Credit Crisis – Subprime Mortgage Collapse – New York Times Article Shows That Choices Made Ten Years Ago Haunt Us Today! Comments by Mortgage Fraud Speaker Chuck Gallagher

February 24, 2009

Every day there is more news about the sagging economy.  Banks being considered for nationalization.  Companies contracting and downsizing.  Workers being laid off.  It’s hard to find the bright spots as there seems to be no light at the end of the tunnel.

But – every choice has a consequence – and the consequences we are living in today had a beginning with choices that were once made in good faith.  The more I research the more I find that is isn’t the banks who are totally at fault or greedy wall street tycoons.  Rather, the problem started with government pressure or direction.  Encouragement by our own federal government, coupled with shareholder profit pressure, created the momentum that has now turned into disaster.  new-york-times-building-sign

The following is an article written by Steven A. Holmes for the New York Times on September 30, 1999. (copyright New York Times 1999)  A portion of the article is reprinted here:

In a move that could help home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is not generally not good enough to qualify for conventional loans.  Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nations biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stockholders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called supprime borrowers.  These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.

“Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s Chairman and Chief Executive Officer.  “Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been regulated to paying significantly higher mortgage rates in the so-called subprime market.”

Demographic information on these borrowers is sketchy.  But at least one study indicates that at least 18 percent of the loans in the subprime market went to black borrowers, compared to 5 percent of loans in the conventional market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose difficulties during flush economic times.  But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

“From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute.  “If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

The whole article can be seen here.

Almost ten years ago, writer, Steven A. Holmes reported on what was the infancy of what would bring the US to its economic knees some ten years later.  The clarity of his comments are a haunting reminder simple reality checks and what many would now say is common sense business.

QUICK OVERVIEW:

  • Politicians wanted the purse strings loosened so that more people could get what they wanted  – even though they couldn’t afford it.  Hum that seems to me to be bad economics but good politics.  Get more people what they want so they will vote for you.  After all, with term limits, most folks won’t be in power when the crisis hits.
  • Shareholders – of Fannie Mae – push for higher and higher returns.  Gordon Gecko – “Greed is good” – yea right!  I have been a Sr. VP in a public company and know what that shareholder pressure is like.  But here’s a reality check:  the tide comes in and the tide goes out.  It is unrealistic to assume that there will always be growth.  If companies were run for the long haul, then some of the dumb decisions that are made would be avoided.  It is terribly frustrating to see what kind of decisions are made just to make the earnings work for the current quarter.
  • Banks and investment firms wanted Fannie Mae’s expansion – why?  Obvious – another line of profitable business (at least for the short term).  I wonder today if those who were so quick to jump on the bandwagon would have done so – if they knew then what they know now.

Were the choices made then ethical?  As a business ethics speaker, I’m interested in your opinions.

WHAT DO YOU THINK?


John A. Yanchek Pleads GUILTY to $82.8 Million Mortgage Loan Fraud Scheme – Fraud Prevention Expert Chuck Gallagher Comments

February 24, 2009

Every choice has a consequence.  As a business ethics and fraud prevention speaker, I state that during every presentation.  Regardless of who you are or what station you may hold in life – you cannot avoid the consequences of your actions or choices.  Sure, you may avoid the consequences for a time, but in the end we must always face the consequences of our choices.

On February 4th, 2009 – John A. Yanchek – a licensed Florida attorney pled guilty to conspiracy, making false statements in connection with bank loans, and money laundering.  The consequence – Yanchek could face up to 45 years in federal prison (although his sentence will likely be much less).  prison-hands

According to the US Attorney’s news release:

YANCHEK entered into a conspiracy to make false statements to federally-insured banks in connection with applications for commercial  loans to fund the purchase of vacant land in the Sarasota/Manatee area for development.  The object of the conspiracy was to obtain a loan from a bank in an amount that was sufficient to allow the conspirators to purchase the property without contributing any equity of their own and to receive excess loan proceeds for their personal use and benefit.  To influence the lending decision of the various banks, YANCHEK, acting in his legal capacity as the closing attorney, made false statements regarding the financial resources of the borrower, the amount and source of equity contributed by the borrower, compliance with the seller’s obligation to provide marketable title to the property, and distribution of the loan proceeds.

