan proceeds generated from the sale of residential properties.

There are four co-conspirators who are still awaiting sentencing:

— Edward McGee, 74, of Dayton, who pleaded guilty on May 12, 2009 to conspiracy to commit money laundering.

— Kenneth O. McGee, 49, of Dayton, son of Edward, who pleaded guilty May 12, 2009 to conspiracy to commit mail fraud, wire fraud and money laundering and conspiracy to commit money laundering.

— Robert Mitchell, 42, of Vandalia, who pleaded guilty to conspiracy to commit mail fraud, wire fraud and money laundering and conspiracy to commit money laundering on March 11, 2009.

— Kamal J. Gregory, 34, of Centerville, who pleaded guilty to conspiracy to commit mail fraud, wire fraud and money laundering and conspiracy to commit money laundering on April 14, 2009.

The owners of a well established Minnesota home builder were sentenced last Friday in federal court for conspiring to commit mortgage fraud and money laundering in connection with a scheme involving approximately 200 residences and approximately $100 million in loans. In determining the following sentences, U.S. District Court Judge Ann Montgomery found the scheme resulted in a loss of between $20 million and $50 million and harmed more than 50 victims:

• Michael Parish, 63, of Eagan, MN: 13 years in prison along with three years of supervised release
• Ardith Parish, 62, Eagan: 5 years in prison followed by three years of supervised release
• Christopher Troup, 40, Eagan: 10 years in prison and three years of supervised release

Michael and Ardith Parish were the owners and officers of Parish Marketing Development Corp. (PMDC), a long-time Minnesota home builder, and Christopher Troup, their son-in-law, was an agent for the company. Along with the company, all three pleaded guilty in November 2007 to participating in the real estate fraud conspiracy. According to their pleas, the Parish’s and Troup acknowledged participating in the mortgage fraud scheme, by which PMDC utilized straw buyers to purchase approximately 200 Minnesota properties built by PMDC.

All three also acknowledged completing loan applications for the straw purchases (which–go figure–included false information), executing loan documents in the names of the straw buyers, and manufacturing and providing false documentation (i.e., false representations of employment and false verifications of deposit) for the straw buyers for purposes of obtaining loan proceeds to purchase the properties from PMDC.

The three also admitted:

1. Providing false information that resulted in appraisals that overstated the amount for which the residences could have been sold at the time of the transaction in a normal, arms-length transaction. The appraisals supported a higher sales price to the straw buyers, allowing PMDC to obtain additional funds from the loan proceeds.
2. That the straw buyers did not view the residences they were purchasing, did not negotiate the purchase price of the residences, and, often times, did not execute the sales documents and loan documentation, which were instead signed by the three pretending to be the straw buyers.
3. That the straw buyers made no payments on the mortgages that were taken out in their names. Instead, PMDC made all payments or allowed mortgages to go into foreclosure. Often times, PMDC utilized proceeds from the sale of one residence to a straw buyer to make monthly payments for the mortgages held on other residences in the names of other straw buyers.

Several other people connected to the conspiracy previously pleaded guilty to federal charges and are awaiting sentencing, including:

• Ramiz Yousef Saadeh, 30, of Apple Valley, MN, pleaded guilty in September 2007 to conspiracy to commit mortgage fraud. The former US Bank officer admitted providing false verifications of deposit to PMDC on behalf of straw buyers.
• Kristopher Robbins, 28, Brandon, South Dakota, pleaded guilty in September 2007 to conspiracy to commit mortgage fraud. The former closing agent admitted to permitting conspirators to forge signatures on mortgage documentation.
• Melissa Smith, 45, Gerard, Ohio, pleaded in September 2007 to conspiracy to commit mortgage fraud. Smith, a stay-at-home mother and the sister of Christopher Troup, admitted to acting as a straw buyer for the scheme, purchasing 46 residences for approximately $20 million from October 2004 through January 2007.
• Donald Yeager, 41, Ardamore, Oklahoma., pleaded guilty in October 2007 to one count of honest services fraud. The former appraiser admitted providing misleading and inflated appraisals of the homes to lenders.
• In June of this year, John Rubischko, 36, Eagan, a former mortgage broker implicated in the scheme, also pleaded guilty to mortgage fraud and identity theft charges.

Acting U.S. Attorney Frank J. Magill had this to say about the case:

The crime of mortgage fraud poses a significant threat to the national economy, as well as Minnesota’s economy. For many, the dream of home ownership has been shattered by those engaging in fraud, deception and illegal lending practices. These illegal practices have also resulted in communities blighted by foreclosed and boarded up homes, increased crime, property depreciation and other livability issues. Our office is working to ensure that those who devise and implement fraud schemes to bilk homeowners and lenders out of money will be prosecuted to the fullest extent of the law. Mortgage fraud will continue to be a top priority, and we thank our law enforcement partners on the federal, state and local level, for their efforts in investigating these schemes.

More Americans are facing foreclosure than at any other time in recent memory. According to the May 2008 U.S. Foreclosure Market Report™ from RealtyTrac, foreclosure filings (i.e., default notices, auction sale notices, and bank repossessions), were reported on 261,255 properties during the month of May, which translates into a 7% increase over April and a 48% increase from May 2007. The report also shows one (1) in every 483 U.S. households received a foreclosure filing during the month of May, the highest monthly foreclosure rate since RealtyTrac began issuing its report in 2005.

