Feds announce arrests in mortgage fraud crackdown
June 18, 2010 "I heard this many times," said Scott Hunter, a Las Vegas FBI
agent who has interviewed hundreds of so-called "straw buyers"
lured into buying homes by unscrupulous real estate agents, brokers
and loan officers. "They said, 'Don't let your good credit go to
waste. You can purchase these properties. This is how you acquire
wealth."'
"What happened here was, when the party stopped and they were
not able to keep inflating the prices on these houses, the whole
thing collapsed."
Nevada's U.S. attorney, Daniel Bogden, counted 123 defendants
charged, convicted or sentenced in the Silver State since March 1
as part of a national crackdown dubbed Operation Stolen Dreams.
Bogden put losses in Nevada alone at almost $250 million.
In Washington, the Justice Department linked nearly 500 arrests
nationwide to the crackdown. U.S. Attorney General Eric Holder
called the push the largest collective enforcement effort aimed at
confronting mortgage fraud.
Holder said 1,215 criminal defendants had been netted in cases
that uncovered more than $2.3 billion in losses, and said the
Justice Department also engaged in civil enforcement actions to
recover more than $147 million in the operation.
FBI Director Robert Mueller called mortgage fraud "a risk to
our economic stability" as a nation.
More than lending institutions were victimized, said Michael
Gibson, a Los Angeles-based federal Housing and Urban Development
inspector who has been investigating cases in Las Vegas.
Homeowners, taxpayers, reputable real estate industry officials
and the Federal Housing Administration were also hurt, Gibson said.
"They're all victims in this. Every time you have a bad loan
that's FHA-insured, the federal government pays that claim
amount."
Real estate analyst Rick Sharga, of Irvine, Calif.-based
RealtyTrac Inc., said places with the most foreclosures today were
the most fertile places for mortgage scams during the housing boom.
"The states that had the highest fallout in foreclosure and
price depreciation certainly didn't have markets built on sound
business practices," Sharga said. "The running gag was, you'd put
a home on the market at breakfast and have three offers for twice
the asking price by lunch. We're seeing the consequences of that
now."
"As soon as prices stopped going up, the whole house of cards
came down," he said.
Prosecutors and investigators said schemes typically involved
straw buyers with good credit buying homes at an inflated price or
obtaining loans greater than the cost of the home. The resulting
cash was skimmed by the person controlling the scheme.
Homes were "flipped," or quickly sold at inflated prices,
driving up prices of comparable or neighboring homes, said Hunter,
supervisor of the Las Vegas FBI white collar crime unit.
"If you didn't lie on your loan application, and you later go
into foreclosure, there's no fraud there," he said. "But if you
lie about everything about the application, and you mislead a
lender into believing that all the information on that document is
accurate, that's what we're going after."
Foreclosures have decreased in Nevada during the last year,
according Realty Trac. But the state continued to lead the nation
in May, followed by Arizona, Florida, California and Michigan. One
of every 66 homes in the Las Vegas area received a foreclosure
filing last month.
The Justice Department said the probe announced Thursday
resulted in significant criminal cases in places like Duluth,
Minn.; New Jersey and Atlanta.
Officials said that in Chico, Calif., a home builder sold houses
built before the market cooled in 2006 to straw buyers at inflated
prices, then rebated tens of thousands of dollars to shell
companies controlled by the buyers' agents. The lenders were
unaware of the rebates. The Justice Department said that to date,
38 of the homes are in foreclosure.
In New Jersey, a servicing manager at U.S. Mortgage pleaded
guilty in the fraudulent sale of more than $136 million in mortgage
loans to Fannie Mae and other investors.
In Oregon, the U.S. attorney said the FBI had received almost
5,000 reports of fraud since the height of the housing market in
2006.
In Detroit, investigators broke up a "ghost loan" mortgage
scheme in which conspirators recruited more than 108 straw buyers
and obtained some 500 mortgages totaling more than $100 million.
In Minnesota, convicted mortgage fraud defendant Michael Fiorito
was sentenced in April to more than 22 years in prison for
conspiracy and mail fraud. Prosecutors said he led homeowners who
were in or near foreclosure to refinance or sell their homes, then
stole their money.
An indictment in Miami accused two defendants of targeting
Haitian-Americans, with one defendant also offering help with
immigration issues.
In Las Vegas, Hunter said industry insiders controlling scams
didn't spend their own money, but reaped cash from homes "like
ATMs."
"They took as much money out of them as they could, and when
they were done, they left southern Nevada in the wreckage," the
FBI agent said. "Now it's our job to hold these people
accountable."