Archive for 'F.B.I.'

 

 
The FBI report draws attention to one type of fraud that has grown considerably since the bubble burst: borrowers on the brink of foreclosure who hope to avail themselves of financial assistance related to federal stimulus legislation. 
 
October 14, 2010 /24-7PressRelease/ — Once the dust had cleared from the recent economic collapse, the media focused a great deal of blame on one group: financial professionals involved in real property transactions who were accused of fudging documents, lying to buyers, falsifying appraisals and other illegal activities. New data from one federal agency reveals a growing interest in investigating all types of mortgage fraud and helping the Department of Justice pursue convictions.
 
The latest annual mortgage fraud report from the Federal Bureau of Investigation (FBI) reveals that the agency has taken a greater interest in crimes involving financing of homes and other real estate. From 2008 to 2009, investigations rose over 70 percent. The stakes are high: two-thirds of pending investigations during 2009 involved losses totaling more than $1 million.
 
When the real estate bubble was swelling at double-digit rates, some industry professionals padded profits by encouraging borrowers to maximize their debt load by entering into unsustainable adjustable rate mortgages (ARMs). The FBI report draws attention to one type of fraud that has grown considerably since the bubble burst: borrowers on the brink of foreclosure who hope to avail themselves of financial assistance related to federal stimulus legislation. "Vulnerabilities associated with these and similar programs include the lack of transparency, accountability, oversight and enforcement that predisposes them to fraud and abuse," the FBI stated in its report.
 
The FBI indicated five states with the worst mortgage fraud problems: California, Florida, Illinois, Michigan and Arizona. In light of journalistic investigations revealing that a significant number of ex-criminals had received mortgage licenses, Florida state regulators have responded with a variety of measures to minimize risks, including annual criminal background checks for brokers and lenders.
 
Assembling Straw Buyers for Profit
 
Financial institutions are not the only parties who may be accused of making material misstatements, misrepresentations or omissions during the mortgage application process. One typical scheme perpetrated against banks and other lenders is the use of "straw buyer" scams, which involve using a stand-in to purchase property. Straw buyers can be used to obtain mortgage approval for an otherwise unattractive borrower, or to eliminate a paper trail on fraudulent investments and other scams.
 
One such situation recently investigated by the Tampa office of the FBI involved Mark J. Moncher, an Orlando man who posed out-of-state family members as buyers to channel mortgage funds to his business, Dream Home Management. Moncher was recently sentenced to 57 months in federal prison after pleading guilty to conspiracy to commit mail and wire fraud as part of a larger mortgage fraud scheme. His cadre of straw buyers all defaulted after obtaining more than $3.7 million in loans from various financial institutions. In addition to several years of incarceration, Moncher must pay nearly $2 million in restitution.
 
As this case reveals, the basic accusation behind a mortgage fraud case can be surprisingly simple: falsifying a borrower’s identity, income, employment, assets or other information can lead a mortgage lender to approve an application that would otherwise be denied. While lenders have become much more wary since the mortgage meltdown, there is still ample room for dishonest hustlers to game the system. At the same time, simple misunderstandings, honest mistakes and creative accounting can lead to baseless accusations of criminal intent and protracted legal struggles.
 
Protecting Your Interests by Avoiding Mortgage Fraud Accusations
 
Criminal allegations can arise at any stage of a real estate transaction. For example, appraisers can be suspected of mortgage fraud on behalf of either the seller or the lender by inflating the value of the property. Lenders or brokers can be accused of changing details in the paperwork, amending contracts after they are signed or failing to disclose pertinent information. Entrepreneurial buyers who quickly fix and sell homes can face allegations of illegal property flipping.
 
Federal and state authorities will continue to aggressively investigate and prosecute mortgage fraud involving everything from loan origination, builder bailouts, and offshore transactions to equity skimming, short sales, reverse mortgages and loan modifications. But the facts surrounding even the most basic property transaction are complex, and parties who suspect that they may be under investigation should act swiftly to protect their interests and head off a prosecution before it gets off the ground.
 