Nevada, California, and Arizona post top state foreclosure rates

With one in every 118 households receiving a foreclosure filing in May, Nevada posted the highest state foreclosure rate for the 17th consecutive month. Foreclosure filings were reported on a total of 9,009 Nevada properties, an increase of nearly 24% from the previous month and a 72% increase from May 2007.

California’s foreclosure activity in May increased 11% from the previous month and 81% from May 2007, helping the state continue to register the nation’s second highest state foreclosure rate. One (1) in every 183 California households received a foreclosure filing during the month of May, a rate that was 2.6 times the national average.

Arizona’s May foreclosure rate — 1 in every 201 households received a foreclosure filing during the month — ranked third highest in the U.S. for the second month in a row. Arizona’s foreclosure activity increased nearly 12% from the previous month and almost 119% from May 2007.

One in every 228 Florida households received a foreclosure filing in May, giving it the fourth highest foreclosure rate in the country. Michigan foreclosure activity in May increased nearly 25% from the previous month, helping the state’s foreclosure rate to jump to fifth highest in the country after ranking No. 9 the previous month. One in every 353 Michigan households received a foreclosure filing in May.

Other states with foreclosure rates ranking among the top 10 for the month of May were Georgia, Colorado, Massachusetts, Ohio and New Jersey.

Detailed state-by-state data is available here.

For the second month in a row, California and Florida cities accounted for nine out of the top 10 metropolitan foreclosure rates among the 230 metropolitan areas tracked in the report. Seven cities in California were in the top 10, led by Stockton in the top spot. One in every 75 Stockton area households received a foreclosure filing in May– more than six times the national average. Other California cities in the top 10 were Merced at No. 3, Modesto at No. 4, Riverside-San Bernardino at No. 5, Vallejo-Fairfield at No. 7, Bakersfield at No. 8, and Sacramento at No. 9.

The Cape Coral-Fort Myers metro area in Florida registered the second highest metro foreclosure rate in May, with one in every 79 households receiving a foreclosure filing during the month. The other Florida metro area in the top 10 was Port Lucie-Fort Pierce at No. 10.

Las Vegas was the only city outside of California and Florida with a foreclosure rate ranking among the top 10. One in every 96 Las Vegas households received a foreclosure filing in May, more than five times the national average and No. 6 among the metro areas.

Metro areas with foreclosure rates among the top 20 included Phoenix at No. 12, Detroit at No. 14, San Diego at No. 17 and Miami at No. 19.

Next up: Speculation about when the slide will end / have we seen the worst of the worst. Weighing in on the topic is Joe G. Henry of Long & Foster-affiliated W.C & A.N Miller Realtors in Virginia (comment found on ForeclosurePulse):

Defendable recovery will be 2011 due to the highest volume of ARM resets occurring in June 2008 and the typical foreclosure process lasts 12 months from Notice of Default, Notice of Trustee Sale, Foreclosure Auction, then seasoning to a Bank Owned (REO) — plus a 15-18 month housing inventory. Moreover, for every one bank-owned listing in Fairfax County, we have three short sales, which 80 percent of these will actually be foreclosed. There are three crisis response talking points concerning this scenario: (1) added liquidity; (2) mark down distressed assets; and (3) act now.

What’s your take? Do you agree with Joe G. Henry or do you have a theory of your own?

If you are interested in the federal government’s handling of real estate and mortgage fraud prevention and prosecution, read “FBI Halts Some Cases to Investigate Mortgage Frauds,” by Bloomberg’s Robert Schmidt. If you don’t have time to read the entire article, here’s just what you need to know:

• The FBI, confronting a surge in mortgage fraud, has ordered more than two dozen of its field offices to stop probing certain financial crimes so agents can focus on real estate and mortgage fraud.
• Kenneth Kaiser, chief of the bureau’s criminal investigative division, issued this directive late last week on a video conference call with the heads of 26 FBI offices in areas where real estate fraud is out of control.
• An FBI spokesperson said the shift was made after an analysis of how agents are spending their time. Approximately 150 FBI agents were working on more than 1,300 real estate fraud cases before the directive was issued.
• The 26 FBI field offices were told to temporarily suspend opening new cases dealing with price fixing, mass marketing, wire fraud, mail fraud and environmental crimes. Current cases aren’t being dropped, the FBI spokesperson said.
• FBI field offices in Florida, Georgia, California, Nevada, Arizona, Texas, New York, Ohio, Michigan, Illinois, Indiana and Minnesota–all rated as real estate and mortgage fraud hot spots–are participating.
• “Diverting FBI resources to deal with cases of mortgage fraud is exactly what Chairwoman Mikulski wants to avoid,” Melissa Schwartz, a spokeswoman for U.S. Senator Barbara Mikulski, who heads the appropriations subcommittee for the FBI, told Bloomberg late yesterday.
• The Attorney General of the United States, Michael Mukasey said last week that the Justice Department, the FBI’s parent agency, “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,” he said.

For more on this developing story, read FBI Halts Some Cases to Investigate Mortgage Frauds.

According to the Joint Economic Committee of the U.S. Congress, the most important cause of our current housing bubble was a massive credit expansion. An overly accommodative U.S. monetary policy from the second quarter of 2002 through the third quarter of 2006–when compared with the Taylor Rule–encouraged financial institutions to expand credit aggressively by reducing their short-term funding costs.

