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Yesterday federal prosecutors announced indictments for a dozen Arizona individuals involved in cash-back mortgage schemes that “contributed to the meltdown of the state’s real estate market.” Among those charged were a couple running a Tempe-based international Christian ministry, the Clint Rogers Ministry[1]. Clint and Angela Rogers are accused of diverting more than $2.5 million to themselves and co-conspirators by falsifying loan applications to allow them to buy homes at “artificially inflated prices” after buying the homes at lower values through an intermediary.

The couple face 13 counts of conspiracy, money laundering and wire fraud, and are accused of using their ministry simply as a vehicle to accept the money.

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Let us know what you think should be done about this kind of fraud in the space below.

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[1] http://www.businessweek.com/ap/financialnews/D9LS0U8G1.htm

Large investors involved in the law suit against Bank of America’s Countrywide Financial Corporation are pulling out of the process as the approval date for the $624 million settlement approaches[1]. Believing that they can “get a better deal by going it alone,” investors like the California Public Employees Retirement System are rejecting the settlement as too small[2]. Oregon’s attorney general, John Kroger, stated in reference to the $624 million settlement that the state would net less than $500,000 in damages when it suffered $14 million in losses. “Oregon will not accept pennies on the dollar when Wall Street defrauds Oregonians,” Kroger said[3].

As more investors withdraw, the settlement number is shrinking along with the lawsuit. The current agreement is now down to $601.5 million. Although the settlement could be retracted thanks to opt-outs, BofA and the Countrywide division have decided to keep the settlement alive, calling the situation “unfortunate” and expressing regret that “some investors have not wanted to embrace a fair and equitable agreement.” Plaintiff’s lawyers, who have knocked about $1 million off their fees, also have stated that they believe the settlement is a “really excellent deal,” but understand that some investors will prefer to “take a different kind of risk” in order to have a chance at recouping more losses.

Do you think that the BofA/Countrywide settlement numbers are fair?

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Let us know how you feel about Countrywide and BofA’s role in this lawsuit below.

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[1] http://blog.riskmetrics.com/slw/2011/02/some-investors-flee-624-million-countrywide-financial-settlement.html

[2] http://blogs.wsj.com/law/2011/02/22/countrywide-deal-too-thin-for-some-investors/

[3] http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202482515549

When times get tough, the con artists come out of the woodwork. Today’s real estate market is no exception, with CoreLogic estimating 2010 losses to amount to as much as $11 billion and more than 500 people being arrested for “alleged mortgage crimes” in the first half of 2010 alone[1]. Furthermore, the FBI reported that pending mortgage fraud investigations are up a full 71 percent from 2008 to 2009 and that 2/3 of all those investigations involved losses of more than $1 million.

From the Miami assistant fire chief indicted on $10 million in mortgage fraud (she is accused of being a “straw buyer” for homes she had no intention of living in and that eventually went into foreclosure)[2] to the Virginia real estate agent who fled the country after she was accused of inflating incomes and fraudulently fixing credit scores for high fees totaling more than $1 million, fraud cases are certainly all over the news. However, these are not isolated instances being blown up in the media. “Cases like this that involve false promises, misleading information and fraudulent sales pitches…are being aggressively pursued across…the United States,” said A. McFeely from the FBI yesterday.

Do you think that enough is being done to fight mortgage fraud in the United States?

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Please leave your thoughts on how mortgage fraud is impacting real estate investors below.

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[1] http://www.dsnews.com/articles/fbi-cracks-down-on-mortgage-fraud-schemes-across-country-2011-02-23

[2] http://www.miamiherald.com/2011/02/22/2079728/miami-assistant-fire-chief-snagged.html

While it is problematic enough that Chicago’s 60621 zip code has been rated the most at-risk for mortgage fraud in the country for three straight quarters, what is perhaps more disturbing out Interthinx Mortgage Fraud Risk Report numbers are the way that the risk appears to spread. According to the data-tracking firm’s analysis, Chicago as a whole has increased when it comes to risk of mortgage fraud from “moderate” in second-quarter 2010 to “very high risk” by the end of 2010, indicating that “ ‘very high’ risk at the zip code level can, in a short period of time, spread and elevate the overall risk of much larger geographies”[1]. Kevin Coop, Interthinx’s president, cited employment/income and identity fraud risk as accompanying factors to mortgage fraud, and recommended that lenders in all areas “be more vigilant about using fraud detection systems during refinancing, modifications and purchase transactions that involve the resale of distressed properties.”

Interthinx considers fraudulent activity to be misevaluations, employment misrepresentation or concurrent closing schemes. Normal fraud risk would be 100. Chicago has a fraud index of 568[2]. “Professional real estate investors” are cited as common perpetrators in particular of occupancy fraud because, according to some sources, they may “falsely claim the intent to occupy the purchased property to obtain lower interest rates or down payments on a mortgage.” This strategy index declined throughout the country over the past year, but many investors believe it is unreasonable to consider it fraud. What do you think? Should real estate investors be forced to pay higher down payments and interest rates if they plan to turn the property for a profit rather than live in it?

