July 15, 2015

Scams Exposed When The Market Has Slowed

The Dallas Morning News reports from Texas. “A nationwide mortgage scam with roots in the devastating U.S. housing market decline sent dozens of financial workers and builders to federal prison, cost banks millions and is still reverberating through the North Texas economy. The scheme, known as a builder bailout, happens when nervous builders with development loans coming due are ‘motivated to move excess inventories when the market has slowed and sales have begun to lag,’ Freddie Mac says. In such cases, the developers essentially pay for buyers and distort the sales prices to have money left over to pay those involved in the sham transaction.”

“Regardless of who was or wasn’t prosecuted, officials say the scams — which were widespread during the last North Texas housing boom — contributed to inflated home values in neighborhoods, leading others to pay more than they should have. And builder bailout mortgage fraud, with its distorted sales prices, ultimately harms the overall housing market and affects the legitimate homebuyer, experts say. ‘You can have whole neighborhoods that are economic wipeouts,’ said Richard Hagar, a national expert on mortgage fraud. ‘Who did it really help? The builder. He got his sale.’”

Real Estate Rama on Florida. “A Miami-area real estate developer and owner of a mortgage company, his business partner and a senior mortgage underwriter each pleaded guilty to a mortgage fraud scheme involving federally insured mortgages that caused losses of $64 million to the Federal Housing Administration (FHA). Including these defendants, 25 individuals have pleaded guilty to offenses related to this scheme to date.”

“Hector Hernandez’s mortgage company, Great Country Mortgage Bankers, specialized in mortgage loans that were insured by the FHA, a division of HUD. Under the program, HUD relies on lenders like Great Country to review and approve only those borrowers who meet the employment, income and other financial requirements needed to qualify for an FHA mortgage.”

“According to admissions made in connection with the guilty pleas, although most of Great Country’s potential borrowers did not qualify for the FHA-insured loans, Hector Hernandez and his business partner, Aleida Fontao, directed Great Country employees, including underwriter Olga Hernandez, to falsify important documents in the potential borrowers’ loan applications to make them appear qualified. In particular, Hector Hernandez and Fontao admitted to pressuring their employees to approve and close loans using earnings statements and verification of employment forms that made it appear as if the borrowers had higher incomes and more favorable work histories than they actually did, and documents falsely improving or explaining borrowers’ credit histories.”

“After Great Country closed the fraudulent loans, the company sold the loans to financial institutions for profit. In connection with their guilty pleas, the defendants admitted that they offered kickbacks to the borrowers in the form of cash back after closing.”

The Daily Democrat in California. “After a three-week jury trial, a federal jury found Peter Kuzmenko, 37, of West Sacramento; Olga Palamarchuk, 45, of Rancho Cordova; Pyotr Bondaruk, 44, of Sacramento; and Vera Zhiry, 35, of Sacramento; guilty of conspiracy to commit mail fraud, related to a mortgage fraud conspiracy. Palamarchuk and Bondaruk were also found guilty of making false statements to a financial institution and money laundering. Zhiry was also found guilty of money laundering.”

“According to evidence presented at trial, Palamarchuk, a loan officer at Capital Mortgage Lending Inc., recruited Bondaruk to purchase two houses using 100 percent financing and to refinance and obtain a home equity line of credit on one of the houses. In order to qualify for the loans, Palamarchuk and Bondaruk submitted fraudulent loan applications to lenders, falsely stating Bondaruk’s employment, income, assets, and intent to occupy the homes as his primary residence.”

“In addition, the defendants fraudulently inflated the value of the properties and diverted the excess funds to themselves.”

The Arizona Republic. “One Phoenix homebuyer thought he had found a great deal when Zavier Kay Hafiz of ZK Group sold him a house in 2012 and even provided the financing. The buyer was making regular monthly payments to Hafiz when another lender began foreclosure on the house. An FBI and Arizona Attorney General’s Office investigation found that Hafiz, also known as Xavier Hafiz DeAnda and Hafiz K. Sanad DeAnda, had taken out his own loan on the house. He wasn’t making payments on that loan, which the buyer knew nothing about.”

“The investigation found Hafiz, 31, misled almost 40 other homebuyers on similar real-estate deals in Arizona. In May, he pleaded guilty to fraud and was sentenced to six years in prison and ordered to pay $3.5 million in restitution. Thanks to bad deals like the ones perpetrated by Hafiz, Arizona ranks No. 4 nationally for mortgage fraud, according to a leading monitor of the crime.”

“During the past year, federal and state regulators have cracked down on dozens of fraudulent real-estate deals in Arizona that have cost homebuyers and investors hundreds of millions of dollars. In May, former Phoenix contractor Paxton Jeffrey Anderson was sentenced in U.S. District Court to eight years in prison for mortgage fraud. His bookkeeper, Joseph John Plany, got a four-year term. Anderson and Plany would use the money from the construction loans for their own expenses, including trips to the Kentucky Derby and gambling, according to court documents. Many victims of the scheme lost homes to foreclosure and were forced into bankruptcy.”

“Arizona has ranked in the top five states for mortgage fraud on the LexisNexis Annual Mortgage Fraud Report since the housing boom, when cash-back deals became common. The deals, made possible by loose lending guidelines, revolved around speculators flipping houses among themselves every few months and taking cash out of each deal. At the time, I remember some, who thankfully aren’t in the real-estate industry anymore, questioning whether cash-back deals and other mortgage fraud really hurt anyone.”

Bits Bucket for July 15, 2015

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