At the same time, according to the Joint Committee’s latest report– The U.S. Housing Bubble and the Global Financial Crisis: Housing and Housing-Related Finance [warning: pdf file]–stable inflationary expectations and the exchange rate policies in the People’s Republic of China and other Asian economies restrained long-term U.S. interest rates. Our housing prices soared as low long-term interest rates further encouraged the already strong demand among consumers for housing, while financial institutions enthusiastically supplied the necessary residential mortgage credit.

In plain English, a combination of government policy blunders and private sector miscalculations and mistakes underlie the inflation and deflation of the housing bubble. Fair enough, but I still say real estate fraud played a significant role in our current housing crisis, and for evidence of this one needs to look no further than to the financially lethal cocktail of risky high-rate mortgages and naive borrowers in many neighborhoods across central Ohio.

A wave of residential housing foreclosures during recent years has pushed property values down for the first time in decades, a new Columbus Dispatch analysis has found. The newspaper, which does an outstanding job of reporting on real estate and mortgage fraud, analyzed three years’ worth of HMDA (Home Mortgage Disclosure Act) data for more than 1.3 million mortgages executed across Ohio between 2004 and 2006. The Dispatch’s new series examines the toll of high-cost refinancings as well as the disproportionate impact on minorities, including African Americans.

From Bill Bush, Rob Messinger, Doug Haddix, Mike Wagner, Jill Riepenhoff, and Geoff Dutton of the Columbus Dispatch:

Mortgage meltdown: Think you’re unaffected? Think again

Sunday, June 1, 2008 3:26 AM

Virtually everyone is suffering from a mortgage hangover.

Even homeowners who never have missed a payment.

Even people who already have paid off their mortgages.

Even renters.

The financially lethal cocktail of risky high-rate mortgages and naive borrowers has taken a toll in many neighborhoods across central Ohio. A wave of foreclosures during recent years has pushed property values downward for the first time in decades, a Dispatch analysis found.

Thousands of families have lost their dream homes. Their neighbors, surrounded by orange foreclosure stickers and for-sale signs, have seen their homes lose value as abandoned houses blight their communities. And many renters have been pushed out of their homes because of their landlords’ problems.

The worst might still lie ahead.

Interest rates are scheduled to jump this year and next on another round of high-rate mortgages, known as subprime loans — typically adding hundreds of dollars to monthly mortgage payments.

“Subprime is going to destroy neighborhoods,” said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio. “It’s hurt more people than it ever helped. It encouraged a culture of recklessness by everyone.”

To measure the damage and the looming challenges, The Dispatch has investigated the effects of the mortgage meltdown.

The three-day series kicks off today.

Read the Columbus Dispatch series by clicking on any of the links below (or simply start by clicking here):

• June 1, 2008: Tax appraisals factor out foreclosures
• June 1, 2008: Tax relief not coming as house values slide
• June 1, 2008: Bursting bubbles: Risky Mortgages deflate home values as entire neighborhoods pay the price
• June 2, 2008: Risky refinancings deepen financial hole
• June 3, 2008: Color of money: Lenders more likely to give minorities costly loans
• Interactive graphic: Get a closer look at surging refinancing, risky mortgages and falling property values

The latest foreclosure statistics from RealtyTrac are out, and the news isn’t very good. According to the Q1 2008 U.S. Foreclosure Market Report, which tracks foreclosure filings (including default notices, auction sale notices and bank repossessions), 649,917 properties were foreclosed upon during the first quarter of the year, a 23% increase from the previous quarter and a 112% increase from the first quarter of 2007. The report also shows that one (1) in every 194 U.S. households received a foreclosure filing during the quarter.

Foreclosure activity in the quarter increased on a year-over-year basis in 46 out of the 50 states and in 90 of the nation’s 100 largest metro areas, demonstrating that most regions of the country are seeing more foreclosures. In some areas there are also some unusual, non-market factors impacting the foreclosure numbers. For example, the city of Philadelphia in late March issued a temporary moratorium on all foreclosure auctions for April, and the city has since adopted a program that will delay foreclosure proceedings on owner-occupied properties until the owners have met face-to-face with lenders to attempt a loan workout plan that would prevent foreclosure.

While programs like those in Philadelphia are certain to have a positive long-term impact, they could be simply deferring another flood of foreclosures, and that could extend the length of time it takes the market to recover from the current downward cycle, in which we’ve already seen seven consecutive quarters of increasing foreclosure activity.

Click on the map to the left for a close up view of exactly where foreclosure-related activity is playing out across the United States. As you’ll see, one (1) in every 54 Nevada households received a foreclosure filing during the first quarter, the highest foreclosure rate in the nation and 3.6 times the national average. Foreclosure filings were reported on 19,595 Nevada properties during the quarter, up 3% from the previous quarter and up 137% from the first quarter of 2007.

Foreclosure filings were reported on 169,831 California properties during the first quarter, the highest total in the nation at a rate of one (1) in every 78 households — the nation’s second highest foreclosure rate. Foreclosure activity in California increased 32% from the previous quarter and was up nearly 213% from the first quarter of 2007.

Arizona documented the nation’s third highest state foreclosure rate, with one (1) in every 95 households receiving a foreclosure filing during the quarter. Foreclosure filings were reported on 27,404 Arizona properties during the quarter, up 45% from the previous quarter and up nearly 245% from the first quarter of 2007.

Foreclosure filings were reported on 87,893 Florida properties during the first quarter, the second highest state total and giving Florida the nation’s 4th highest foreclosure rate — one (1) in every 97 households received a foreclosure filing during the quarter. Foreclosure activity in the state was up 17% from the previous quarter and up 178% from the first quarter of 2007.

