District Attorney Scott Storey of Jefferson County, Colorado is one busy lawman. The local housing market is chock full of mortgage fraud varmints. One particularly pesky ring, operating for roughly 5 years, recruited hundreds of illegal immigrants to act as “straw buyers,” the lowest players in the mortgage fraud game. Ringmasters were mortgage brokers, realtors, and loan officers in local banks. Straw buyers were supplied with stolen identities, including drivers licenses, social security cards, and income tax returns. Some were given green cards of legal immigrants. What couldn’t be stolen was forged.
False docs in hand, straw buyers obtained mortgage loans they had no intention of paying. Some 300 single family homes in Jefferson County and the adjoining Denver area are known to have been involved. In 191 transactions every single qualifying document was fake. So far, 38% of the mortgage loans have gone into foreclosure. Millions of dollars have been lost.
Tuff luck for lenders? Not as much as you’d think. The mortgages were insured by the Federal Housing Administration (FHA), a sub agency of the U.S. Department Of Housing and Urban Development (HUD). Taxpayers picked up the bad. Expect them to pick up more. D.A. Scott Storey believes thousands of other properties were obtained by the same ring and that similar frauds are widespread in the Denver area. And in an August 24th Denver Post article, “FHA program key in surge of foreclosures,” a government source estimated that “20,000 illegal immigrants hold FHA mortgages in metro Denver alone.”
Many of the frauds perpetrated by the Jefferson County ring were powered by an FHA lending assistance arrangement under the HUD category Downpayment Assistance through Secondary Financing Providers. Aka DAP. This particular DAP arrangement is commonly called the FHA gift program and is meant to benefit low income, first time home buyers. Mortgages insured by the FHA require 3% down payment. In the past, only family and friends were allowed to provide down payment assistance. But in 1998, the FHA started letting sellers contribute down payments via group funds administered by charitable, non-profit organizations. Eight years later, even HUD acknowledges such organizations are frequently for-profit fronts. Plus, sellers raise the price of properties to cover down payment contributions. Closing costs and FHA insurance premiums are also rolled into the loans. Ultimately, gift program mortgages, granted in the name of affordable housing, wind up costing buyers more than the property is really worth.
The gift program gouges sincere home buyers, but gifts grifters who instantly default. For the past eight months, Colorado has led the nation in foreclosures. The foreclosure tsunami has been most destructive in low income urban neighborhoods, where the gift program has been used in the name of urban revitalization.
Several years back, a realtor in Jefferson County tipped HUD in Dee Cee to the mortgage fraud ring which was using illegal immigrants as straw buyers. But the frauds went on for another 2 years. According to HUD Deputy Assistant Secretary Jereon Brown, the size of the ring made it more than an “overnight case”.* Meanwhile, the Gaming Unit of the Colorado Bureau of Investigation (CBI) launched an investigation of complaints by a casino re forged proofs of casino employment being used to qualify for mortgage loans. This led to investigations and a series of indictments by D.A. Scott Storey. The D.A.’s office is now working in tandem with the county Sheriff’s Department, the Colorado Attorney General’s Office, HUD, Immigration and Customs Enforcement (ICE), the Social Security Administration, Postal Inspection Service, and the U.S. State Department.
Like love, justice has been coming in spurts. A number of ringmasters have been sentenced. Despite the extent of the fraud and its destructive impact on neighborhoods, plus the cost to taxpayers and those whose identities were stolen, penalties have been light. (However, a wee bit of HUD restitution has been part of the sentencing package.) Illegal immigrants who acted as straw buyers are now being arrested. Officials claim they’ll be deported. But in Dee Cee, Columbo hasn’t yet knocked on the door of HUD or its mini-me, the FHA, asking “just a few questions about your response time and oh yeah, that gift program”. Nor has the Denver Homeownership Center, HUD’s rep in Colorado, been grilled re possible oversight problems.