The FBI, DOJ and other federal and state government agencies have tremendous resources to draw from to investigate and prosecute financial crimes. A defense attorney who has experience in federal white collar criminal cases can assess your situation, explain your rights, represent you in an investigation and defend your rights in the event that federal criminal charges are filed.
 
Article provided by Law Offices of Mark L. Horwitz, P.A.
 
For more: http://bit.ly/cuwFpf
 
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 When most people think of mortgage fraud, they think of a clever borrower conning an unwitting banker into extending him a loan he cannot afford. But this isn’t really how fraud usually works in the mortgage business. According to the FBI, 80% of mortgage fraud is committed by lenders.

 

There are two types of financial outrages: acts that are outrageously illegal, and acts that are, outrageously, legal. Yesterday’s Senate hearing on the rise and fall of Washington Mutual was a rare examination of the former outrage, documenting the pervasive practice of fraud at every level of the now-defunct bank’s business.

All of Washington Mutual’s sketchy practices can be traced back to rampant fraud in its mortgage lending offices. The company repeatedly performed internal audits of its lending practices, and discovered multiple times that enormous proportions of the loans it was issuing were based on fraudulent documents. At some offices, the fraud rate was on new mortgages over 70%, and at yesterday’s hearing, the company’s former Chief Risk Officer James Vanasek described its mortgage fraud as "systemic."

When most people think of mortgage fraud, they think of a clever borrower conning an unwitting banker into extending him a loan he cannot afford.

But this isn’t really how fraud usually works in the mortgage business.

According to the FBI, 80% of mortgage fraud is committed by the lender, so it shouldn’t be surprising that WaMu’s internal audits concluded that its widespread fraud was being "willfully" perpetrated by its own employees. The company also engaged in textbook predatory lending across all of its mortgage lending activities–issuing loans based on the value of the property, while ignoring the borrower’s ability to repay the loan.

These findings alone are pretty bad stuff in the world of white-collar crime. For several years, WaMu was engaged in fraudulent lending, WaMu managers knew it was engaged in fraudulent lending, and didn’t stop it. The company was setting up thousands, if not millions of borrowers for foreclosure, while booking illusory short-term profits and paying out giant bonuses for its employees and executives. During the housing boom, WaMu Chairman and CEO Kerry Killinger took home between $11 million and $20 million every single year, much of it "earned" on outright fraud.

But the WaMu scandal gets much worse. WaMu is routinely referred to as a pure mortgage lender, one whose simple business model can be contrasted with the complex wheelings and dealings of Wall Street titans like Lehman Brothers and Bear Stearns. That characterization is grossly inaccurate. WaMu was very heavily engaged in the business of packaging mortgages into securities and marketing them to investors. This is a core investment banking function, something ordinary mortgage banks like WaMu were legally barred from engaging in until 1999, when Congress repealed the Glass-Steagall Act, a critical Depression-era reform.

Securitization is immensely profitable, and under the right circumstances, it allows banks to dump risky mortgages off their books at a profit. That’s exactly what WaMu did. Even after internal audits flagged specific loans as fraudulent, WaMu’s securitization shop still went ahead and packaged those exact same loans into securities, and sold them to investors. Knowingly peddling fraudulent securities is a straightforward act of securities fraud, one made all the more severe by the fact that WaMu never told its investors it had sold them securities full of fraudulent loans. The only question now is whether anyone will be personally held accountable for the act.

So far, we’ve got fraud on fraud– but wait!

The WaMu saga actually gets worse still.

When the mortgage market started falling apart, WaMu ordered a study on the likelihood that one if its riskiest mortgage products, the option-ARM loan, would begin defaulting en masse.

The report concluded that, indeed, option-ARMs were about to default like crazy, within a matter of months.