Colorado foreclosure activity increased 33% from the previous quarter and 78% from the first quarter of 2007, and the state’s foreclosure rate ranked No. 5 among the states. Foreclosure filings were reported on 18,996 Colorado properties during the quarter, a rate of one in every 110 households.

Other states with foreclosure rates among the top 10 were Georgia, Michigan, Ohio, Massachusetts and Connecticut.

A hedge fund-backed real estate speculator and rental property owner in Columbus, Ohio, is facing 35 years in prison for his role in a mortgage fraud scheme that fraudulently secured more than $2.6 million in mortgage loans. Donald F. Green, 48, pleaded guilty in U.S. District Court last Friday to one count of income tax evasion, one count of conspiracy to commit bank fraud and wire fraud, and one count of bank fraud.

According to Green’s plea agreement, Green bought houses usually in need of substantial repairs in distressed neighborhoods in Columbus, Ohio, in 2003 and 2004 at or near their true-market value. In 2003, Green developed a working relationship with Jonathan L. Boyd, a loan officer at Summer Tyme Mortgage. Boyd would recruit straw buyers to purchase Green’s properties using fictitious income numbers in order to increase their reported credit worthiness. Court documents also reveal that Boyd arranged for inflated appraisals of many of those properties by Darneil Gaither. All three–Green, Boyd, and Gaither–used false information to obtain approximately $2,651,200 in mortgage loans.

In 2004, Green sold similar houses to other straw buyers through a scheme set up by codefendants Aryeh Schottenstein, Jeffrey Lieberman and Shawn Griffin in an investment program with Stillwater Capital Partners. Stillwater paid Griffin substantial amounts of money to renovate these properties provided by Green, but Griffin failed to follow through on any renovations. Green received consulting fees on several of these deals yet failed to report the income on his tax returns.

Green also gave his tax preparer schedules of fictitious improvements made on many of the properties in order to reduce his capital gains profits and therefore his taxes on the sale of the properties. By not reporting all of his income, Green fraudulently avoided an additional tax due and owing of $100,332.97 for 2003, and $130,043.19 for 2004.

Green and the others were indicted in August, 2007. Charges are still pending against Boyd and Gaither. Schottenstein, Lieberman and Griffin have plea agreements pending.

Imagine buying your dream home. Your credit is a bit shaky but you manage to secure a subprime loan with an adjustable rate mortgage. A few years later, interest rates jump and you can no longer afford to pay your mortgage. You see an advertisement in a local newspaper for a business that’s willing to help–the ad states they can pay your mortgage for a modest monthly fee while you take the necessary time to get back on your feet. But here’s the bad part: It’s a scam. The company just takes your money and runs!

This is just one of the real estate and mortgage fraud-related schemes the FBI is concerned about, and according to senior criminal investigators at the Bureau, the problem is only going to worsen over the next 18 months. These scams–which I write about in my latest book, Foreclosure Self-Defense For Dummies–include plenty of shenanigans with mortgages and subprime loans and are costing this great nation of ours tens of billions of dollars a year, if not more.

“Greed is definitely not good for our economy right now,” says Ken Kaiser, the FBI’s top criminal investigative executive. “It’s hurting homeowners. It’s hurting honest businesses. And it’s hurting investors and markets around the world.”

With those thoughts in mind, the FBI says it is now squarely focused on proactive initiatives designed to crack down on the largest of these financial crimes, and is even shifting resources as trends emerge, all the while working hand-in-hand with a host of government and private sector partners.

In particular:

• As we wrote last week, the FBI is now investigating 14 corporations involved in subprime lending as part of its “Subprime Mortgage Industry Fraud Initiative” launched last year. The companies being investigated come from across the financial services and real estate industry, from mortgage lenders to investment banks that bundle loans into securities sold to investors.
• The Bureau now has more than 1,200 open real estate and mortgage fraud cases (that’s up about 40% from last year), mostly involving fraud for profit, where straw buyers and real estate industry insiders rig schemes to buy properties that are illegally flipped or allowed to go into foreclosure.

The FBI also says suspicious activity reports–for potential real estate and mortgage fraud–have increased from 3,000 in 2003 to 48,000 in fiscal year 2007, and are projected to reach more than 60,000 such reports in 2008.

Finally, the FBI’s latest “hotspot list” for real estate and mortgage fraud includes: California, Texas, Arizona, Florida, Ohio, Michigan, and Utah (Utah is new to the list); and, on a somewhat surprising note, the Bureau now says it sees no links whatsoever to organized crime syndicates, street gangs, or terrorist groups in its real estate and mortgage fraud case portfolio.