The stated mission of the Denver Homeownership Center is to “insure single family FHA mortgages and oversee the selling of HUD homes”. The center serves 14 other states besides Colorado, including several hot spots for mortgage fraud. Colorado makes the FBI’s mortgage fraud top ten list. Though not the top spot. That distinction belongs to Florida. Where swampland has always been popular.
Recently, Jefferson County D.A. Scott Storey and his posse rounded up another batch of baddies from the fraud ring. In the post-bust press release, HUD Deputy Assistant Secretary Jereon Brown weighed in, saying: “as much as we intend to expand the FHA program to help more families become homeowners, we will not do so at the expense of the financial integrity or reputation of the Federal Housing Administration.”
Truly, HUD is the gift that keeps on giving.
Carola Von Hoffmannstahl-Solomonoff
Mondo QT
* Mortgage Fraud Ring obtained FHA loans for noncitizens, Matt Carter, Inman News, 11/28/06
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April 16, 2007 10:58 am
June 18, 2007 9:29 am
17 Comments
Have you ever heard of something called fractional reserve banking? Banks only risk 10% of what they loan out. The other 90% is created out of thin air!!! So if they loan someone $300K, they are only risking 30K and if they have to foreclose on that property and they sell it, they will then get the whole 300K. Banks make money through foreclosure because thats how they get the whole value of properties that they originally only risked 10%.
I appreciate this article, but I wish it would have been more explanatory regarding exactly who is profiting.
Were the illegal aliens, who never intended to pay on the house, paid to be the straw men, them knowing all the while that this scam had nothing to do with them gaining housing, but everything to do with that one-time payment to be the straw man?
Did that “non-profit” corporation that loaned the down paymnent amounts profit because the FHA mortgage insurance paid the non-profit off promptly and completely when the straw men soon defaulted? Is that really big money for the “non-profit”?
FHA mortgage insurance is something that we the taxpayers ultimately foot the bill for. I recall an article very recently where HUD has admitted to billions of dollars in hiding their losses via accounting methods “creativity” – just like Enron.
The money and who exactly profits and how much money is being bilked from this scam should have been made more clear to we readers.
Also, the possibility that the “non profit” program or the banks or FHA itself actually runs this scam and hires the straw men and helps them with their fake qualifying papers should have been explored more fully.
Also, I appreciate the one comment of a reader before mine regarding how the banks profit via our fake fractional reserve banking system.
I hope people will please explair more about this and how we can expose it if it exists in our own communities.
A poorly written article. (Yes, I am a professional writer.)
“False docs in hand, straw buyers obtained mortgage loans they had no intention of paying.”
So after a few months of non-payment, the illegal cheats get the boot, and the property goes back to the lending institution to resell at the market rate, right? Who is the loser?
“So far, 38% of the mortgage loans have gone into foreclosure.”
Is this 38% of the 300 properties involved? Or 38% of the 191 properties in which every qualifying document is faked?
In any case, if a person fakes qualification documents, nobody is the wiser if they make their payments on time. So why have 62% NOT gone into foreclosure? Are they making regular payments? Or does the FHA have no interest in recouping their loss? Or are people afraid of going after illegals. (As they are in some areas of California.)
I won’t be at all surprised to find out that the people behind this fraud is the BCCI/Silverado Savings and Loan cabal connected to Neil Bush.
Colorado is about to take a dirt nap in the housing market anyway. If you drive through many of the poorer mountain towns you will notice that in some areas 85% of the homes are now for sale! But, few if any buyers.
Major home builders here in Colorado Springs are in big trouble and lay-offs are in full force. There are thousands of homes on the market between Denver and Colorado Springs and once again with few if any buyers.I’m a house painter with many years in the business, I’m sorry did I say “business”, what business? Oh, talk to most real estate agents they are dropping like dried-up bugs! Now, the car dealerships like John Elway Toyota in Denver or any dealership in Colorado Springs and Pueblo are very slow.