The question now is not one of guilt.  Yancheck has made it clear that he is guilty.  Rather the question is one of motivation.  Why would a licensed attorney risk his license, livelyhood and freedom?

An article written in the HearldTribune.com (linked here) states the following:

Between January 2005 and March 2006, Husani, whose business dealings are being scrutinized by the FBI, completed seven real estate transactions in Manatee and Sarasota counties, buying land for a total of $43 million, reselling it to partners for $117 million and helping them obtain $84 million in bank loans, according to records filed with county courts.

Yanchek, by contrast, bought seven houses for $3.45 million since 2001. He then resold them to companies or trusts he controls for $5.55 million and got $4.46 million in loans from three different banks.

In his most expensive transaction, Yanchek bought a house at 101 Seagull Lane on Bird Key from Christopher and Courtney Campbell for $1.16 million on Dec. 4, 2002.

He then sold the house the same day to 101 of Sarasota Inc., a company he controls, for $2.15 million and got a $1.25 million mortgage from First State Bank.

As a side note – Husani fled the country in 2006.

From external appearances, Yancheck figured out how to defraud banks by watching too many episodes of “Flip That House.”  Frankly, however, the three components of a fraud are (1) need; (2) opportunity and (3) rationalization.  While I can’t address the orginial “need” motivation, I suspect that over time “need” became money.  From the perspective of a fraudster – once one gets the taste for money it becomes nearly impossible to divorce oneself from that need.  In Yanchek’s case the “opportunity” component was found in the license and position of trust that he had.  There is a fundamental understanding that an attorney is a trusted advisor and ethically should abide by the law.  Somehow here that point seems to be missed.

Where from here?  Well, Yancheck will be sentenced and considering the financial magnitude, I suspect that he will receive 5 years or more as an active prison sentence.

IF YOU KNOW JOHN A. YANCHECK – and would have any insight into his motivation, feel free to contact me as I am interested in what would motivate such behavior.

YOUR COMMENTS ARE WELCOME!


President Bush: Government Bailout Necessary…!

September 24, 2008

…but as the President speaks and says that “our entire economy is in danger” – unless you pass my $700 billion bailout proposal – the question I ask is – is it really $700 billion or will it (in the end) be more like 3 Trillion?

According to CBS News: Speaking in dire terms, President Bush on Wednesday warned Americans and lawmakers reluctant to pass a historic financial rescue plan that failing to act fast risks wiping out retirement savings, rising foreclosures, lost jobs, closed business and “a long and painful recession.”

Now by no stretch of the imagination am I making light of one of the most serious financial issues of our time, but I keep hearing Forrest Gump in my head saying, “Now I know I’m not a smart man, but…”  Well the “but” is when has a government financial projection ever been what they projected it will be – ever?

Bush is right in that we may not only be facing a recession but the possibility of a full fledged depression is not that unlikely.

He spoke just after inviting Democrat Sen. Barack Obama and Republican Sen. John McCain, one of whom will inherit the mess in four months, and key congressional leaders to an extraordinary White House meeting Thursday afternoon to hammer out a compromise.

“Without immediate action by Congress, American could slip into a financial panic and a distressing scenario would unfold,” Mr. Bush said in a prime-time address from the White House East Room that he hoped would help rescue his tough-sell bailout package.

The question remains – is the actions that are proposed too little too late.  Every presentation on ethics I make has one central theme – EVERY CHOICE HAS A CONSEQUENCE.  We, as a country, relished in the glow of a robust economy balanced on the back of an illusion.  We had leadership from both parties and substantial financial institutions who seemed to be more concerned about growing a false economy than taking the measures that all agree today would have made sounder financial sense.