• Fraud Seen as a Driver In Wave of Foreclosures: Skyrocketing foreclosures are a testament to how easy it was to borrow from mortgage lenders in recent years. It may also have been easy to steal from them, to judge from a multimillion-dollar fraud scheme that federal prosecutors unraveled here in Atlanta. The criminals obtained $6.8 million in mortgages from Bear Stearns Cos., including a $1.8 million mortgage to Calvin Wright, a New Yorker who told the investment bank that he and his wife earned more than $50,000 a month as the top officers of a marketing firm. Mr. Wright submitted statements showing assets of $3 million, a federal indictment alleged. In fact, Mr. Wright was a phone technician earning only $105,000 a year, with assets of only $35,000, and his wife was a homemaker. The palm-tree-lined mansion they purchased with Bear Stearns’s $1.8 million recently sold out of foreclosure for just $1.1 million. Bear Stearns, meanwhile, posted the first quarterly loss in its 84-year history as it wrote down $1.9 billion of mortgage assets yesterday.
• No solutions for borrowers who are ‘upside down’: Martinez said struggling borrowers have flocked to his office asking for help. Martinez started as an insurance adjuster/investigator more than a decade ago, but began investigating real estate fraud two years ago and suddenly found himself bombarded with cases.
• Fraud and bubbles: Like a horse and carriage: Here’s what’s interesting: It seems likely that a big part of the run-up in housing values may also have been a result of fraud. Demand was inflated by fraudsters making bids on homes that they couldn’t afford — and lenders who were lending based on fraudulent misrepresentations. How big of a role did mortgage fraud play in inflating home prices? It’s impossible to know but now that the frauds are being exposed, we’re seeing home prices dropping precipitously. And without mortgage fraud, there are fewer people with the resources to scoop up homes.
• Realtors reassure peninsula buyers: Kenai Peninsula real estate agents reacted Wednesday with strong words and public assurances in the wake of U.S. Grand Jury fraud indictments handed down Dec. 13 against nine individuals and one corporation in the Anchorage real estate market. According to U.S. Attorney Nelson P. Cohen, the accused allegedly engaged in “a widespread, three-year scheme” cheating 13 banks and home loan mortgage companies. In all, 57 different loan transactions netted more than $1.7 million in profits and cost financial institutions over $1 million to date.
• $3 million bond set for Evergreen president: Bond was set at $3 million cash this morning for Evergreen Corporation President David B. Willan. Willan, 37, was among 17 people named on Thursday in a 147-count Summit County indictment in connection with a two-year investigation into Akron-area mortgage fraud.

  

  Willan, who appeared before Common Pleas Magistrate John H. Shoemaker, was charged with a first-degree felony for engaging in a pattern of corrupt activity, aggravated theft, mortgage fraud, money laundering and other alleged offenses. Authorities said Willan was being held at the the county jail this afternoon in lieu of the $3 million cash bond.

• The Real Mortgage Fraud: Nothing is more fun than doing noble deeds with someone else’s money, and right now, Democrats are getting ready for a rollicking good time. Contemplating the subprime mortgage problem, with numerous borrowers unable to pay their debts, the party’s presidential candidates and congressional leaders have a simple solution: Fleece the lenders.
• Realtor gets 20 months in prison for mortgage fraud: A Rockford Realtor was sentenced to 20 months in prison this afternoon for his role in falsifying documents to help Hispanic families qualify for loans backed by the Federal Housing Authority. Cesar Arenas was the fourth person sentenced in the five-person mortgage-fraud ring that operated from 2001 through 2003 and the second to receive prison time. Rhonda Torossian, the loan officer in the scheme, was sentenced Monday to 20 months in federal prison.
• Guest Opinion: More must be spent to stop mortgage fraud: The Arizona Department of Financial Institutions investigates mortgage fraud cases before referring them to the Arizona Attorney General’s Office for prosecution. The department relies on money from a revolving fund to initiate and fund its investigations, but that money has an annual cap of only $50,000. This amount is inadequate and has not been raised in at least 10 years.
• Banks in England crack down on mortgage fraud: Banks are seeking to crack down on mortgage fraud as evidence mounts of a rise in the number of fraudulent borrowers. Abbey and Lloyds TSB are among the banks reporting a surge in the volume of potentially fraudulent mortgage applications. The Council for Mortgage Lenders is also cracking down, working with police to investigate the possibility that organised criminals are operating in the market. “We are identifying two or three times as many cases of possible fraud as we did in the first part of this year,” said Steve Williams, risk director at Abbey.

• Mortgage Fraud Law Goes into Effect in North Carolina: Among the list of new laws taking effect tomorrow in North Carolina–a law making it easier to prosecute residential mortgage fraud by defining the practice and creating tougher punishments for repeat offenders.
• Mortgage Inquiries Swamping Arizona: Arizona’s mortgage regulator has shut down a handful of firms for fraud and other illegal lending practices this year, but at least 40 other investigations are stalled because there is no money to fund them.
• California Real Estate Firm Investigated for Fraud: Federal investigators are looking into Crisp & Cole Real Estate’s operations for possible mortgage fraud after a federal raid of 13 of the now-defunct California company’s offices.
• New Jersey Lawyer-Judge at Center of Land-Flip Investigation: A NJ lawyer who is also his town’s judge may have played a central role in a scheme to defraud lenders by obtaining mortgages based on inflated appraisals of run-down properties.
• Minnesota Mortgage Firm is the Focus of Fraud Probe: Investigators are probing mortgage fraud complaints involving Universal Mortgage and several of its employees that are said to have used straw buyers to buy property at inflated prices.
• Guilty Plea Entered in Missouri Fraud Case: A 30-year-old man from St. Louis is the fifth person implicated in a mortgage fraud ring involving dozens of homes and millions of dollars in real estate transactions dating back to 2005. Daniel Mann pleaded guilty to conspiracy to commit wire fraud and now faces a maximum penalty of five years in prison. Mann admitted to arranging a number of fraudulent real estate transactions that were part of a larger fraud ring coordinated by another person who pleaded guilty in September to similar charges and will be sentenced in December.
• Canadian Paralegal Convicted in $30 Million Mortgage Fraud Scam: An Edmonton fraudster has been convicted of supporting a criminal organization by helping to swindle unsuspecting real estate investors out of nearly $30 million. Sixty-one-year-old Terry Ellis was found guilty of 12 counts of fraud and one count of forgery in connection with a massive mortgage fraud believed to be the biggest in Alberta history.
• Editorial Questions Michigan Attorney General’s Record on Real Estate Fraud: In the state hardest hit by real estate and mortgage fraud-related foreclosures, its attorney general, Mike Cox–who has won nationwide notoriety for locking up parents behind in their child support payments–has yet to file a single criminal complaint against any mortgage broker or lending entity.
• Two Sentenced in Connection with $15 Million Mortgage Fraud Case in Ohio: Two people have been sentenced to prison in connection with what prosecutors describe as a mortgage fraud scam in upscale Cleveland suburbs. Builder and developer, Edward Emery received a sentence totaling 34 months and a fine of $10,000. Eloise Anderson will spend nearly a year in prison and has been ordered to pay $35,000 in restitution.