It’s going to get very, very ugly. This is connected to a massive default and recievership of hard assets for foreign investors, transnational paper-holders and global bankers.
Weak dollar? No, worries we’ll just have your land, water, highways oh, do you have any oil and natural gas in Colorado? Hey, Texas, Utah, Nevada and California?
In other words, this thing with the illegals is just the start…
Banks don’t run financial risk. Image damage maybe. But all fiat currency is created out of thin air-nothing.
Actually all value is just an assumption, r multitude of assumptions. What is needed is people who believe it these assumptions to be true.
Believing is seeing.
It is all about creating an image or multitude of images which people accept as being true and thus believe.
The tool use is language. Semantics; in spoken, written, printed form. This is the tool of trade for bankers, lawyers, politicians, royalty etc. etc. And these language beliefs are already planted in schools.
Of course one overlooks language, as it is so common in daily life.
These crooks have been stealing from HUD for decades. Hundreds of billions of dollars. The fraud leads right to the White House. Put them all in the pillory! More on this issue at stewwebb.com
The Irony is the Baker Report wants to use the national guard and rest of the U.S. Military to seal the boarders between Iraq and Syria and Iran
It should come as no wonder that Colorado leads in nation in the number of recent home foreclosures. Even with the mortgage fraud issue aside, the MAIN reason for the high foreclosure rate in Colorado is obvious.
Take a look at the tens of thousands of high-paying jobs, with benefits, that have been eliminated from the region in the last seven years. Those jobs have been replaced with part-time, service sector jobs with compensation near the minimum wage.
One does not make mortgage payments and pay for automobile insurance, groceries, health care, and utilities with the money earned from these “chump-change” jobs.
good info from posters re fiat money. go to google video and watch “america freedom to fascism”
yes we have been sold out and it will continue until we demand an end to the private fed and the irs
In 1979 I was a victim of this same type of HUD, FHA, Banking scam. Daschielady, you asked who profits. The article states who the “Ringmasters” are, mortgage broker, realtors, loan officers and lending institutions. The straw man is the low man on the totem pole and sometimes ending up paying more than the house is worth, hence the foreclosures. The losers are legimate buyers, or those who think they are, and the taxpayers. Here is how it works, the ringmasters provide ALL the fraudulent documents needed. The mortgage broker or realtor brings in the buyer and receives his fee, the loan officer qualifies the buyer based on documents known to be fraudulent, the buyer defaults some for reasons legimate buyers default, FHA pays off the mortgage, HUD is the agency that gets the house back to be resold. This cycle repeats itself over and over and the taypayers lose. The shamlessness of those who administer these progams, not the progams themselves that are bad. This same thing went on with earlier progams adminstered by HUD in the 1970s and 80s with the 235 PLAN and the HOMESTEADERS PLAN (the latter was a scam on me). So now the illegals are being used for ill-gotten gain of LEGALS. As the article stated, they received the least benefit. Kickback scams weren’t invented by illegal aliens.
hey you stupied americans we took you again, Just think when president Bush and your on the take congress GIVES US AMNESTY WE WILL HAVE IT ALL……………….
Identity theft in reality is fraud victim transferrance.It’s really massive tyrannical U.S. government based racketeering with R.I.C.O. corporate and business conspirators.There should be millions of arrests and Nationalization(full asset seizure) of conspiring R.I.C.O. businesses and corporations.
If an automobile dealership were to sell a new BMW to an illegal alien claiming to be caucasion William H.Gates III should Bill Gates be liable for the business that was defauded? The business(auto dealership) should be the fraud victim.But they transfer the fraud to the identity of the persons name used.Who profits? the business that doesn’t care(makes a $ale) and is in racketeering kahoots with fraudster.Likewise a house mortgaged through fraud shouldn’t make the homeowner the fraud victim.If a mortage company loans money to an I.D thief using forged documents and doesn’t confirm diligently the actual identity of someone taking out a loan then the mortgage company should be the one defrauded.What would President Theodore Roosevelt(R) do?