As an example – today I had a conversation with a Realtor (as I am in the housing market as I write this).   He suggested that mortgage rates would never be lower and that after the bailout – the housing market pricing would stabilize hence home prices are at their bottom.  I must admit (while he may be right – guess there is always that possibility) I had to laugh.  Now, I don’t know about the interest rates, but this I believe – housing prices will continue to slide for two very clear reasons:

(1) the number of people who can qualify for a mortgage is shrinking even as we speak.  Fewer people are finding increases in their income and many should not have qualified in the first place – hence a smaller population of potential buyers.

(2) an over abundance of inventory.  Now I just sold my home in Texas within three days after it was listed for above asking price.  For that I am thankful to God and feel blessed.  But, as I moved to a different part of our country I found that it is a buyers market.  More homes than buyers makes that true.  The other part that I have found is builders and Realtors are having a difficult time adjusting their thinking about pricing – they still think it is worth what they thought it was.  Yet, I’ve seen homes on the market for now over 600 days with no purchase prospect in sight.

But – the realtor told me that we have to pass this “bailout” otherwise, we will face a disaster.  Afterall, he stated, “our economy is built on the ability to borrow against our house.  If you need to buy something new or put a kid through college – you use the equity in your home as a second mortgage to pay for it.  Otherwise, how else would you get the money?”  He made that statement and ask that question with sincerity.  What was amazing was – he could not conceive of another way to meet financial obligations.

Perhaps we have forgotten sound financial principles.  As a business ethics speaker, I admit I forgot those principles in my past and the price that I paid was significant.  We should pray that the bailout works – for the cost of failure will be much higher than most of us would care to dream.

QUESTION: Do you support the “bailout” and why?


Aryeh Schottenstein and Shawn A. Griffin Plead Guilty! And the Ohio Mortgage Fraud Guilty Pleas Keep on Coming…

May 18, 2008

As a mortgage fraud speaker, I observe what’s taking place in the mortgage fraud arena, but I have to say, the legal eagles in Ohio are working the mortgage fraud angles hard…

Two more Columbus-area people indicted as part of a mortgage fraud scheme that secured more than $7 million in mortgage loans pleaded guilty in United States District Court. Aryeh Schottenstein, age 34, of Columbus, pleaded guilty to one count of conspiracy to commit wire fraud and one count of money laundering, and Shawn A. Griffin, age 38, also of Columbus, pleaded guilty to two counts of conspiracy to commit wire fraud and one count of money laundering.

Schottenstein and Griffin were indicted along with Donald F. Green, Jeffrey Lieberman and George “Terry” Jordan for a mortgage fraud scheme in central Ohio in 2003 and 2004. COMMENT: It seems that at the height of easy money for mortgages – mortgage fraud was rising as well. See what these folks did below as their crime is becoming a common pattern.

According to statements of facts filed with Schottenstein’s and Griffin’s pleas, Schottenstein and Lieberman owned a company called Parkview Bank. One of Parkview’s business purposes was to locate financing for real estate investors seeking to buy and renovate houses in Columbus. Parkview needed a source for the financing for this venture. In 2003, Schottenstein and Lieberman met with the managing partners for Stillwater Asset Backed Fund to convince them to provide the funding. They were successful.

Parkview and Stillwater entered into an agreement whereby Stillwater would provide the funding for Parkview’s deals. Rather than abide by the agreement and locate legitimate investors, Schottenstein used Griffin to recruit straw-buyers to pose as real estate investors. Using straw-buyers was quicker and easier than locating legitimate real estate investors thereby making it easier to generate more loan origination fees. The straw-buyers were told by Griffin they did not need to renovate the houses or make monthly interest payments. Griffin assured them he would take care of all the details.

COMMENT: Two things stand out – (1) impatience with legitimate business became the foundation of the fraud; and (2) the “straw buyers” were motivated by quick money in order to participate in the scam.