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Please leave comments and questions below.

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[1] http://nationalmortgageprofessional.com/news23707/interthinx-report-finds-mortgage-fraud-rise-windy-city

[2] http://www.housingwire.com/2011/02/17/chicago-tops-for-mortgage-fraud-infection-interthinx

Juan Rangel of California was heartless when it came to taking money from his victims, and he would get it nearly any way that he could think of. Rangel operated a $30 million Ponzi scheme in California targeting Hispanic investors and also managed to talk many of them into signing over title to their distressed properties as well[1]. He has been in court on multiple charges since 2008 and finally was sentenced yesterday as part of a plea agreement in which he pled guilty in exchange for 15 years in prison. A judge added seven more years because of the “devastating impact Rangel’s actions had on his victims.” Those victims number more than 500[2].

The two-part scheme involved promising to pay investors high returns on investments – often as high as 60 percent – by placing their money in real estate and lending situations that would realize high profits. In reality, Rangel simply took new money to pay off old investors and also bought a mansion and a Lamborghini. He also targeted Latino homeowners in preforeclosure, taking title to homes, draining equity and selling the properties without the owners’ knowledge to a number of straw buyers. These straw buyers then were used to apply for more loans on the home, few or none of which were ever paid.

While all this is bad enough, Rangel had a completely “callous disregard” for his investors, said the court. One victim testified that she had invested all the money she received after her son, a marine, was killed in Iraq. He also did everything possible to scare his investors away from putting money in banks and recommending that they give all funds to him instead.

It seems like every day a new mortgage fraud story breaks. Do you think that new mortgage regulations will help this situation? Have you personally encountered this type or a similar type of fraud?

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[1] http://nationalmortgageprofessional.com/news23646/california-man-gets-22-year-sentence-leading-ponzi-scheme-and-mortgage-fraud-scam

[2] http://www.businessweek.com/ap/financialnews/D9LDAOA80.htm

Quicken Loan, one of the nation’s largest mortgage lenders that has “survived and thrived” in today’s difficult market due to avoiding subprime loans and dicey practices, boasts the number one spot in surveys for customer satisfaction and has been rated as “one of America’s best places to work.” However, the Center for Public Integrity (CPI) is not buying[1]. According to reports by CPI, Quicken Loans has mislead homeowners about the details of their loans, charged excessive fees, utilized fraudulent appraisals and even forced employees to falsify borrowers’ incomes on loan applications[2]. A West Virginia judge who ruled in favor of one homeowner bringing suit called Quicken “unconscionable.”

Now, a group of former employees is joining the fray, alleging that they were urged to boost commissions by locking customers into higher interest rates even when they qualified for lower ones and “rolling hidden fees into the loan.” One former employee, Michael Pikora, has said in a sworn affidavit that “The worse the client’s situation was, and the lower their credit, the easier it was to charge excessively high rates.” Furthermore, the former employees claim that they were compelled to work unpaid overtime.

Quicken Loan has denied that it mistreats or mistreated workers or customers, and emphasizes that its mortgage lending practices follow industry standards. Furthermore, the company has described the former employees’ lawsuit as “the product of parasitic plaintiffs’ attorneys who specialize in filing meritless claims in an effort to coerce settlements from job-producing companies.”

Strong words, but can the company back them up? Have you done business with Quicken Loans, and would you again?

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[1] http://nationalmortgageprofessional.com/news23481/center-public-integrity-launches-attacks-reputation-quicken-loan

[2] http://www.publicintegrity.org/articles/entry/2889/

Banks and lenders repossessed more than 1 million homes in 2010, but more than 3 million homes actually entered foreclosure last year. As a result, 2011’s foreclosure numbers stand to be far worse than 2010’s as banks attempt to “catch up” on properties that have been delinquent far longer than would usually be permitted[1]. Lenders will be moving through a serious backlog as 2011 gets underway, and one in every 45 U.S. households will have received a foreclosure filing in 2010 that the homeowner will have to confront in 2011.

While the pace of foreclosures slowed dramatically in December partly due to holiday policies on the parts of lenders and law enforcement and partly due to lenders’ self- and externally-imposed reviews of foreclosure practices, there are still a lot of foreclosures out there that will stand up in a court of law. However, it remains to be seen if the lenders themselves can afford to foreclose in the volumes that are being predicted. Particularly in light of the recent Massachusetts foreclosure ruling that brought to light egregious oversights in mortgage paperwork that will likely invalidate myriad foreclosures at least in that state, many analysts are predicting a boom in short sales and loan mods as lenders opt to keep what they can and avoid a massive REO influx.