He would nationalize those RICO trusts and corporations.What did President Eisenhower do in the 1950’s he had massive raids and mass deportations of illegal aliens.We have a corrupt R.I.C.O. government right now not by or for the people.
Thanks to readers for their interesting and informative comments. As a possibly related addendum, on December 12th, Immigration and Customs Enforcement (ICE) raided the meat packing facilities of Swift & Co. in Colorado and 4 other states. Including Texas & Utah. Allegedly, illegal immigrants, with the assistance of a large identity theft ring, had used stolen social security numbers to obtain employment at Swift. The raid was the result of an ICE investigation that began in early 2006.
“Allegedly, illegal immigrants, with the assistance of a large identity theft ring, had used stolen social security numbers to obtain employment at Swift.”
One problem with the current system is that the employers are left to determine the authenticity of government identification documents. They are not trained in this task, nor are they capable of doing even a cursory background check.
Sadly, the solution appears to be either have the government issue standard, fool-proof ID (aka national ID card) or support a background check for prospective employees.
An American Epidemic
Mortgage Fraud-A Serious Business
The “F†word “Fraudâ€, more specifically “Mortgage Fraudâ€, been there and done that, not a as a “fraudster†but a victim and I’ve paid for the crimes of those who’ve done so without my knowledge. If you do not want to be a victim you should want to learn from my mistakes, my naiveté, and my inexperience in dealing with criminals who know exactly how to work the system, and make others like you and I pay for their crimes.
If you become a victim, which trust me you do not want to walk down my path the last 20 months dragging the baggage of a ruined reputation, dozens of confused colleagues, and borrowers were wondering about the status of their perhaps fraudulent mortgages?
I say all this not to sound bitter but to describe for you the feeling I had on March 21, 2005, the day the doors seemed to shut on my company and myself. The day I learned that I had been not only the victim of mortgage fraud but according to my accusers, a key player in committing said fraud.
The day, in effect, all the doors of my life slammed shut at once…my company Primero Home Loans originated and processed loans. We completed loan applications and then processed the loan based on the wholesale investor guidelines to underwrite a loan, sound familiar, easy right.
It is not easy being in the mortgage business, as you probably know. Every day, or so it seems, there are a dozen brush fires to put out and the minute one is extinguished another pops up right beside it. Still, I’d managed to build a solid company in a competitive industry, and up to that point my reputation was as unsullied as our customers were satisfied and the wholesale investors wanted our loans.
I managed to weather my share of storms and, in the spring of 2005, little did I know it was my world, and not the housing market, that was about to burst.
A letter was waiting for me on my desk from Department of Housing and Urban Development, I learned that HUD was, in fact, notifying Primero of its intention to “terminate its Origination Approval Agreement because of its default and claim rates on HUD/FHA insured mortgages…â€
As one might imagine, I was devastated. Since opening Primero Home Loans two years earlier – and after owning two other mortgage companies that were approved to issue HUD/FHA loans and did not have any problems with early default or claim rates – the letter seemed particularly unjustified. Why, I had even received a Best Practices award from HUD in 1997. I was confused, to say the least.
More questions followed: “How could HUD think the fraud had been done by Primero?!?†I wondered.
In fact, it was the wholesale lending investor underwriting department, not Primero, which determined the final approval and gave us the “clear to close†on whether a borrower qualified for a loan under the lender’s guidelines. As is the case with most mortgage brokers, Primero did not make the final determinations regarding a borrower’s loan eligibility, nor did we actually fund the loans. We worked with approximately nineteen different wholesale investors. Our individual loan officers working for Primero determined which investors to close the loans with – on specific transactions.