Griffin also recruited straw buyers in 2002 and 2003 for Jeff Pearson, now deceased. Pearson bought dozens of low-income distressed houses in Columbus for amounts at or near their fair market value. The houses were in need of renovation. Very little if any renovation was done to the houses. The houses were sold to Griffin’s straw-buyers for two to three times the amounts Pearson had paid only a few weeks or months earlier. Despite having good credit, the straw-buyers usually had little income. At the closing on the straw-buyers’ purchases of the houses, the title companies issued large checks payable to Pearson as proceeds from the sales.

Green pleaded guilty on April 11. Lieberman and Jordan pleaded guilty on April 24. All are free pending sentencing. Judge Marbley will set a date for sentencing. Conspiracy to commit wire fraud is punishable by up to five years in prison and the money laundering charges carry a maximum sentence of ten years in prison.

According to the Columbus Dispatch a scheme that investigators say bilked millions from banks, lenders and investors was so involved that there were too many fraudulent home purchases to list in the 36-page federal indictment.

Those indicted originally were:

Donald F. Green, 48, of Columbus, real-estate investor

Shawn A. Griffin, 37, of Cleveland, real-estate investor

Aryeh M. Schottenstein, 33, of Oak Park, Mich., real-estate investor

Jeffrey M. Lieberman, 56, of Bexley, real-estate investor

George T. “Terry” Jordan, 50, of Canal Winchester, real-estate agent

Dwayne L. Carter, 37, of Columbus, loan officer

Jonathan L. Boyd, 38, of Columbus, loan officer

Kenyatta Johnson, 37, of Michigan, loan officer

James Darneil Gaither, 37, appraiser

Every choice has a consequence. As a white collar crime and mortgage fraud speaker, I speak from first hand experience about the truth about consequences. Reality is – no one escapes the consequences of their choices. While Schottenstein and Griffin may have enjoyed the money for a time and avoided the consequences – they did not avoid the consequences all together. Prison is no fun and both are facing several years plus substantial restitution for this conviction. Likely they will serve time and that will prove to be a dramatic change from their prior activities. You do reap what you sow.

If you were a victim…please share your experience so other may benefit.

Mortgage Fraud Speaker – Chuck Gallagher – signing off…


Mortgage Fraud Speaker Chuck Gallagher comments: Darrius C. Alati Charged with Bank Fraud!

May 18, 2008

As time passes it has become clear that many people have come to the wrong conclusion that creativity in financing is somehow legal. It is not! Just today I heard a radio show where they still talked about creative financing through means that others have found themselves on the back end of a conviction. And in this entry we have another Ohio indictment for bank or mortgage fraud.

Darrius C. Alati, age 38, who resides in Akron, Ohio was indicted. The information alleges that Darrius C. Alati committed three counts of bank fraud.

According to the indictment, Alati was a property broker who fabricated a false corporate resolution which was presented to the subject title company to obtain checks drawn on Fifth Third Bank’s escrow account related to monies flowing from the sale of homes in Akron, Ohio. Alati had the title company divide the monies in to a few checks and Alati forwarded only one of the checks to the seller, James Carter. Carter was unaware that Alati withheld these checks arising from the transactions. In the last instance of the scheme, Alati advised representatives of the title company that he would deliver a $70,000 check drawn on the Fifth Third escrow account to Carter. However, Alati deposited said check into own business account for his personal use.

COMMENTS: From time to time I have been approached at presentations I make on mortgage fraud issues by people who got caught up in a scheme unaware. Those situations are unfortunate. However, in this case, it seems clear that the actions of Alati were thought out and not the result of a simple mistake. Frankly, rarely have I found that mortgage fraud was occurred as the result of a misunderstanding.

Alati, if convicted, will likely spend time in federal prison. More and more the courts are losing patience with the proliferation of mortgage fraud. As the banking system writes off record losses due to the weakness in the subprime market, the punishment for mortgage fraud crimes will likely become more severe (within the federal sentencing guidelines).

Every choice has a consequence. As a mortgage fraud speaker, I believe that we are just at the beginning of a wave of prosecutions for mortgage fraud.