This new ruling is indisputably necessary in light of massive flaws in the paperwork and foreclosure systems at major lenders. However, it also threatens to stall the real estate market’s recovery indefinitely and render foreclosures nearly impossible. Do you think this is a good thing or a bad thing for the market in the long run?

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[1] http://www.businessweek.com/ap/financialnews/D9KN8HJG1.htm

It is one thing to lose your house to foreclosure as a casualty in the real estate market crash and another to lose it because a person you trusted sweet talked you into deals that were destined to fail. At least 75 home owners are complaining about being “coaxed” by a real estate agent into dealings that made them lose their homes to foreclosures. Miguel Romero – real estate agent, income tax preparer, insurance dealer, and credit repair specialist – is being complained about by 75 of the 122 Latino families to whom he sold homes since 2004. Though there are no public allegations to him breaking the law, his case showcases industry excesses that may partly explain the foreclosure crisis: The largely Spanish-speaking borrowers claim that they were convinced to sign documents that they did not understand, charged excessive fees by mortgage brokers who exploited language barriers and offered high-risk loans made more tempting by promises of high payoffs for investments.

Though documents of the clients never show Romero as loan officer, the complainants report that they were actually pushed into lying in mortgage applications – a state crime. But Romero’s colleagues came to his defense, saying he is not the type of agent who would have encouraged people to lie. Records show that on top of the 122 homes sold (and 75 foreclosed), Romero also had a network of employed real estate agents who sold 63 more homes since 205 – and 21 of these have entered foreclosure. In summary, 69% of his sales and 33% of his agents’ have resulted either in short sale or foreclosure. And the clients contest this is not a coincidence. There have been no comments from the attorney general and district attorney as to whether Romero’s actions are now being investigated.

Federal prosecutors seem to be getting some results in their probe into real estate investment scam. Two more defendants have plead guilty to charges of conspiracy and mail fraud regarding real estate investment scam [1].

The eighth and ninth to enter guilty pleas to be entered were on behalf of brothers Matthew and Lance LaMadrid – 44 and 46 respectively. The two admitted that from 2004 to 2008 they operated Plus Money Premium Return Funds and other entities. The said entities have gotten at least $30 million from investors by providing false monthly statements showing profitable brokerage accounts. The funds from new investors were in actuality being used to pay debts from older investors.

The younger of the two also confessed to misrepresenting borrowers’ assets on loan applications. As a result of the fraud, millions of dollars were obtained by the younger LaMadrid’s entities. The elder, on the other hand, said his fraudulent activities caused around $400,000 to $1 million losses. April 4 is set for the brothers’ sentencing.

[1]http://www.sdbj.com/news/2011/jan/04/two-brothers-enter-guilty-pleas-real-estate-invest/

With the recent economic slump that had almost everyone suffering some financial loss, businesses have relied on lending to keep themselves afloat. Even mortgage companies have had their share of troubles during the economic downturn. One such troubled mortgage company is Ally Financial’s mortgage unit Residential Capital and its subsidiaries. This week, ResCap reaches an agreement with Fannie Mae in resolution of repurchase exposure that may arise from breaches in warranties and selling representations[1].

ResCap and its subsidiaries are now released from liability for the $292 billion unpaid balance it owed Fannie Mae – thanks to a $462 million settlement reached with the government-controlled GSE. The settlement will cover loans serviced by GMAC Mortgage prior to the 30^th of June, 2010 on behalf of Fannie Mae. Mortgage-backed securities purchased by Fannie Mae prior to the settlement are also covered in the settlement.

“At the start of 2010, we set a goal to substantially reduce risk in our mortgage operation and, during the last twelve months, we have successfully completed a series of steps toward that objective and are largely complete. This agreement, along with prior repurchase settlements with Freddie Mac and others and the sale of legacy assets and operations, has significantly reduced Ally’s risk related to the legacy mortgage business going forward,” Ally CEO Michael A. Carpenter said.

The settlement does not cover contractual obligations such as those that may arise from mortgage servicing. Also, Ally Bank is excluded from the settlement. Aside from the settlement, ResCap and Fannie Mae also made arrangements for ResCap’s mortgage insurance proceeds payment for rescinded or cancelled mortgage insurance coverage.

ResCap CEO Thomas Marano said yesterday that “We are very encouraged to have reached this agreement with Fannie Mae. They are a key counterparty to our mortgage business and we look forward to continuing our important and productive relationship. With our de-risking initiatives largely complete, the mortgage business will focus predominantly on the origination and servicing of conforming mortgages, which is where the company holds leadership positions.”

[1]http://www.dsnews.com/articles/ally-financial-reaches-462-settlement-with-fannie-mae-2011-01-03