A leading online marketplace for foreclosure properties, yesterday released its August 2007 U.S. Foreclosure Market Report, which shows that a total of 243,947 foreclosure filings–default notices, auction sale notices and bank repossessions–were reported during the month, up 36 percent from the previous month and up 115 percent from August of last year. This is the highest number of foreclosure filings in a single month that RealtyTrac has reported since it began issuing the monthly report in January 2005.

The national foreclosure rate of one foreclosure filing for every 510 households for the month is also the highest figure ever issued in the report.

The jump in foreclosure filings may just be the beginning of the next wave of increased activity for house flippers, as a large number of subprime adjustable rate loans are now beginning to reset. A significant factor in the increased level of foreclosure activity is that the number of REO filings (bank repossessions) is increasing dramatically, which means that a greater percentage of homes entering foreclosure are going back to the banks.

Nevada, California, Florida post top state foreclosure rates

Nevada continued to register the nation’s highest state foreclosure rate, one foreclosure filing for every 165 households–more than three times the national average. The state reported 6,197 foreclosure filings during the month, a 21 percent increase from the previous month and more than triple the number reported in August 2006.

California’s foreclosure rate jumped to second highest among the states thanks to a 48 percent month-over-month spike in foreclosure activity. The state reported 57,875 foreclosure filings during the month, a foreclosure rate of one foreclosure filing for every 224 households–more than twice the national average.

Florida foreclosure activity jumped 77 percent from the previous month, boosting the state’s foreclosure rate from seventh highest to third highest among the states. The state reported 33,932 foreclosure filings, a foreclosure rate of one foreclosure filing for every 243 households.

Other states with foreclosure rates ranking among the nation’s 10 highest were Georgia, Ohio, Michigan, Arizona, Colorado, Texas and Indiana.

Sun Belt, Rust Belt states dominate top foreclosure totals

Seven of the top 10 states in terms of total foreclosure filings in August were located in the Sun Belt, and three of the top 10 states were in the Rust Belt. After California and Florida, Ohio registered the third highest state total, with 17,793 foreclosure filings during the month. The state documented a foreclosure rate of one foreclosure filing for every 281 households, fifth highest in the nation.

Texas, Michigan and Georgia all reported more than 10,000 foreclosure filings for the month, documenting the fourth, fifth and sixth highest state foreclosure totals respectively, followed by Arizona, Colorado, Illinois and Nevada.

Top Metro foreclosure rates in California, Michigan, Florida, Nevada and Ohio

California cities once again accounted for six of the top 10 metro foreclosure rates in August, with the top three spots all taken by California cities. Modesto documented the nation’s highest metro foreclosure rate, one foreclosure filing for every 79 households, followed by Stockton and Merced. Other California cities in the top 10 included Vallejo-Fairfield at No. 5, Riverside-San Bernardino at No. 6 and Sacramento at No. 7.

Detroit posted a foreclosure rate of one foreclosure filing for every 87 households, the nation’s fourth highest metro foreclosure rate and more than five times the national average. Fort Lauderdale, Las Vegas and Cleveland, ranked Nos. 8, 9 and 10.

A report released yesterday by RealtyTrac shows more than 1.2 million foreclosure filings were recorded nationwide in 2006, up 42 percent from 2005. The 2006 RealtyTrac Foreclosure Market Report also revealed that there is one foreclosure filing for every 92 U.S. households. While foreclosures are not at historically high levels, a 42 percent year-over-year increase is certainly noteworthy and cause for concern. When foreclosure rates rise, con artists crawl out from the rocks they were hiding under to prey on the vulnerable homeowners. To protect yourself, you should know your options and know your rights.

According to the report, the total number of foreclosure filings rose from a little over 885,000 in 2005 to 1,259,118 in 2006. Colorado documented the nation’s highest state foreclosure rate for the year, one foreclosure filing for every 33 households or 3 percent of the state’s households. The state reported 54,747 foreclosure filings during the year, an 85 percent increase from 2005 and the eighth highest total among all states.

Georgia and Nevada both reported one foreclosure filing for every 41 households in 2006, but Georgia edged out Nevada with a slightly higher percentage of households in foreclosure, 2.5 percent compared to 2.4 percent in Nevada. Georgia reported 75,975 foreclosure filings during the year, the sixth most of any state and a 67 percent year-over-year increase. Nevada foreclosures surged in fourth quarter, pushing the state’s total for the year to 21,045, nearly three times the number reported in 2005.

