Category Archives: Fraud (loan agent)

This is Obama’s Biggest Failure

By Ryan Cooper  (The Week)

In the early 2000s, when the great housing bubble was gaining steam, one hurdle for Wall Street firms who wanted to issue mortgage-backed financial products was the simple reality of the American mortgage market: It was mature. It had been around for decades, its procedures were very well-established, and just about everyone who could reasonably qualify for a loan already had one.

One path mortgage originators took, as most people know by now, is handing out mortgages to anyone who could fog a mirror. But another one was systematic fraud. That is the subject of Chain of Title, a new book by David Dayen about the foreclosure crisis. It’s an excellent and absolutely infuriating look at how the American political system, from Barack Obama on down, refused to use enormous legal leverage to help millions of its citizens who were victimized by Wall Street crime. Every American should read this book.

Here’s the basic story. Back in the go-go bubble days, originators would issue new mortgages, then quickly sell them to banks, who would package them into mortgage-backed securities. Those securities would often be sliced and diced into new securities (the infamous collateralized debt obligations), and sometimes those would be repackaged again, and so on.

Details aside, the point of securitization was to create lots of new financial products that could be sold to investors. But as the bubble progressed, it was increasingly used to obscure the fact that the securities were full of toxic waste — horrible high-interest loans given to people who could never hope to repay them. (Others were specifically created to implode so that banks like Goldman Sachs could make bets against them.)

A mortgage is a legal document governed by strict laws — not least because it deals with the ownership of land, one of our society’s foundation stones. Hence, it is legally required that transfer of ownership be accompanied by meticulous paperwork establishing clearly who owns what.

That may sound obvious — of course one has to have one’s mortgage paperwork in order, right? But because of the securities’ obscurantist function, and because the mortgage originators were stamping out loans at warp speed, and because banks were rapidly bundling and shuffling the mortgages around, getting the paperwork right would have been a terrific pain in the neck — indeed, a threat to their whole business model.

So Wall Street simply didn’t. “Chain of title” refers to documents showing that a mortgage was transferred properly from owner to owner, so the final bank can prove it actually owns the mortgage. A huge fraction of mortgages — probably a large majority — issued during the bubble simply do not have it.

Not many noticed while the bubble was going up, but after it collapsed and the recession took hold, millions of people fell into default on their mortgages. Dayen’s book follows three private citizens, Lisa Epstein, Michael Redman, and Lynn Syzmoniak, all of whom were sucked into the foreclosure machine after the economic crash of 2008. In desperation they began poking around their foreclosure documents, and found howling, inconceivable errors — being foreclosed on by a bank that did not own the mortgage, obviously impossible dates, missing signatures, and so on.

They investigated further, and found that their cases were by no means unique, they were just one of the tiny minority of people who bothered to contest their foreclosure. Practically every case they looked at had gargantuan holes in them. Others had it even worse — banks who had foreclosed on people whose mortgages were paid-up, or ones who had no mortgage at all. It turned out the banks had battalions of people committing systematic fraud. “Robo-signers” would attest to “personal knowledge” of homes, or forge others’ signatures, or falsely notarize documents, hundreds of times per day. The sheer speed meant that the documents were almost universally garbage, but on the rare instances a foreclosure was challenged, the banks would usually just come back later with a new set that was magically in order.

Epstein, Redman, and Syzmoniak became obsessed with the foreclosure disaster, and they joined with others to agitate for the government to step in and provide relief for homeowners. After awhile, they began to get some traction. All this obvious fraud gave the government enormous leverage. If a bank does not have proper chain of title, it is illegal to foreclose. Since it means the bank does not own the mortgage, it is theft. Under New York law, securities which did not properly follow the original contract (and they usually didn’t) would be void. And under federal tax law, income from securities without proper documentation could potentially be taxed at 100 percent. With those tools, the federal government could have easily used the threat of prosecution and taxes to force the banks to the negotiating table.

But a few token gestures aside, the Obama administration was consistently uninterested in the sort of aggressive action that would have halted the foreclosure crisis. Neither the FBI, nor the Department of Justice, nor the IRS ever made the slightest effort bring the banks to heel. They were only concerned with foreclosures insofar as they threatened the financial system. Bringing the massive foreclosure fraud to light would have threatened huge banks’ rickety balance sheets — they were, in effect, too big to prosecute, as then-Attorney General Eric Holder all but admitted. And when the state attorneys general pressed a huge lawsuit against the mortgage industry, the administration stepped in, and the result was basically a whitewash — a slap on the wrist fine that reinvigorated the foreclosure machine.

I once argued somewhat hyperbolically that the falling deficit was President Obama’s biggest failure, but the foreclosure crisis has the far better case. The law enforcement agencies of the executive branch had tons of power to protect homeowners, and refused to use it on orders from the top. The foreclosure assistance package that was part of the stimulus was even a disaster — largely because, as then-Treasury Secretary Tim Geithner said at the time, the point was to “foam the runway” for the banks. I for one will think twice before buying a house in this country.

Remember Subprime Loans?