Option-ARMs feature a low introductory monthly payment for a few years, often so low that borrowers actually end up going deeper into debt, despite making their regular payments. After a few years, the monthly payment increases dramatically–sometimes by as much as 400 percent. Suddenly this cheap loan is outrageously unaffordable, and if home prices decline, borrowers are immediately headed for foreclosure.

Now, most would-be homeowners are not very interested in this kind of loan. It seems dangerous, because it is dangerous. So WaMu actively coached its loan officers to persuade skeptical borrowers into accepting this predatory garbage instead of an ordinary mortgage.

This assault on its own borrowers is only half of WaMu’s option-ARM hustle.

For a while, Wall Street investors really liked option-ARMs. They were inherently risky, which meant they were much more profitable, if you ignored the risk that they might someday default, and Wall Street was all too happy to engage in this kind of creative accounting.

But when WaMu conducted its study on looming option-ARM defaults, the prospect of heavy, imminent losses did not convince the company to abandon the business. Instead, WaMu began issuing as many option-ARMs as it could. The idea was to jam as many of these loans into its securitization machine as it could before investors decided to stop buying option-ARM securities altogether.

That means WaMu was knowingly setting up both borrowers and investors for a fall. The company was actually trying to extend loans that it knew would be disastrous for its borrowers–and then selling them to investors that it knew would end up taking heavy losses. Whether or not this constitutes illegal fraud will depend on some technicalities, but it is clearly an act of outrageous deception.

When the securitization markets finally froze up, WaMu got stuck with billions in terrible, terrible loans it had issued, and the company failed spectacularly. One of the few good calls the U.S. government made during the financial crisis was the decision not to extend bailout funds to WaMu, not to save the jobs of its executives, and allow the company to fail. It was seized by the FDIC in late September 2008, and immediately sold to J.P. Morgan Chase, at no cost to taxpayers.

But WaMu’s story is nevertheless rife with implications here for Wall Street reform.

First, regulation matters.

Everything WaMu did could have been stopped not only by an engaged regulator who worried about the company’s bottom line, but by a regulator who cared about consumer protection in any degree whatsoever. WaMu’s regulator, the Office of Thrift Supervision, didn’t care about either, but it was particularly uninterested in consumer protection rules, because those often conflict with bank profitability.

If we establish a new regulator that is charged only with writing and enforcing consumer protection rules, it won’t worry about how profitable consumer predation might be, it will simply crack down on it. In the process, it could actually protect the company’s bottom line (Salon’s Andrew Leonard has been emphasizing this point for some time).

Second, at yesterday’s hearing, former WaMu Chief Risk Officer James Vanasek acknowledged that his bank would not have been able to wreak so much economic destruction without the repeal of Glass-Steagall, which barred any mixing between complex Wall Street securities dealings and ordinary, plain-vanilla banking. He even went so far as to offer a tepid endorsement for reinstating the law.

A lot of predatory mortgage firms didn’t run their own securitization shops–they sold their loans directly to Wall Street firms, which handled the securitization on their own. So proponents of the Glass-Steagall repeal (most of them employed at one point or another by a major banking conglomerate) argue that the crisis would have occurred with our without the repeal. That argument is basically a distraction, as the WaMu case reveals. Over the course of just a few years, WaMu’s entire mortgage banking operation transformed from a boring, profitable, plain-vanilla enterprise, into a feeding trough for its risky securitization activities. There is simply no way that transformation could have occurred without the lure of easy in-house securitization profits. It is possible to conceive of a mortgage crisis taking place without the repeal of Glass-Steagall, but it is utterly impossible to imagine a mortgage crisis as severe as the one we are still living through.

It will be very surprising if criminal charges are not soon filed against some of WaMu’s former executives. But WaMu isn’t the only bad actor from the financial crisis. This is basically how the entire U.S. mortgage market operated for at least five years. Dozens of lenders who are still active, many of them saved by generous taxpayer bailouts, were engaged in similar activities. There’s only one way to churn out billions of dollars worth of lousy mortgages for several years, and it involves a prolonged campaign of fraud and deception.