The news set off a ripple effect through my already reeling brain. Such a decree from HUD would be a crucial blow to our monthly volumes and revenues, but what pained me the most was the shame I felt at receiving such a letter, particularly when I’d done nothing to deserve it and did not knowingly participate in the fraud committed. HUD was terminating us due to our default comparison ratio, which was a direct result of the fraudulent loans originated and closed the year before.
After all, this was not some phony shell corporation or business front; Primero was my pride and joy, a company in which I’d invested endless amounts of money, blood, sweat, and tears over the past two years; starting and operating what I had decided to be my final company until my retirement days.
Now, with a single letter, HUD was basically accusing ME of fraud. My stomach lurched. Still, despite the jittery nerves and gloomy financial forecast for Primero, there was an ironic sense of smugness that filled me that morning.
I knew I hadn’t committed fraud. In some small way, this measure of intestinal fortitude gave me the resolve I needed to fight HUD’s decision tooth and nail. I would need every ounce of pride, resolve, and emotional follow through I had in the coming months, but of course I didn’t know that then.
A hundred different scenarios went through my mind as I put in a call to my lawyer, then huddled my closest staff, several of which are close family members, including my partner in business and life, my wife, to discuss the implications of the now infamous HUD letter. But the more my staff and I investigated HUD’s allegations, the more we realized that something, indeed, was very wrong.
And, unfortunately for all of us, it wasn’t back at HUD…
Things happened quickly after that. I felt like a prison warden who wakes up one morning only to discover that all his inmates have escaped. I’d done nothing wrong but the guilt by association was shameful, depressing, and alarming. I felt betrayed, violated, and taken advantage of.
It had started back in late September 2004, with the quality control of Primero closed loan files. HUD requires mortgage companies to have an audit done on 10% of all mortgage loans closed. Our current quality control company had started sending audit reports with some unusual notations from one of my senior – and highest volume – loan officers. I did not suspect what I eventually found, but the more quality control reports we received and the deeper we dug, the more we realized we were up to our knees in it.
In fact, it soon came to my attention that the misrepresentations and suspected fraudulent activities of several (now former) employees of Primero, in conjunction with several underwriters at a couple of national wholesale investors and a customer service representative working for a nationwide credit reporting agency and possibly an appraiser as well, and yes a Real Estate Agent were significant factors contributing to Primero’s default and claim rates with HUD, which was the main reason for the termination letter. The news was at once both reassuring and disturbing. We’d found the source of the scam but now we needed to know how far it had spread and how it worked, if that was at all possible.
I felt like a detective solving a crime; to uncover the massive conspiracy that had led to HUD’s decision to terminate its Origination Approval Agreement.
During the early fall of 2004, I had been reviewing our quality control audits and started discovering a trend in some closed loan files of a single senior loan originator at Primero, whom we had worked together for about 3 ½ years. I had challenged her on some of these issues, but she seemed to have valid excuses for what I was finding, after all I had no reason to not believe her at that time. Then I discovered a file that had just closed had enough information to prove “mortgage fraud†was happening with her loan files and that her excuses from earlier where untrue, to say the least. I immediately informed her that she and her team was being terminated from Primero due to “quality control issues†and suspected misrepresentations and fraud.
In taking these drastic steps it turned out I was a day late and a dollar short. Now the events of October 2004 were coming back to haunt me. It didn’t matter that after October 7, 2004 none of these individuals originated or processed loans for Primero. It didn’t matter that I had changed the locks on the doors and computer codes to ensure that none of these individuals could gain access to Primero’s office or any of its loan files.
The “mortgage marauders,†as I would later come to call them, merely picked up stakes and moved their whole operation elsewhere and to this day still operating.
After analyzing HUD’s Notice of Termination, my staff and I eventually calculated that over 80 % of the loans HUD had identified as being in default were originated this loan officer her co-conspirators. It was a crushing blow to my own, as well as the company’s, formerly high self-confidence.