The digeratilife website reminds us what the subprime debacle was all about, by providing this entertaining flowchart:

Fraudulent Mortgages? Court Blames Loan Officers and Underwriters

Over the past 6 years I have maintained in a number of Court testimonies  that many, if not most of the fraudulent mortgages funded prior to the 2007-8 crash were approved and funded with the enthusiastic support of the bankers. Many loan applications were “enhanced”, not by the borrowers, but by bank employees, and now a federal court in Sacramento agrees with me.  more…

Should California Pick Up The Costs of Defending Mortgage Scam Artists?

In the Sierra foothills, where Gold Rush history still sparkles, Nevada County taxpayers fear their small, rural region is being drained of critical funding to help two residents fight state fraud charges.

Now county officials are turning to lawmakers for help because the law isn’t on their side. More…

Expert Witness Need Not Be An Expert, Says Court

  Vernon Cooks Jr. was convicted of being the mastermind behind an ingenious but misguided scheme to cheat mortgage lenders by fraudulently obtaining house mortgage loans. In most of the accused transactions the documentary evidence and trial testimony show that Cooks followed the same basic pattern. For each transaction, Cooks first recruited an inexperienced real estate investor to serve as the nominal owner of the house, a so-called “straw purchaser.” When Cooks found a house for sale, he then contracted with its owner to buy it. At the same time, Cooks entered into a contract to sell the same house to the straw purchaser for a much higher price. Cooks worked with one of two mortgage brokers, Abdul Karriem (“Karriem”) and Deirdre Anderson (“Anderson”), to handle the mortgage loan process for each straw purchaser.

The jury convicted Cooks on all charges. The district court sentenced Cooks to 135 months’ imprisonment, nearly one and one half million dollars in restitution, and a five-year term of supervised release.

In his appeal, Cooks contended that the district court erred by admitting the expert testimony of a Government witness. Cooks argues that the expert, Agent Steve Overby (“Overby”) of the Federal Deposit Insurance Company, was not qualified to give expert testimony on the subject of mortgage fraud because he lacked sufficient experience. Read more…

This Mortgage Broker Spells T-r-o-u-b-l-e

Q: I went through a mortgage broker when I purchased my house. I just closed on July 30. A week after I closed, I received a letter stating that the company that they sold my loan to went out of business. My mortgage broker asked me to send my first payment to them while they looked for a new company to service my loan.

Yesterday (August 24), I received a call from my mortgage broker. They said that they just needed me to sign one more document, which they sent as an attachment to my e-mail address. The body of the e-mail didn’t explain the document, just asked me to sign it and return it to them asap. The document is called a “Mortgage Broker Fee Agreement”. The document lists all of the fees that I paid directly to the broker at the closing. However, it also lists a new 2% YSP that has not been on any of my paperwork until now.

When I chose to work with this broker, I asked questions about the YSP right away and was assured that there would not be one on my loan. I checked my paperwork again last night and could not find any mention of this 2% YSP.

My mortgage broker already dated the document that they are asking me to sign for July 27, 2009. My feeling is that they are trying to get this extra 2% commission from whatever new company they sell my loan to. While this is unethical, it doesn’t effect me directly. However, I’m wondering if it can somehow effect me directly if I sign it. Is there any way that this can change what I owe and require me to pay more?

I’m really confused. What is your take on this? Thanks for your help!

A: You shouldn’t send payments to anyone other than the lender or the new servicer. What your mortgage broker has asked you to do – send the payment to him – is as close to a felony as you can get.

The same thing applies to the mortgage broker fee agreement, which you should have received when you first applied for the loan. The 2% YSP is an underhanded attempt by the broker to make an additional commission on your loan.

This mortgage broker spells t-r-o-u-b-l-e, and I’d stay away from him.

Mortgage Scamster Sentenced in New York

 LEV L. DASSIN, the Acting United States Attorney for the Southern District of New York, announced that DOMINICK DEVITO was sentenced to 51 months in prison on May 19, 2009, by United States District Judge BARBARA S. JONES in Manhattan federal court for mortgage fraud, insurance fraud and obstruction of justice.

According to Counts One, Thirteen and Fourteen of the Indictment, the charges to which DEVITO pleaded guilty; other documents filed in the case; and statements made during the guilty plea and sentencing proceedings: From January 2002 through November 2004, DEVITO was the leader of a fraudulent real estate investment scheme that purchased multimillion-dollar residential properties in various communities in Westchester County — including Purchase, New York — with loans obtained through the submission of false and misleading information to banks and other lenders. DEVITO identified properties for sale, orchestrated the purchase of the properties, and performed construction work at the properties.

In addition, from January 2003 through February 2005, DEVITO engaged in a scheme to defraud insurance companies by submitting false and misleading insurance claims and supporting documents for water damage caused by broken pipes at several of the homes he and his co-conspirators had purchased as part of the mortgage fraud scheme. DEVITO obstructed justice in connection with his sentencing in 2003 in Manhattan federal court for racketeering and mortgage fraud in an earlier case. Specifically, DEVITO submitted false and misleading information regarding the value of his assets and his personal net worth following his sale of a property located in Purchase, New York.