Mortgage Fraud Speaker Chuck Gallagher Comments: Mortgage Fraud in California – Iftikhar Ahmad Pleads Guilty!

May 13, 2008

Like many of my readers, I lived through the Savings and Loan crisis several decades ago and it wasn’t pretty. My fear – with the magnitude of potential mortgage fraud rising to the surface, what we might see in the future could dwarf the problems that were created by the S&L crisis.

And another man pleads guilty! IFTIKHAR AHMAD, 36, of Stockton, Calif., pleaded guilty to two counts of mail fraud and one count of engaging in monetary transactions involving criminally derived property. The charges relate to a widespread mortgage fraud scheme centered in the Stockton, California area.

After an extensive investigation conducted by the Federal Bureau of Investigation and the Internal Revenue Service–Criminal Investigation (IRS-CI), Ahmad saw the light and knew that a guilty plea would be best for him considering the circumstances. investigation remains ongoing.

But how did this massive fraud get uncovered?

Rebecca Wood knew something was wrong when she got a call from Washington Mutual about a late house payment. Her response helped the FBI uncover millions of dollars in mortgage fraud.

According to property records, someone using Wood’s identity bought two houses in Stockton in 2003. When the loan for one of the homes went bad, Washington Mutual called Wood.

According to the US Attorney’s office, AHMAD admitted that from July 2003 through October 2005, he participated in a scheme to defraud Long Beach Mortgage, a wholesale lender, in connection with the sale (and in one instance resale) of 10 residential real properties primarily located in the Stockton, area. Between July 2003 and January 2005, AHMAD, through a company called I & R Investment Properties, LLC, fraudulently sold (and in one instance resold) 10 residential real properties, obtaining in excess of $1.5 million in loan proceeds. In each of the transactions, the purchaser financed the property with money borrowed from Long Beach Mortgage.

The scheme involved the use of some straw purchasers— purchasers who lent the name and credit to real estate transactions in which they in fact had no interest. The scheme also involved false statements on loan documents, including those that related to income and occupation, and undisclosed payments by AHMAD of the down payment on behalf of the purchasers.

The use of false documents is common among mortgage fraud convictions. However, based on my experience speaking about mortgage fraud to realty associations and mortgage groups, it is clear that many people somehow feel that simple “financial positioning” is acceptable. More times than not, on close examination – “financial positioning” can be construed as fraud.

In this case, AHMAD is the fourth defendant to plead guilty as a result of the investigation in the case. On December 17, 2007, JOHN NGO, 27, of San Ramon, California, a former Senior Loan Coordinator for Long Beach Mortgage, pleaded guilty to perjury for falsely stating in testimony before the grand jury that he had not received money from a mortgage broker who referred borrowers to Long Beach Mortgage, including borrowers involved in transactions with AHMAD, when in fact he had received more than $100,000 from the mortgage broker.

On March 31, 2008, MANPREET SINGH, 24, of Stockton, entered a guilty plea to a single count of mail fraud. She admitted as part of her plea that she had participated as a straw purchaser and borrower in connection with two properties that she purchased from I & R Investments in late 2004 and early 2005. She further admitted that AHMAD paid her in excess of $22,300 for her participation in the scheme. Clearly here a case of fraud for money!

On April 17, 2008, JOSE SERRANO, 44, of Stockton pleaded guilty to a single count of mail fraud. As part of his plea, SERRANO admitted that AHMAD had paid SERRANO to recruit straw purchasers, and that AHMAD and SERRANO caused several purchasers to be paid for participating in the scheme.

“This prosecution begins to bring into focus the ways that fraud occurred in the subprime lending market in the Stockton area in the 2003 to 2005 time frame,” said United States Attorney Scott. “False representations were made in loan documents; down payments were secretly made “This prosecution begins to bring into focus the ways that fraud occurred in the subprime lending market in the Stockton area in the 2003 to 2005 time frame,” said United States Attorney Scott.

