Subprime Mortgage Lender Target Of Criminal Inquiry

New Century Financial Corp., the second largest U.S. subprime mortgage lender, has reported that it is the subject of a criminal probe into trading in New Century securities as well as accounting errors, according to an online article at MarketWatch.com.

In addition to the criminal inquiry, which is being conducted by the U.S. Attorney's Office for the Central District of California, it has also been reported that both the Securities and Exchange Commission and the regulatory arm of the New York Stock Exchange are looking into the company.

New Century stock was hammered by almost 25% in after-hours trading Friday at about $11, after a 7% fall during the regular session to $14.65.

According to the article, "New Century slashed its forecast for loan production earlier this year because early-payment defaults and loan repurchases have led to tighter underwriting guidelines. The company also said that it has to restate most of its results from 2006 because of mistakes in how it accounted for losses on repurchased loans."

As of now, however, there does not appear to be any official reports of company insiders and others attempting to illegally dump their holdings in New Century stock in view of the anticipated future troubles in the subprime mortgage market; nor does there appear to be any credible reports that company officials have intentionally engaged in "creative accounting" in order to hide the company's losses when they found themselves stuck having to repurchase the bad loans they made. Matters are currently only in the investigative stage at this time.

To read more, see:
New Century says it faces criminal probe
(Subprime-mortgage lender warns it will likely breach lending covenant)

For an article describing the relationship between the subprime mortgage lenders and the large banks who provide them with the necessary financing to enable the making of subprime loans, see Big banks control fate of subprime lenders (Merrill, J.P. Morgan pull back in credit crunch at low-end of mortgage market)

Postscript:

In what appears to be a class action attorney "race to the courthouse" against New Century Financial Corporation, see these recent press releases:

• Dreier LLP Files Class Action Lawsuit Against New Century Financial Corporation
• Brower Piven Announces the Filing of a Class Action Lawsuit Against New Century Financial Corporation
• Green Welling LLP Files Class Action Suit Against New Century Financial Corporation
• Click here for links to press releases of several other recent class action lawsuits commenced against New Century Financial Corporation.

(These four links no longer available online. 10-19-07)

Florida Woman Accused Of Fleecing Her Grandmother, Home Equity Drained, Property Foreclosed

Dana Guarscio, a 41-year-old Sarasota woman is in jail, accused of stealing every penny from her 88 year old grandmother, according to a report by WTSP-TV Channel 10, reported at tampabays10.com. In addition to being accused of emptying her grandmother's bank account and selling all her belongings, Sarasota Sheriff's detectives say Guarscio drained the equity from the woman's home, forcing the bank to foreclose and sell it.

The elderly woman has since had a stroke and is in a nursing home. See Woman accused of fleecing her Grandmother (no longer available online).

See also:

• Charge: Woman ripped off grandma (Sarasota County deputies say suspect took her grandmother's house and her money and sold her belongings) (Sarasota Herald-Tribune).
  revised 3-3-07 (9:05 p.m.)

Go here , go here , and go here for other posts on elder financial abuse. zeta elder financial abuse alpha

Missouri Regulators Create Task Force To Study Equity Stripping & Mortgage Fraud Solutions

The Missouri Department of Insurance, Financial Institutions and Professional Registration has created a special task force aimed to discourage mortgage fraud by educating both industry participants and the consumer public in recognizing the signs of mortgage fraud, according to an Associated Press article reported in the bellevillenewsdemocrat.com.

Department director Doug Ommen stated that the task force will "look at this issue from all sides to come up with commonsense solutions to prevent consumers from being stripped of their equity or facing foreclosure."

To read more, see New task force, legislation take aim at mortgage fraud.
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Fremont General To Unload Subprime Mortgage Operations

Reportedly prompted by the receipt of a proposed cease and desist order from the Federal Deposit Insurance Corporation earlier this week, Fremont General Corp. announced Friday that it intends to sell its subprime residential real estate lending business.

Fremont General's stock price was down 16% in after-hours trading Friday after taking a 24% hammering on Wednesday.

To read more, see Fremont General to sell subprime residential business, reported at MarketWatch.com.

For another Fremont story earlier this week, see Fremont Shares Tumble After Postponement Of Q4 Result.

