The Oregonian






























It seems like every month, I’m running into people passing out a slick new business card that announces them as a real estate agent or mortgage broker.

Who wouldn’t want to get a piece of the action? On certain Portland streets, housing prices are doubling in a matter of months. And when there’s this kind of temptation to make quick money, greed can’t be far behind.

Insiders call it land flipping. Silent second. Straw buyers. Foreclosure fraud. Equity skimming. Air loans. If there’s a thought to do it, there’s a scheme attached to it.

"It’s the fastest-growing white collar crime in the country," says California attorney Rachel Dollar, whose Web site, www.mortgagefraudblog.com, helps lenders across the country learn about who’s doing what to whom. "There’s 101,000 schemes. They come up with new ones all the time."

In July, one of Oregon’s most prolific con men, Clifford Brigham — also known as C.J. and Cleveland — and Melodie MacDuffee were indicted on charges that they allegedly defrauded lenders out of $5 million between October 2004 and August 2005. At the time, Brigham was on release from federal prison pending appeal of his 2003 conviction for another scheme.

So, Portland’s latest mortgage fraud allegations — which involve three folks who are well-known in real-estate circles for being financially successful in their craft — are not the most egregious.

Last week, Leanne Booth, 48, a real-estate loan broker; Troy Martin, 40, a real estate sales agent; and Ryan Bonneau, 30, a former mortgage loan originator, were indicted on money laundering and wire fraud charges. They are accused of selling two Marine Drive homes at inflated prices so they could pocket the profits. Between the three of them, they couldn’t have cleared much more than $250,000.

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By David Streitfeld, LA Times

Mortgage fraud continues to escalate in Southern California, FBI figures show, raising concerns of increased defaults and foreclosures as the housing market cools down.

Lenders filed 4,228 reports of suspicious activity in the region during the first 11 months of the government’s fiscal year, which ends Saturday, the FBI said. That puts 2006 on track to nearly double last year’s total.

The jump in reports of suspicious activity even as home sales have declined may stem in part from a lag in reporting. But the FBI and industry experts say the trend also reflects growing deceit by average borrowers who overstated their income, exaggerated their assets or hid their debts simply to qualify for a mortgage in the region’s sky-high housing market.

"There’s more of the little guy running around — people committing fraud for housing," said Ronda Heilig, the bureau’s mortgage fraud program manager.

A seven-county region from Orange County to San Luis Obispo County has seen a fourfold increase in suspicious loan activity since 2003, largely coinciding with sharp run-ups in housing prices and lending activity. But with home sales slowing and prices leveling off, the explosion in small-scale duplicity could have serious consequences, industry experts believe.

During the boom, people who lied about their income to get a loan — and then struggled to make the payments — had the option of making ends meet by tapping their newfound equity through refinancing or by selling the property for a profit.

But now, with prices flattening out or declining, those without sufficient equity could be forced to sell for a loss or even default on payments. That could accelerate any downturn in the market by swamping it with foreclosed and bargain-priced properties.

"This is the calm before the storm," said Steve Smith, a Redlands appraiser who lectures frequently about real estate fraud to industry groups.

When home prices in California began to throttle up in the early years of the decade, people needed bigger loans but sometimes couldn’t prove they could handle the debt. To accommodate them, lenders started to offer loans that required little or no documentation.

For example, in a so-called low-doc loan, also known as a stated-income loan, the lender doesn’t verify the borrower’s income. With a "no-doc" mortgage, the lender doesn’t check income, assets or employment.

Such loans, which carry higher interest rates than traditional loans do, were originally designed for people whose income swung widely, like the self-employed, or high-wage earners in unusual circumstances — a doctor who had just moved to a new community and hadn’t set up a practice yet, for instance.

As the state’s boom went on, the mortgages became so popular that they now account for a third of new loans, according to data tracking firm First American LoanPerformance.

Industry insiders have a nickname for low-doc and no-doc mortgages: liar’s loans. The phrase reflects the suspicion that many of the borrowers who get such loans don’t have the income or assets to qualify the old-fashioned way.

One lender recently compared 100 stated-income loans with the borrowers’ tax returns and found that only 10 of the borrowers were telling the truth about their wages, according to Mortgage Asset Research Institute, a division of data firm ChoicePoint Inc.

Sixty of the borrowers had exaggerated their incomes by more than 50%, according to the institute, which didn’t identify the lender.

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The big boys are at it again, trying to beat the system out of pure greed for making even more money:

The Department of Housing and Urban Development on July 18 announced $1.6 million in settlements under The Real Estate Settlement Procedures Act (RESPA) with a national mortgage lender and two major homebuilders who engaged in a business practice involving captive title reinsurance. 

The agreements included a $650,000 settlement with CitiMortgage, Inc., and its captive title reinsurance company Chesapeake Reinsurance; a $675,000 settlement with M.D.C. Holdings, Inc., certain of its Richmond American Homes homebuilding subsidiaries and AHT Reinsurance; and a $305,000 settlement with WL Homes, which does business as John Laing Homes, a California and Colorado builder. 

Captive title reinsurance is a practice whereby a title insurance company transfers a portion of the risk and title premium to a company owned by the builder, lender or real estate broker referring the title business. 

In HUD’s view, any captive title reinsurance arrangements in which payments are not bona fide and exceed the value of the reinsurance are a violation of RESPA. HUD also has a particular concern when these arrangements involve an entity that is in a position to refer business to the primary title insurer. There is also strong evidence these arrangements are designed to generate referral fees when there is a history of few or no claims paid, HUD said. 

"There is almost never any legitimate need or business purpose for title reinsurance on a single-family residence," said HUD Assistant Secretary for Housing Brian D. Montgomery. "HUD will continue to work with the states to investigate captive arrangements to make certain that they aren’t created for the purpose of obscuring referral fees." 

The companies came forward and cooperated with HUD in reaching these settlements. In addition to the settlement payments, the companies agreed not to enter into any new captive title arrangements and to cease writing new captive title reinsurance business.

These are HUD’s first settlements in the nation involving the recipients of payments made by title companies to captive companies for reinsurance. The settlements come in the wake of recent settlements states have obtained from title insurance companies who paid significant portions of the premiums they received to such captive companies.

Broker Newswire

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