“False representations were made in loan documents; down payments were secretly made by the seller on behalf of borrowers; buyers and recruiters were paid to participate in the scheme; and a loan coordinator working for a wholesale subprime lender was paid by a mortgage broker handling the transactions. The investigation continues.”

Every choice has a consequence! Considering the wide spread incidences of mortgage fraud, I suspect that this case is just the tip of the iceberg when it comes to what has been done and how many are yet to be discovered. As a mortgage fraud speaker, I am finding more and more that people are just now beginning to understand how wide spread mortgage fraud is and how easy it can be to be caught up in a mortgage fraud investigation.


Mortgage Fraud – A Week in Review April 17- April 24: Comments by Chuck Gallagher

April 27, 2008

As each week passes the number of indictments and sentencing hearings seem to increase as the mortgage financial system seems to unravel. Some have claimed that the mess today will become larger and more costly than the Savings and Loan crisis of the ’80’s. Here’s a snapshot of the week.

San Franscisco: Mortgage Ponzi Scheme – Cheryl Hernandez Camus of Concord, California is alleged to have made a number of misrepresentations about a money lending investment, where she promised fixed returns and the return of the principle investment within a fixed period of time. The indictment alleges that Ms. Camus made one or more of the following material false representations and promises in order to induce the investor to give her money:

  • The investor’s money would be used to help finance real estate transactions, such as payment of closing costs or down payment;
  • The investor’s money would be used to pay medical costs;
  • The investor would receive a fixed monthly interest payment on the investment;
  • The investor would receive the return of the principle investment amount within a fixed period of time;
  • The loans would involve “really no risk.”
  • Ms. Camus screened the borrowers to ensure that money was only lent to borrowers who had the ability to repay;
  • Ms. Camus had been conducting similar transactions for three years and the returns had been “awesome.”
  • Ms. Camus would personally guarantee the investment;
  • The investment would be secured by a legitimate deed of trust.

Instead, according to the indictment, Ms. Camus used the money she obtained from investors for personal expenses and to pay back prior investors. Camus, if convicted, faces 20+ years in prison.

South Florida: Sentencing for Mortgage Fraud: Richard Weldon Crowder, II and Gary Mark Mills were sentenced to 108 months and 46 months imprisonment respectively for their roles in a multi-million dollar mortgage scheme. Co-defendant Karen Lynn Sullivan was sentenced yesterday to 50 months’ imprisonment.

Crowder is a former licensed mortgage broker and the former owner of America’s Best Mortgage Services, Inc., located in Coconut Creek, Florida. Mills is a former title attorney and the owner of Four Star Title Inc., located in Deerfield Beach, Florida. Sullivan is a former loan officer for Wachovia Bank.

To effectuate the mortgage scheme, Crowder identified residential properties, including luxury condominiums on South Beach, that were available for purchase. He then recruited buyers for the properties, representing that he could obtain 100% financing for their purchase. After finding a purchaser, Crowder would apply for equity lines of credit on their behalf with Wachovia. To induce Wachovia to issue the equity lines of credit, Crowder and Mills prepared fraudulent HUD-1 settlement forms. The forms falsely stated the buyers already owned the properties and also significantly understated the amount of the first mortgages on the properties. The fraudulent HUD-1 settlement forms were then given to Sullivan, who used the forms to facilitate the issuance of equity lines of credit from Wachovia.

Simultaneously, or shortly after obtaining the equity lines of credit from Wachovia, Crowder applied for the first mortgages on the properties. These applications overstated the buyers’ assets and income, and also included false verification of deposit forms prepared by Sullivan. To further induce the lenders to issue the loans, Mills prepared documents falsely representing that the buyers were using their own money for the down payments and closing costs. In fact, the buyers were using funds from the fraudulently obtained Wachovia equity lines credit or funds provided by Crowder. In total, the defendants caused the fraudulent purchase of seventeen (17) different luxury condominiums at The Continuum on South Beach and at The Point in Adventura using more than $37,000,000 in fraudulently obtained mortgage loans.