Click here for other recent stories on Fremont General Corp. at MarketWatch.com.
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Atlanta Federal Trial Reaching Conclusion

The Atlanta Federal Court trial of alleged mortgage fraud operator Phillip E. Hill, Sr. and others, involving over 150 charges of mail and wire fraud, false applications, money laundering and conspiracy in connection with an alleged property flipping, "straw buyer" operation, is finally reaching a conclusion after almost seven weeks of testimony from over 80 witnesses, according to an article in The Atlanta Journal Constitution, reported at ajc.com.

Of the co-defendants tried in this case, two have already received directed aquittals from the trial judge on Thursday. Five of those originally charged by the Federal grand jury avoided trial by pleading guilty before the start of the court proceedings and testified on behalf of the prosecution. Jury deliberations leading to the final verdict on Hill and the remaining co-defendants are set to begin on Monday.

To read more, see Alleged fraud kingpin called hapless but honest (link no longer available).

To read earlier reports on this story, see

• Athletes caught up in mortgage fraud case (Two testify that deals with defendant Phil Hill cost a total of $350,000) (link no longer available)
• NBA All-Star Weekend leads to break for NBA Great Caught Up in Mortgage Fraud Case

Click here for Federal Grand Jury Indictment of Philip E. Hill, Sr., et. al. (approx. 2 MB) (link no longer available).

Go here for other posts on the Phillip E. Hill property flipping operation.
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Subprime Mortgage Lender's Stock Price Gets Hammered

More bad news in the sub-prime mortgage market as shares of mortgage lender Fremont General Corp., the parent company of subprime mortgage lender Fremont Investment & Loan, fell sharply on Wednesday, a day after the company said it would postpone the release of its fourth quarter and full-year 2006 results, which were previously scheduled for Wednesday, according to an article in TradingMarkets.com. It also said that it would not file its annual Form 10-K report for the year 2006 by its March 1 deadline. The company did not give any reasons for the postponement.

This comes at time when "subprime mortgage lenders are struggling with rising delinquencies and defaults, as slowing home price appreciation makes it more difficult to refinance. Lending margins have narrowed, and investors are forcing many lenders to buy back soured loans at a loss", according to the article.

Three weeks ago, the stock price Fremont's larger sub prime mortgage lending rival New Century Financial Corp. took a beating of more than 36%, "[a] day after the company delayed its fourth quarter and full year 2006 results, projected a net loss for the fourth quarter and said it would restate results for the first three quarter of 2006 that would result in the reduction in net earnings for those periods."

Fremont's announcement comes on the heels of Freddie Mac's announcement that it would tighten its mortgage lending underwriting guidelines on "exotic" home loans.

The signs of trouble in the industry continue.

To read the full article, see Fremont Shares Tumble After Postponement Of Q4 Result.

For other links to stories on the troubles in the subprime mortgage market, see

• Are foreclosures on the rise?, which discusses how mortgage delinquencies are sending subprime morgage lenders into a tailspin, and
• Sub Prime Mortgage Market Compared To "The Titanic".

revised 2/2/07 (12:26pm)

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Illinois Attorney General Files Suit Against Foreclosure Rescue Operation

Illinois Attorney General Lisa Madigan has filed a civil lawsuit against three companies who allegedly promised to rescue more than a dozen struggling homeowners, then scammed them out of tens of thousands of dollars in home equity, according to an article in the Chicago Tribune at chicagotribune.com.

The companies, Eyes Have Not Seen Inc.; Creative Financial Solutions; and Mutual Trust Funding, formerly known as Greater Investment Solutions, allegedly lured victims by offering to help make mortgage payments, and then persuaded them to put the title to their homes in other people's names. Other defendants are Charles T. White Jr., Debra Gray and Darius K. Monroe.

To read more, see State sues mortgage companies in homeowners scam.

For the Illinois AG Press Release, see Madigan Files Suit To End Mortgage Rscue Scheme.

Illinois Federal Grand Jury Indicts Loan Officer

Loan officer James L. Boyle was indicted on 22 counts of mortgage fraud in an Illinois Federal Court on Tuesday. The charges include 10 counts of making false statements in the jurisdiction of a federal agency, 11 counts of making false statements to cause the Department of Housing and Urban Development ("HUD") to insure a loan and one count of interstate carrier fraud, according to a report by the Beloit Daily News, at BeloitDailyNews.com.