Other states with foreclosure rates among the nation’s 10 highest included Texas, Michigan, Indiana, Florida, Ohio, Utah and Tennessee. Texas reported 156,876 foreclosure filings for the year, the most of any state, and nearly 13 percent of the national total. The state consistently reported big foreclosure numbers throughout 2006, documenting the highest monthly total eight times, and foreclosures for the year were up more than 14 percent from 2005. Texas’ foreclosure total represented nearly 2 percent of the state’s households, or one foreclosure filing for every 51 households, giving the Lone Star state the nation’s fourth highest state foreclosure rate.

Rising foreclosure activity in the fourth quarter pushed California’s 2006 foreclosure total to second highest among all U.S. states. California reported 142,429 foreclosure filings during the year, more than twice the number reported in 2005, and accounting for more than 11 percent of the national total. California’s 2006 foreclosure rate of one filing for every 86 households ranked 14th in the U.S.

Florida’s foreclosure activity remained relatively flat in 2006, up just 2 percent from 2005, but the state’s foreclosure total still placed third highest among all the states. Florida reported 124,721 foreclosure filings during the year, a foreclosure rate of one foreclosure filing for every 59 households. The state’s foreclosure rate dropped to seventh highest in 2006 after claiming the top spot in 2005.

With an average of more than 10,000 foreclosure filings in each quarter, Detroit, Michigan, documented the highest annual foreclosure rate among the nation’s 100 largest metropolitan areas. Atlanta, Georgia’s 2006 foreclosure total of 63,737 represented 4.4 percent of the city’s households, ranking it second in the nation. Indianapolis, Indiana’s foreclosures decreased in the second, third and fourth quarters of 2006, but the city still documented the nation’s third highest metro foreclosure rate: 4.3 percent of all households.

Other cities with foreclosure rates among the nation’s 10 highest include Denver, Dallas, Fort Worth, Las Vegas, Memphis, Fort Lauderdale, and Miami.

A couple of days ago I mentioned that the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) reported that mortgage loan fraud in the United States rose 35 percent in the past year. For anyone interested, here are some additional items of note from the FinCEN’s November 2006 report:

• Between 1997 and 2005, Suspicious Activity Reports (SARs) pertaining to mortgage loan fraud increased by 1,411 percent between. This report-filing trend continues apace in 2006, with 7,093 reports filed on suspected mortgage loan fraud during the first quarter, an increase of 35 percent over the SAR filings in the first quarter of 2005. One explanation for the increase in SARs reporting mortgage loan fraud is increased awareness of the potential for fraud in a dynamic real estate market. Many areas in the United States saw double-digit growth in real estate values during 2003 and 2004. At the same time, mortgage loan interest rates were at a historic low. Although growth in the housing industry appears to be slowing in the first quarter of 2006, opportunities for fraud are still present.
• Reports of mortgage loan fraud rose significantly in 2003. The Federal Financial Institutions Examination Council reported an increase in the number of mortgage loans beginning in 2003: “The 2003 data include a total of 42 million reported loans and applications, which is an increase of about 33 percent from 2002, primarily due to a significant increase in refinancing activity (approximately 41 percent).” SARs on mortgage loan fraud increased over 92 percent between 2003 and 2004. The increase in filings may be attributed to an increase in overall mortgage lending concurrent with the decline in interest rates in the 2002 – 2005 timeframe and a broader awareness of this fraudulent activity.
• Mortgage loan fraud represents a growing percentage of total depository institution SARs. In 1997, reports of mortgage loan fraud comprised 2.12 percent of total depository institution SAR filings. In 2005, reports of mortgage loan fraud had increased to 4.94 percent of total depository institution filings.
• Identity theft was frequently reported in conjunction with the commission of suspected mortgage loan fraud. Reports of identity theft increased nearly 102 percent between 2004 and 2005.
• The National Association of Mortgage Brokers reports that as many as two-thirds of mortgage loans are now originated by mortgage brokers. Currently there are no national standards for licensing and oversight of mortgage brokers. Some states license mortgage brokerage offices, but not individuals; 24 states have no specific educational or experience requirements for mortgage brokers; and only a few states require criminal background checks on mortgage brokers making it possible for unethical individuals to move from one mortgage brokerage firm to another.
• The top 10 geographical areas for fraud are California, Florida, Illinois, Texas, Georgia, Michigan, New York, Ohio, Washington, and North Carolina.
• High home prices coupled with rising mortgage rates result in a reduction in housing affordability. In response to this trend, the housing industry is expecting a slow down in mortgage loan originations, a decrease in housing sales, and a slowing in housing price gains. The slow down in the growth of housing prices could result in the housing industry becoming less attractive to investors, which in turn could result in a reduction in the reports of fraud for profit. The current housing trend could also lead to an increase in fraud for housing as the increased costs of housing decreases the number of persons who qualify for mortgage loans. The current trend of rising interest rates and slowing housing equity growth could result in an increase in debt elimination fraud schemes, especially for homeowners with adjustable rate mortgages and interest only loans.

There are only a small handful of newspaper reporters who truly understand the intricacies and problems associated with real estate and mortgage fraud. David Jackson of the Chicago Tribune is one, and Geoff Dutton of The Columbus Dispatch is another. From Sunday’s online edition of The Columbus Dispatch:

Big deals send up red flags
Sales of 14 upscale homes at well-above-market prices raise suspicions of flipping

The peculiar but tempting offers sometimes came a year or more after homeowners planted for-sale signs in their front yards.

Interested buyers suddenly appeared, proposing to pay hundreds of thousands of dollars more than the asking price for houses in some of central Ohio’s elite neighborhoods, including Muirfield Village and Tartan Fields.