Palm Beach Co, Florida: Indictments in Sophisticated Mortgage Fraud Scheme: Berry Louidort, Lauren Jasky, and Ralph Michel, Palm Beach County, Florida were charged in a Criminal Complaint filed in federal court on April 22, 2008. The defendants are charged with bank fraud.

According to the Complaint, defendants Louidort, Michel and Jasky were involved in a sophisticated sub-prime mortgage fraud scheme in South Florida through which they submitted false qualifying information regarding potential borrowers to mortgage lenders. Among the false information the defendants submitted were false verification of earnings and false verification of deposits. As a result of these false submissions, defendants Louidort and Michel received approximately $6 million in loan proceeds.

This investigation began with an audit conducted by the Florida Office of Financial Regulation into 24 sub-prime mortgage loans in the period November 2006 to June 2007. The initial audit showed that the loans included what appeared to be excessively large fees paid to defendants Berry Louidort and Ralph Michel. The fees, ranging from $29,000 to $650,000, were described as marketing and/or assignment fees. In reality, the fees were kickbacks to defendants Louidort and Michel based on inflated sales prices. The audit also revealed that the majority of the suspect loans were originated by defendant Lauren Jasky, Senior Vice President of Compass Mortgage Services, located in Boca Raton, Florida.

Atlanta, GA: 5 Sentenced to Prison for Mortgage Fraud: Virginia Rose Novrit, Hilton Head, SC; Clarence Lorenzo Davis, Hilton Head, SC; Olympia D. Ammons, St. Louis, MO; Jerome Wings, Jr., Atlanta, GA; and Ronald Denzil Martin, Lithonia, GA were sentenced to prison for conspiracy, bank fraud, wire fraud, and money laundering in a multi-million dollar mortgage fraud scheme.

NOVRIT was sentenced to 3 years, 5 months in prison and ordered to pay $839,585 in restitution.

DAVIS was sentenced to 4 years, 3 months in prison and ordered to pay $839,585 in restitution.

WINGS was sentenced to 10 years, 2 months in prison and ordered to pay $8,577,845 in restitution.

AMMONS was sentenced to 5 years, 3 months in prison and ordered to pay $7,549,044 in restitution.

MARTIN was sentenced to 1 year, 1 day in prison and ordered to pay $423,595 in restitution.

From late 2004 through early 2006, NOVRIT, DAVIS, WINGS, AMMONS, and MARTIN participated in a mortgage fraud scheme that involved millions of dollars in fraudulently inflated mortgage loans being provided to unqualified straw borrowers. The straw borrowers were paid as much as $600,000 per property from fraudulently obtained loan proceeds through shell companies. NOVRIT and DAVIS together obtained mortgage loans totaling more than $4 million within a six month period to purchase eight properties. WINGS obtained mortgage loans totaling over $1.2 million to purchase a single property by providing the lender with false qualifying information. WINGS also recruited a number of other unqualified buyers into the scheme and obtained a share of the fraudulently obtained loan proceeds from those transactions for doing so. AMMONS was a loan originator for “Ace Mortgage Funding,” a national mortgage brokerage firm. AMMONS brokered fraudulent mortgages totalling over $7 million. MARTIN was paid $75,000 to act as a straw buyer and submit a fraudulent loan application for one property.

Kansas City, Kansas: Bonds Revoked in Mortgage Fraud Case: Wildor Washington, Jr. and Victoria Bennett were charged in November 2007 in an indictment alleging that Washington, Bennett and four co-defendants took part in a mortgage fraud scheme through businesses Washington owned including Heritage Financial Investments, Legacy Enterprises, B&L Custom Development and Liberty Escrow. According to the indictment, Hamilton and the conspirators prepared fraudulent loan applications and submitted them to lenders in Kansas, Texas, Ohio, Missouri and Michigan.