According to the indictment, Boyle used phony mutual fund and brokerage account statements, "Gift Affidavit" forms, pay stubs, employment verification forms on behalf of prospective borrowers to obtain HUD-insured loans from area mortgage lenders.

To read the article, see Roscoe man faces 22 counts of fraud.

Click here for 22 count indictment, U.S. vs. Boyle.
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Add One More To The List Of New York Attorneys In Hot Water

Gwenerva Cherry, a Manhattan attorney and name partner with the firm Cherry and Marshburn has been indicted on charges of stealing $500,000 from individuals involved in real estate transactions, according to an article in the North Country Gazette, at NorthCountryGazette.org. She has been charged with second and third degree grand larceny and first degree scheme to defraud. To read more, see DA: Manhattan Attorney Stole $500,000.

See also:

• Manhattan District Attorney Press Release,
• New York lawyer accused of stealing real estate clients' money, an Associated Press article reported by New York Newsday (link no longer available).

(Editor's Note: I hope that some day soon the New York State Bar Association starts initiating administrative proceedings against some of its members before criminal charges are brought against its members. I hope I'm wrong, but my suspicion is that the state Bar Association only acts when reports of criminal charges are made public. In my view, the more time that passes before the state Bar Association starts initaiting and reporting on investigations of its members, the longer they maintain the appearance to the general public that they are all "asleep at the wheel".

Maybe they should impose bonding requirements on attorneys handling real estate transactions. I reiterate, however, that I hope I'm wrong, but even if I am, the New York State Bar Association still looks terrible with all these recent media reports coming out on some of its wayward members that reflects poorly on the entire profession, in my humble opinion.)

For those ripped off by an unscrpulous New York attorney and want to try getting some of your money back, check out The Lawyers Fund for Client Protection of the State of New York.
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More Bad News For The Sub Prime Mortgage Market

Another sign of the trouble facing the subprime mortgage market showed itself this past Tuesday when the Federal Home Loan Mortgage Corporation ("Freddie Mac"), one of the largest buyers of home mortgages, said that it would tighten lending standards and stop buying certain kinds of risky home loans made to borrowers with weak, or subprime, credit records, according to an article in The New York Times.

The move comes as default rates are rising, mortgage loan originators are starting to go under, and investors in bonds backed by mortgages are pulling back.

The subprime mortgage market consists of "exotic" home loans that let people buy homes with little down, "rough" credit histories, and/or without verifying their incomes ("liars' loans").

The article observes that "[F]reddie’s announcement is confirmation to other investors in mortgages that a segment of the market that was once Wall Street’s darling finds itself in the doghouse."

The new, stricter standards go into effect for loans written on or after September 1, 2007.

To read more, see Freddie Mac Tightens Standards.

To read the Mortgage Bankers Association response to Freddie Mac's announcement of its new subprime guidelines, see MBA Questions Freddie Mac’s New Underwriting Standards for for Subprime Lending.

For other links to information on the troubled sub-prime mortgage market, see Sub Prime Mortgage Market Compared To "The Titanic".

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Equitable Mortgage Defense In Eviction Actions - California

Another post involving an eviction action where the person being sued for eviction is claiming to be the owner of the property by invoking the equitable mortgage doctrine as a defense is now posted. For more information, see Equitable Mortgage Defense In Homeowner - Tenant Eviction - Part 3 Addendum.

The post involves a California Supreme Court case where, in an ejectment action, the person in possession of the property and being sued for eviction successfully challenged the title of the "purported" owner who brought the ejectment action by invoking the equitable mortgage doctrine. The purported owner, who actually had the title to the property in his name, was deemed to be nothing more than a mortgage holder and, accordingly, was not entitled to seek eviction against the party in possession, who was considered the true owner of the property.

This case may be of great value to homeowners facing foreclosure (and attorneys representing them) who may have entered into arrangements with foreclosure rescue operators where the homeowners "sold" or otherwise signed over their title to the operator, simultaneously entered into a leaseback agreement, and who ultimately found themselves being evicted by the operator.

While the case was decided in California (and may be of interest primarily to those in California), those in states outside of California may be well advised to investigate the existence of similar court cases in their jurisdictions.