The catch: the sellers must agree to immediately refund the difference between the asking price and the sale price.

At least 14 such deals worth more than $11 million have closed since spring, and the offers continue. Rather than celebrate, some suspicious real estate brokers, lawyers and title agents advised sellers to reject the offers and walk away from the deals.

Some called the FBI and the Department of Homeland Security, because most of the buyers were Middle Eastern.

“We turned down five of them,” said Bryan Wing, executive vice president of CV Perry Builders. “Believe me, in this day and age, we could have used it.” Others couldn’t resist.

The elusive buyers who could be located by The Dispatch offered little if any explanation. The real estate professionals, two of whom have troubled track records, wouldn’t discuss the sales in detail. Bankers holding the mortgages wouldn’t talk, and neither would FBI or Homeland Security officials.

Geoff Dutton is one of the most thorough and detailed reporters covering real estate fraud today. The above is but just a small part of an amazing article. Trust me, it’s well worth the read.

With fewer houses selling, increases in foreclosures and real estate prices dropping, the housing market is experiencing the “soft landing” that has been long predicted, and the mid-western United States is once again the most vulnerable part of the country when it to real estate fruad. Earlier this week, CoreLogic released the latest edition of the Core Mortgage Risk Monitor, a report that forecasts the geographic regions most likely to experience the economic consequences of increased levels of fraudulent activity over the next 12 to 18 months.

According to the latest report, the risk index rose by 5 percent between the first and second quarters of 2006, after increasing by 6.4 percent between the fourth quarter of 2005 and first quarter this year. This increase indicates that the risk of real estate and mortgage fraud causing economic impact in vulnerable markets continues to rise at an unprecedented rate.

The top five major metropolitan statistical areas most at risk are:

1. Detroit-Livonia-Dearborn, Michigan
2. Memphis, Tennessee
3. Dayton, Ohio
4. Akron, Ohio
5. Gary, Indiana

The top five markets showing the most noticeable increase quarter over quarter are:

1. Gary, Indiana
2. Detroit-Livonia-Dearborn, Michigan
3. Goldsboro, North Carolina
4. Flint, Michigan
5. Florence, South Carolina

The Core Mortgage Risk Monitor measures what we call ‘collateral risk,’ which is the risk associated with the accuracy of a residential property valuation and the sustainability of that valuation over the life of the mortgage due to the unique characteristics of the property, market, and mortgage contract participants.

Columbus, Ohio’s The Daily Reporter is running a three-part series on Real Estate and Mortgage Fraud:

When Franklin County Treasurer Richard Cordray and Prosecutor Ron O’Brien announced last month that they had filed a foreclosure action and a petition for receivership against the county’s “#1 Delinquent Tax Payer,” they once again brought attention to the multitude of problems associated with blighted properties and the state’s high foreclosure rates.

The Daily Reporter launched an investigation into that property owner’s business transactions and those of a company “it appears he had some connection with - Stillwater Asset Fund out of New York.”

In the first of our three-part series, we look at some of the transactions of both parties, the possible links between them and a legacy of foreclosures.

Click here for Part One, which appeared in yesterday’s online edition of The Daily Reporter.

If you cheated lenders out of $2.3 million, you’d think, wouldn’t you, that you’d be fined at least that amount plus interest and penalties? Apparently not! From yesterday’s online edition of Cincinnati’s The Enquirer:

…defendants in the government’s crackdown on mortgage fraud through corrupt home sales were sentenced to prison Wednesday, including a Butler County man who cheated - and tried to cheat - lenders out of $2.3 million over a three-year period. On Wednesday, it was the day of reckoning for what one federal prosecutor called a “prime player” in the mortgage fraud scheme…

…In addition to fooling lenders into making steep loans on homes, most of which ended up in foreclosure, Husvar underreported his income for 2000 and 2001, resulting in the evasion of $26,589 in income taxes due for those years.

[U.S. District Judge Susan] Dlott sent [Timothy] Husvar to prison for two years, starting in September. She fined him $40,000 and ordered him to pay back taxes….

David M. Green, 49, of Franklin, received 26 months in prison, three years’ probation, 600 hours of community service, a $50,000 fine and an order to pay $82,751 in back income taxes.

Lisa Holderman-Powers, 31, of Cincinnati, received 18 months in prison, five years’ probation, 600 hours of community service, a $35,000 fine and an order to repay $1 million to Trust Corp. Mortgage.

Richard Frazier, 46, now of Cape Coral, Fla., received two years in prison, five years’ probation, 600 hours of community service, a $45,000 fine and an order to pay $45,312 in back income taxes.

Another defendant, Jeff Henry, 44, of Cincinnati, was sentenced Monday. He received 12 months in prison, five years’ probation, 600 hours of community service, a $10,000 fine and an order to pay $16,612 in back taxes.

Unless there’s a typo in that story, according to my math, including fines and taxes, the five defendants in this case have been ordered to pay $1,351,264, which is roughly $1 million shy of what they stole. And when you figure in that $171,264 of the total was for back taxes–meaning, taxes already owed–the fine really only amounts to $1.18 million, which is certainly less than the $2.3 million these crooks stole.

Where’s the justice in that? Click here for The Enquirer’s full write-up on the sentencing, which includes a piece about how Husvar has been spending his time since the summer of 2003 when he first admitted to committing bank fraud, conspiracy and income tax evasion. What a joke!