It proved to us that if we could get hit, no company was safe. After all, I thought we had a sufficient quality control plan in place. I also considered our back up plan to be our wholesale investor, who was underwriting the final loan files to obtain the clear to close. It was like a safety net for us; we felt what we did not catch, they would.
We all knew each other, or so we thought, and to be betrayed in such a fashion – and to such a wide-ranging extent – was truly a crushing blow to one and all. This loan officer has gone on to wreak considerable havoc at other mortgage loan companies after being terminated from ours. The fact that ours was not the only company she has “hit†was of little consolation.
Still, I can’t help but think of how much time, energy, and money has been spent defending us against charges that resulted through no fault of our own.
So far the implication seemed clear: almost every piece of processing and approving a loan in the mortgage transaction had been affected. My investigation revealed that not only had the loan officer and her team of assistants been at the root of the problem, but the wholesale investor mortgage company, the real estate agent, possibly one of the appraisers, but the credit reporting agency were all involved!
How far did the conspiracy reach?
It seemed incredible to me that the problem could be so systemic. It was the proverbial tar pit: every time I so much as moved, another part of me – and my company – got dirty. At the end of some days I had to ask myself: Was there anyone who wasn’t involved in the conspiracy?
We discovered that certain underwriters working for the wholesale mortgage investor company were waiving standard closing conditions or not asking for standard closing conditions then approving loans giving them the “clear to close†without obtaining the proper required documentation.
Had these underwriters at the wholesale mortgage investor diligently performed their duties by ensuring that each borrower had satisfied the wholesale mortgage investor and FHA’s lending criteria, then a majority number of these loans might never have been closed and funded.
Why do I mention all this? Why have I laid my soul bare for all to see? Please know that I’m not trying to scare you or paint a picture of the real estate mortgage business that is all doom and gloom. It isn’t.
My story, in general, and my book “An American Epidemic, Mortgage Fraud a Serious Business†as well as my “Focus on Fraud†workshops in particular, are designed to arm you with the tools you’ll need to combat the forces of those who would commit fraud. These people cared nothing about my company, me, or the good people they hurt by creating fraudulent loans that lined their pockets and robbed the rest of us of our good names. Their credentials looked great on paper; they talked the talk and even walked the walk, and fooled an experienced business owner who had been in the real estate industry for nearly two decades. And I sadly report that Primero could not and did not survive we closed our doors due solely to this group of “fraudstersâ€
I guess my point is if it can happen to me, it can happen to you.
But it doesn’t have to…
Together we need to learn what it takes to stop mortgage fraud, not just at our own companies but at every level of the real estate playing field that mortgage fraud exists and to avoid becoming a victim we must be vigilant about combating fraud at every step.
Together we can do just that, if you take proper actions to obtain all the tools you’ll need to prevent yourself from becoming a victim of this increasingly American Epidemic, mortgage fraud.
By Michael S. Richardson, Author, Mortgage Broker, Real Estate Agent
www.preventmortgagefraud.com
Thanks for the well written article. I don’t mind a little “Fresh docs in hand” readability, sorry Questioning Dave! I am a professional writer, too, and I am so glad to have such thoughtful people, author and commentators alike, participating in this stream. Well, except for that faux “Jose Garcia,” that impersonator, just someone who might be (allegedly, though questions remain, my opinion only, I could be wrong) perpetuating hatred against others. Sadly, nothing new. Anyway, I appreciate your stories and desire to correct a systemic problem, one that seems to be repeatedly surfacing over the years.
I will use the tone that I gathered from the thinkers here and promote them in my April article of Colorado Lifestyle Magazine that spotlights Brian Margolis. Hey, Michael Richardson, can I use “mortgage mauraders?” Love it! Now, more than ever, we must do our homework when getting involved in big ticket items. Thank you all again for the vital, impassioned and profound dialogue.
Best wishes to all of you, and a maybe we could exercise some compassion for those victims of mortgage fraud which we undoubtedly will encounter in their desparate futures.
HAHA you stupid Gringos
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