DEVITO, 45, pleaded guilty before Judge JONES on July 22, 2008. In addition to his 51-month prison term, Judge JONES ordered a supervised release of 3 years and ordered DEVITO to forfeit a total of $1.4 million.

Mortgage Fraud: Should the Lender be Sued by the Borrower?

A mortgage broker submits a fraudulent loan file to a lender, which promptly funds the loan. The borrower – whose identity has been stolen by the mortgage broker – doesn’t even know that he is now the proud owner of an overpriced white elephant, which promptly goes into default.

Sounds familiar? The mortgage broker/realtor/closing agent used the stolen identity of the “buyer” to defraud the lender, and is now being sued by the man whose identity he had stolen. But should the buyer add the lender as a defendant?

The plaintiff’s attorney thought of the lender as a fellow-victim, and was about to suggest to the bank to join the suit as a co-plaintiff, but something which caught his eye made him change his mind: the appraisal.

The appraisal, forged by the mortgage broker, raised more questions that it answered. The comps were all inappropriate and any trained underwriter would have recognized it immediately as a work of fiction. Instead, the lender (one of the largest savings banks in the U.S.), accepted it as is without reviewing it.

The lender’s carelessness helped the mortgage broker pull off the scam. After careful review, the plaintiff’s attorney decided to add the lender to the lawsuit – not as a co-plaintiff, but as a defendant.

Say Goodbye to “Stated Income” Sub-Prime Loans

On December 18 the Fed endorsed new rules that would give people taking out home mortgages new protections against shady lending practices.

The proposed rules, approved in a 5-0 vote by the board, are geared to providing safeguards to the riskiest “subprime” borrowers, already painfully stung by the housing and credit debacles.

The proposal is expected to apply to new loans made by all types of lenders, including banks and brokers. The plan could be finalized next year.

The Fed, which has regulatory powers over the nation’s banking system, is proposing:

  • Restricting lenders from penalizing certain subprime borrowers — those with tarnished credit or low incomes — who pay off their loans early. The restriction would apply to loans that meet certain conditions, including that the penalty expire at least 60 days before any possible payment increase.
  • Forcing lenders to make sure that subprime borrowers set aside money to pay for taxes and insurance.
  • Barring lenders from making loans when they don’t have proof of a borrower’s income.
  • Prohibiting lenders from engaging in a pattern or practice of lending without considering a borrower’s ability to repay a home loan from sources other than the home’s value.

“Unfair and deceptive acts and practices hurt not just borrowers and their families, but entire communities, and indeed, the economy as a whole,” said Fed Chairman Ben Bernanke in prepared remarks. “They have no place in our mortgage system,” he added.

Fed policymakers also are considering requiring financial disclosures to borrowers early enough to use while shopping for a mortgage. Lenders could not charge fees — except for a fee to obtain a credit report — until after the consumer receives the disclosures. The Fed also will consider prohibiting certain types of misleading or deceptive advertising for certain loans. It also would require that all applicable rates or payments be disclosed in ads with equal prominence as advertised introductory “teaser rate.”

In addition, the Fed is expected to propose barring lenders from paying mortgage brokers a fee that exceeds the amount the would-be borrower had agreed to in advance that the broker would receive.

And, the Fed would ban certain practices, such as failing to credit a mortgage payment to a borrower’s account when the company servicing the mortgage receives it. The Fed also would prohibit a broker or other company from coercing or encouraging an appraiser to misrepresent the value of a home.

Before taking effect, the rules must be voted on again following a period of public comment and possible revisions.

The Fed’s response has taken on heightened importance given the meltdown in the housing and credit markets that has led to record numbers of home foreclosures. The crisis has raised the odds that the economy might fall into a recession, roiled Wall Street and given Democrats and Republicans much fodder to blame each other.

The plan, if ultimately adopted, offers Bernanke, who took over the helm in February 2006, an important opportunity to put his imprint on the Fed’s regulatory powers. Some critics have complained that Bernanke’s predecessor — Alan Greenspan, who ran the Fed for 18½ years — failed to act as a forceful regulator especially during the 2001-2005 housing boom, when easy credit spurred lots of subprime home loans and many exotic types of mortgages.

Subprime Bankruptcies: Fertile Ground for Lawsuits

Legal issues have become a growing concern for many involved in the subprime industry. Claims from distressed borrowers against loan originators have begun to increase, as have actions pitting business partners against each other and claims against purchasers of subprime mortgage-backed securities that did not honor an agreement in some way, according to participants in a recent conference on subprime law sponsored by the American Bar Association.

The most common types of lawsuit emerging in the wake of the sunprime implosion are borrowers filing individual and class claims against mortgage lenders. Claims include allegations of federal disclosure law violations, unfair and deceptive trade practices, breach of duties or breach of contract, misrepresentation, usury, and unlawful collection practices.

Assignee liability is also a major focus for business lawyers as lender and Wall Street cunduits try to protect their assets from future lawsuits. (Inside B&C Lending)