While I understand that, in California, the existence of the Home Equity Sales Contract Act (Section 1695 et. seq. of the California Civil Code) was designed to eliminate many of the abuses that California homeowners facing foreclosure have experienced from some real estate foreclosure investors, this law has apparently not put an end to the home equity theft abuses ocurring in California. See:

• Northern California Woman's Unwitting Sale Of Home Leads To Lawsuit
• Southern California Woman Alleged Victim Of Home Theft, Mortgage Broker Arrested
• More Potential Victims Come Forward In N. Cal. Home Equity Theft Scam
• Elderly California Couple Allege $485,000 "Home Theft"
• California Prosecutors Add 26 Charges Against Alleged House Swindling Trio
• Federal Charges Against Eight; 100+ S. Cal. Homeowners Victimized in $12 Million "Rescue" Scam
• Two Plead Guilty In Combined Foreclosure Rescue/"Straw Buyer" Mortgage Fraud Scam

It may be that asserting claims under California's equitable mortgage doctrine by a California homeowner involved in a foreclosure rescue situation may be an alternative approach (rather than making claims under California's Home Equity Sales Contract Act) in seeking relief in a court of law. equitable mortgage zebra

Mississippi City Shows Commitment To Fighting Mortgage Fraud

The city of Madison, Mississippi, with a current population of approximately 25,000, has chosen to follow what may be a growing trend among considerably larger, local law enforcement agencies around the country in hiring personnel assigned exclusively to investigating mortgage and real estate related fraud, according to City enlists investigator to tackle fraud claims, an article in The Clarion-Ledger, reported at clarionledger.com. Typically, municipalities will investigate these types of crimes through their Economic Crimes Unit, which lumps together all white-collar crime investigations.

Examples of other municipalities with personnel dedicated specifically to fighting mortgage and real estate related crimes are:

1) Wayne County, Michigan Sheriffs Office, which has a Deed Fraud Unit with three full time deputies assigned to combat deed fraud in the Detroit metro area (see New Arrests Made In Deed Scam)

2) Cuyahoga County, Ohio Prosecutor's Office, which hired an assistant county prosecutor to focus on crimes such as mortgage fraud and predatory lending in the Cleveland metro area (see Dozens facing loan charges)
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How "Flippers" Target Novice Real Estate Investors

A recent article in Realty Times describes how organized illegal flipping groups target novice real estate investors and lists precautions one can take to avoid getting sucked into one of these deals. For more, see Illegal Flipping Targets Investors, Too.
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Attorney Details How Some Builders Use "Straw Buyers" & Bogus Appraisals To Unload Inventory Of Unsold Homes

In a recent article in the Springfield (Missouri) Business Journal, a local attorney details to a reporter how some area homebuilders are using "straw buyers" and phony appraisals to dump their inventory of unsold homes and how, in the process, buyers are being duped into financing the purchases with mortgages well in excess of the property’s market value. To read more, see Attorney reveals details of alleged mortgage fraud.

To read of one homebuilder, currently under two indictments, who alllegedly used this type of arrangement to sell his inventory, see my February 25 post, Kansas Broker Cops Plea In Fraud Scam; Developer In Hot Water, which includes links to the two Federal grand jury indictments.
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North Carolina Regulators Focusing Their Fight On Mortgage Fraud

Officials with the North Carolina Banking Commission are looking to changes in their battle on mortgage fraud to stem the serious foreclosure problem currently existing in the state, according to an article in The News & Observer, at newsobserver.com.

The Commission:

• has proposed rules to improve lending practices for nontraditional mortgages such as interest-only loans and option-payment ARMs,
• has hired three more investigators, and
• is realigning its investigations and examination of lenders and brokers to focus on lenders with high rates of foreclosure.

A concern of the Commission is that, because originating mortgage lenders get paid up front and often sell the loan to another lender, the original lender may be less inclined to make sure the customer will be able to pay the loan over the long haul.

One regulator seems to suggest that, through the use of "Wite-Out or cut-and-paste documents", it has become too easy for originating lenders to "pad a home buyer's bank account", "[change] a potential home buyers' annual income", and otherwise "falsify loan applications". "[Letting] family members with good credit sign for a relative's home" is also a concern.

For more, see Lenders may face new rules.

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Overview Of The New York State Home Equity Theft Prevention Act

Chicago Title Insurance Company has an overview of the New York State Home Equity Theft Prevention Act ("HETPA") on their website, at titleinsuranceny.com. Click here for Chicago Title on HETPA.

