"Mortgage Fraud in 2008: Part II
by CalculatedRisk on 4/13/2009 06:29:00 PM
Here is the 2nd part of the VoiceofSanDiego article: A Staggering Swindle: How It Could Happen in 2008
In 2008, when the loans were made to McConville's buyers, some of the only companies still willing to buy these bundles of mortgages were Fannie Mae and Freddie Mac, even though the mortgage mess had affected them, too.Ask Wall Street what happens when they push back loans to the small lenders - they just close up shop.
At the tail end of McConville's deals, last September, the federal government took over Fannie and Freddie, assuming more direct control of the companies' day-to-day operation and pumped in funding to absorb their losses. Now the taxpayers own 79.9 percent of Fannie Mae and Freddie Mac.
"You and I are getting stuck with these inflated loans, via Fannie and Freddie," [Real estate appraiser Todd Lackner] said.
There is a way out, as long as the smaller lenders who made the loans to McConville's buyers still exist. On any loans Fannie and Freddie bought, if they discover fraud or faults in underwriting in the loans, they'll send them down the chain, requiring the investor that sold the loans to the giants to buy them back. Ultimately, the original lenders might face those buybacks, said Michael Lea, a former chief economist for Freddie Mac.
But the small lenders who made these mortgages might not be in business anymore -- like Nazari's All American Finance.
Here was Part I: Rented Identities, Extravagant Prices and Foreclosure: A Post-Boom Real Estate Scam
And a related article: Mafia-Esque Charges Brought Against Alleged Mortgage Fraud Ring
by CalculatedRisk on 4/13/2009 01:49:00 PM
Here is another story from VoiceofSanDiego: Mafia-Esque Charges Brought Against Alleged Mortgage Fraud Ring
Federal prosecutors on Tuesday announced unprecedented charges against individuals involved in an alleged mortgage fraud ring involving 220 properties in San Diego County, with total purchase prices topping $100 million.This is a different case than the previous story, but notice that the straw buyers are facing charges too. "Lend" out your good credit, sign false documents - and face prosecution and jail time.
The 24 defendants were all charged with participating in a "corrupt enterprise" under a federal law created by the Racketeer Influenced and Corrupt Organizations (RICO) Act...
... defendants include several real estate professionals ... a public notary ... a licensed real estate agent ... a licensed real estate appraiser ... a CPA; and ... registered tax preparers.
Prosecutors also name several straw buyers as participants in the corrupt enterprise ...
by CalculatedRisk on 4/13/2009 11:24:00 AM
Kelly Bennett and Will Carless at the VoiceofSanDiego investigate: Rented Identities, Extravagant Prices and Foreclosure: A Post-Boom Real Estate Scam
Over the course of several months last year, [James D. McConville] picked up at least 81 condo conversions from distressed developers and orchestrated their sale to more than 20 buyers who'd rented him their identities ...McConville bought distressed condos from developers in bulk, and then sold them to straw buyers (individuals with solid credit records who agreed to sign for the loans for a fee). McConville pocketed the difference between the straw buyer price and the bulk price - approximately $12.5 million.
By arranging purchase prices well above market value, McConville was able to pay off the developers and capture what the developers' records state as more than $12.5 million. Now, 74 of the 81 homes involved in the deals in Sommerset Villas and Sommerset Woods in Escondido and Westlake Ranch in San Marcos are in the first stage of foreclosure.
McConville promised to rent the properties, and pay the mortgages from the rental income.
The individuals had pristine credit, and one mortgage lender said:
"Everything was just absolutely perfect -- some of the cleanest loans we'd seen."Of course the relationship with McConville was apparently never disclosed.
This was happening in 2008. Lenders were supposed to be back to the three C's: creditworthiness, capacity, and collateral. These straw buyers - who apparently were willing to falsely sign that they were the actual buyers - satisfied the creditworthiness and capacity criteria. But this raises serious questions about the appraisals.
Also McConville timed the multiple applications perfectly so the lender wouldn't see the other loans apps when they performed a credit check - that is pretty amazing.
Part II will be out today tonight ...