Banking Law

Last spring, The Arizona Republic ran an article that gave a laundry list of lawsuits that large lenders and Wall Street firms were filing against local lenders, brokers, agents, appraisers, title companies, and other third parties who had engaged in bilking them through various mortgage fraud schemes, particularly with respect to subprime mortgages. The paper predicted that the civil litigation was a precursor of many criminal actions to come.

"The discovery, deposition and documents from civil litigation of cash-back deals will clearly show criminal conduct. Private lawyers will be able to package up these cases for prosecutors and criminal trials," said Michael Manning, a lawyer representing several groups, including Lehman and Aurora, that are suing Arizona lenders.

I'm not sure about Arizona, but nearly a year later,  the hammer of the criminal justice system is falling on mortgage loan fraudsters in North Texas. The latest example was reported this week (free registration required). It involved the consumer advocate's favorite whipping boy, Countrywide.

An Arlington real estate appraiser has been sentenced to five years in prison after participating in what U.S. Attorney Richard Roper called a widespread North Texas home scam that cost Countrywide Home Loans millions of dollars.

In August, Gandhi Ben Morka, 52, was found guilty on a charge of conspiracy to commit wire fraud, four counts of wire fraud and two counts of mail fraud after a weeklong trial.

In addition to the five-year sentence handed down Tuesday, he must repay $2.3 million.    

Mr. Morka was accused of working with seven others who were indicted in May 2005 on mortgage fraud charges ? Sean Cung-Kim Nguyen, Dai Quoc Nguyen, Xuyen Thi-Kim Nguyen, Tam Nguyen, Myna Tran, Hong Thanh Duong and Cuc Kim Tran. Mr. Roper's office said that most of those seven have been convicted and sentenced to prison.

Obviously, America continues to be a melting pot, where diverse criminals of many national origins can steal to their heart's content.

Under the scam, Mr. Morka would assess the home at roughly double its value in order to get more money from the mortgage company, which in these cases was Countrywide. The group would submit faked loan documents in order to get the financing, pay off the original owners of the property and split the rest, according to Mr. Roper.

I guess none of those folks will be helped by a Hope Now loan modification. More's the pity.

We've previously reported on North Texas as a hotbed of mortgage fraud. It turns out that Texas as a whole is among the nation's leaders in mortgage fraud.

In a 2006 report by the federal Financial Crimes Enforcement Network, Texas ranked fourth in real estate mortgage loan fraud. Only California, Florida and Georgia had more instances of mortgage fraud than Texas.

Apparently, Texas will never catch up. Our failure to generate a bubble of inflated real estate prices makes us a poor horse to back in the top mortgage fraud state sweepstakes.

But a local mortgage expert said that while there were concerns about appraisals in North Texas earlier in the decade, for the most part there aren't problems with appraisals happening today.

"We haven't had the really high prices and then running down of prices in this market compared with others," said Gary Akright, an independent mortgage broker in Dallas.

The stability of home prices here makes fraud related to appraisals less likely, he said, and Texas laws prohibit any influencing of real estate appraisers by real estate agents.

As of Sept. 1, mortgage companies doing business in Texas must warn loan applicants of the criminal consequences if they provide false information on the application, including inflated appraisal values.

As if crooks are ever deterred by disclosures or specific criminal penalties for conduct that they already knew was illegal under general anti-fraud criminal laws. As in most states, however, our politicians can point with pride to the disclosure law and crow about how they did something to combat mortgage fraud.
Following which, they'll issue a press release complaining about how Countrywide's not doing enough to help the poor mortgage borrowers that it misled.