For other online resoures on HETPA, see

• New York State Home Equity Theft Prevention Act Becomes Effective, and
• New York Home Equity Theft Prevention Act - Title Insurance Issues

For online resources on New York real estate and title insurance law issues, see Chicago Title's online reference library:

• Informational Articles For Attorneys,
• New York focus briefs (case law summaries), and
• New York legal forms library

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Suspect Charged With Bilking Funds From 88 Year Old Woman

A story of elder abuse began to unfold when Katherine Garcia-Herzog appeared in court Tuesday on charges that she took advantage of an 88-year-old Fiddletown, California woman.

In addition to allegations of credit card use without authorization, it is believed that the proceeds of a reverse mortgage on the alleged victim's home was illegally diverted by the suspect for her own use.

For more, see Prison wife charged with elder abuse, reported by the Ledger-Dispatch at ledger-dispatch.com.

Go here for other posts on reverse mortgage problems. zebra

Kansas Broker Cops Plea In Fraud Scam; Developer In Hot Water

James Sparks, of Lawson, Missouri, pleaded guilty in a Kansas Federal Court on Friday to a single count of conspiracy to commit mortgage fraud, according to an Associated Press article appearing in The Wichita Eagle, at Kansas.com. As a mortgage broker, he obtained loans for prospective home buyers by falsifiying financial information, rent verification and other necessary loan documents, and by using inflated property valuations from appraisers who allegedly were also part of the scheme.

His co-defendants in this indictment include Kansas City area developer F. Jeffrey Miller, as well as participants Stephen W. Vanatta, Hallie Irvin, and Sandra Harris. All are currently awaiting trial.

According to Federal indictments, the alleged scam in this story is nothing more than a continuation of a prior alleged scam in which Miller was indicted for in May, albeit with seven other participants/co-defendants.

For the entire article regarding the more recent case, see Broker pleads guilty to mortgage fraud. See also:

• Missouri man pleads guilty to mortgage fraud (2-26-07, Kansas City Business Journal),
• U,S. Attorney Press Release - Missouri Man Pleads Guilty In Mortgage Fraud Conspiracy (2-23-07)

For additional information on this case, including allegations of:

• soliciting home buyers with credit problems,
• promising to put them into homes with no money down and builder financing,
• unilaterally increasing home prices prior to closing,
• forging buyers' signatures,
• a "file cleaning party", where defendants purged and destroyed files of incriminating evidence with full knowledge of the ongoing federal investigation into the operation,
• the discovery that James Sparks, above, was cooperating with Federal investigators,

see 18 page Indictment - U.S. vs. Miller, Sparks, et. al. (Miller #2)

For details of the earlier indictment of real estate developer F. Jeffrey Miller, including a request of forfeiture in excess of $25 million, see 19 page Indictment - U.S. vs. Miller, et. al. (Miller #1)

State Legislatures Across The Country Consider Pending Fraud Bills

Mississippi
The Mississippi state legislature is considering the passage of two bills to combat the mortgage fraud problems occurring in the state. See Rep. Martinson joins in fight against rising mortage fraud

Utah
House Bill 25 passed the House unanimously on January 26 and is now on its way to the state Senate for consideration. Under provisions of the bill, mortgage fraud would become a second-degree felony with a possible sentence of 1 to 15 years in the Utah State Prison. See Legislation makes mortgage fraud a felony.

In addition, a Senate bill, SB199, has been introduced and which would allow regulators to investigate and fine unlicensed people who misrepresent themselves as real estate agents, brokers, real estate appraisers or mortgage officers. See Utah Senate bill takes aim at mortgage fraud.

Colorado
State Attorney General John Suthers unveiled proposed legislation targeting appraisal and mortgage fraud that is fueling record foreclosures in the state on January 8. See New bill targets appraisal, mortgage fraud

Arizona
Arizona Lawmaker Introduces Legislation To Aid Prosecutors In Pursuing Mortgage Fraudsters, and

Bill targeting cash-back mortgage deals moves forward

Michigan
Michigan lawmakers considering laws to combat identity theft. See ID theft attacked by GOP's Caul, Dem Angerer

Texas
House Bill 716 is pending in the legislature and would establish specific punishments for mortgage fraud, including imprisonment for up to 20 years and fines of up to $10,000 for knowingly making false statements. The law would apply both to consumers and to mortgage industry insiders. See Tougher mortgage fraud penalties eyed.
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