On Nov. 8, 2007, Washington and Bennett were released on bond subject to conditions including a prohibition against taking part in any illegal activities while on release. Subsequently, investigators obtained evidence that while on release Washington and Bennett were involved in further incidents of bank fraud and conspiracy to commit mail and wire fraud. Hence the two were taken into custody after their bonds were revoked.

Minnesota: Real Estate Owners Plead Guilty to Mortgage Fraud: Jonathan Edward Helgason, 45, Chisago City, and Thomas Joseph Balko, 37, Rogers, along with their company, TJ Waconia LLC, entered their guilty pleas to a scheme involving at least 162 properties, principally in north Minneapolis, and mortgage proceeds of approximately $35 million.

From approximately 2005 to 2007, Helgason and Balko executed a scheme to defraud and to obtain money by means of false and fraudulent pretenses. Using the TJ Group, Helgason and Balko purchased approximately 162 properties throughout the Twin Cities metropolitan area, principally in north Minneapolis. They would then resell the property within a few weeks to an “investor” who would purchase the property, sight unseen, at a price set by Helgason and Balko without negotiation, oftentimes $20,000 to $60,000 more than that the TJ Group had paid.

People were told by Helgason and Balko that the investors were simply “lending” his or her credit to TJ Waconia. In exchange for “lending” their credit, the investor would receive a kickback payment of about $2,500 and a promise of an additional payment after two years when the TJ Group was to repurchase the property from the investor.

Through the scheme, the defendants perpetrated a fraud on the lenders who were led to believe that the “investors” were the actual owners of the properties, when, in fact, the “investors’” ownership was in name only. During the two-year period during which the investor owned the property, the TJ Group was responsible for all payments and maintenance on the property. In some instances, Helgason and Balko also provided investors with funds to pay the buyer’s portion of the property purchase price and worked with others to provide lenders with false loan applications on behalf of the investors so that they would qualify for the loan.

The two men, on behalf of the investors, obtained approximately $35 million in mortgage proceeds to purchase the properties from the TJ Group. Ultimately, the scheme collapsed, and the TJ Group did not repurchase the properties or continue making payments to the investors in order to pay their mortgages. The investors were left owning properties with mortgages that exceeded their property’s market value.

Newark, New Jersey: Ex-Mayor Convicted of Flipping: As reported earlier, Sharpe James was convicted by a Newark, New Jersey, jury on all corruption charges against him in connection with a scheme that enabled his girlfriend, Tamika Riley, to fraudulently obtain steeply discounted city-owned land and resell it for hundreds of thousands of dollars in profits.

Riley was convicted with James on the same five charges: three counts of mail fraud related to the sale of the city lots to Riley, one count of fraud involving a local government receiving federal funds, and one count of conspiracy to defraud the public of James‘ honest services.

The prosecution was built around the sale to Riley of municipally-owned properties in Newark, New Jersey. The properties, according to evidence and testimony, were steered to Riley by James, who had a long-running romantic relationship with her. Riley paid only $46,000 for a total of nine properties, and then quickly resold, or “flipped” the properties for more than $600,000.

Summary and Comments:

Issues related to the mortgage crisis and melt down of the sub-prime market is all over the media. The FBI has reported that resources are being diverted to handle the up serge of complaints and abuse that seems to arise daily. The map below was provided by the FBI to show the dominate areas for mortgage fraud.

Every choice has a consequence. As a white collar crime and business ethics speaker, I speak from first hand experience about the truth about consequences. Reality is – no one escapes the consequences of their choices. More and more, I find that my newest presentation is in demand: MORTGAGE FRAUD: Fact from Fiction. Prison is no fun and most of those mentioned above are facing several years plus substantial restitution for mortgage fraud conviction(s). It is true, you reap what you sow and in the environment we formerly came from, it seemed that the cards were stacked in favor of mortgage fraud.

IF you feel you’ve been a victim of mortgage fraud – please share your experience so other may benefit.

Mortgage Fraud Speaker – Chuck Gallagher – signing off…