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Argent Exec Charged in Massive Fraud Scheme

280 broker loans fraudulently approved

Article from MortgageDaily.com

A former vice president of Argent Mortgage Co., an account executive and two mortgage brokers have been charged in a mortgage fraud scheme involving hundreds of loans.

Over 280 fraudulent loans for more than $34 million were funded through the scheme, according to an announcement today from Florida’s attorney general and the state’s Department of Law Enforcement commissioner. Loans were secured by properties in Hillsborough, Pinellas and Polk counties.

Former Argent vice president Orson Benn is accused of accepting more than $100,000 from Tampa mortgage brokers David Tuggle Jr. and Eric Steinhauser to ensure the bad loans were approved. Tuggle and Steinhauser worked at Sunstate Mortgage Co.

All three were charged in the scheme that spanned more than two years.

Also charged was Argent account executive Constance Golder, who allegedly helped facilitate the process by acting as a liaison between Benn and the two brokers.

With the help of Argent, which was acquired by Citigroup last summer, prosecutors will focus on just 11 transactions.

Benn, who is also facing prior mortgage fraud charges in Polk County, is suspected of operating similar schemes with numerous other Florida mortgage brokers.

“After the initial investigation of Benn’s activities, the investigation was expanded to include additional targets that were actively engaged in fraud with Benn, who has been charged with racketeering, conspiracy to commit racketeering, mortgage fraud and grand theft,” the announcement said. “If convicted, he could face up to 95 years in prison.”

As many of you may know, Fannie Mae and Freddie Mac have initiated monumental changes in the appraisal ordering process. Below is the article from the Wall Street Journal.

Please feel free to contact us for more information on how this change might affect you or your organization. We can be reached at 877.229.7799.

Article:

Fannie Mae, Freddie Mac Agree
To Loans That Meet New Standards
By CHAD BRAY
March 3, 2008 1:13 p.m.

Fannie Mae and Freddie Mac reached an agreement with New York Attorney General Andrew Cuomo to only purchase loans that meet new standards designed to ensure independent, reliable appraisals.

Included would be no longer buying mortgages in which the brokers selected appraisers or when lenders used “in-house” staff appraisers or appraisal-management companies they own or control.

Mr. Cuomo said the mortgage giants also have agreed to create an independent organization to implement and monitor the new appraisal standards to be funded with $24 million from Fannie and Freddie, while their regulator — the Office of Federal Housing Enterprise Oversight — also has agreed to the creation of the independent institute to be called the Independent Valuation Protection Institute. The institute will report to the attorney general’s office and OFHEO on a bi-annual basis. (See the full text of the Code of Conduct.)

The moves come amid wide sentiment that inflated appraisals have been an important contributor to the mortgage crisis. Appraisals, generally required by lenders before making home loans, are supposed to ensure that the lender has an authoritative estimate of the property’s value. An inflated appraisal can cause lenders to advance more money than a house is worth, exposing both lender and borrower to losses, especially when home prices fall.

Fannie and Freddie buy roughly 60% of all home loans originated in the U.S. and repackage them into bonds they guarantee, freeing up funds for further mortgage lending.

“With this agreement, Fannie Mae and Freddie Mac have become leaders in transforming the mortgage industry,” Mr. Cuomo said in a statement Monday. “Now national banks have a clear choice: Immediately adopt the new code and clean up appraisal fraud in the mortgage industry or stop doing business with Fannie Mae and Freddie Mac - it is that simple.”

Howard Glaser, a mortgage-industry consultant who was a senior housing official in the Clinton administration, said, “The restoration of certainty in home valuation will help restore borrower and investor confidence, which is what the mortgage market needs most right now.”

OFHEO Director James B. Lockhart said the agreements “should help restore confidence in the mortgage market by enhancing underwriting practices, reducing mortgage fraud and making home valuations more reliable.”

Mr. Cuomo’s announcement comes after his office subpoenaed Fannie and Freddie last fall for information on loans they had obtained from Washington Mutual Inc. Shortly thereafter, the companies agreed to appoint independent examiners to look at whether they had done enough to protect mortgage investors from the risks of inflated home appraisals.

Washington Mutual — which Mr. Cuomo didn’t pursue in civil litigation because it’s a chartered federal financial institution — has said it was cooperating with subsequent investigations by federal regulators into whether the company had made or improperly accounted for loans based on inflated appraisals. The company has told The Wall Street Journal that “there has been no systematic effort by WaMu to inflate home appraisals.”

Mr. Cuomo, a former housing and urban development secretary, began a probe last year into the appraisal business, which culminated in a lawsuit against the appraisal unit of First American Corp. The suit claimed the company had submitted to pressure by Washington Mutual to make sure appraisals were high enough to justify the bank’s loans. First American has denied the charges and has moved to dismiss the suit, which is pending in U.S. District Court in Manhattan.

“We believe that the appraisals were often fraudulent because there were conflicts of interest and pressures on the appraisers,” Mr. Cuomo said at a press conference Monday, referring to the alleged improper activity his probe uncovered. He said the year-old investigation — which is still ongoing — has looked into dozens of banks and resulted in the issuance of hundreds of subpoenas. He said Monday’s announcement is the only agreement his office was close to signing in the matter and declined to discuss whether agreements with other lenders were in the works.

Regulator Checks Handling
Of Loans Possibly Based
On Inflated Valuations

Article from WSJ.com

By AMIR EFRATI
December 21, 2007; Page A2

The Securities and Exchange Commission is investigating how retail bank Washington Mutual Inc. handled and reported on mortgage loans that may have been based on inflated home appraisals.

The SEC’s inquiry is in its infancy and involves several possible issues, including whether WaMu accurately disclosed to investors of mortgage-backed securities how its loans were appraised as well as whether the company properly accounted for its loans in financial disclosures to investors of the company, according to the people familiar with the situation.

Washington Mutual said in a statement: “We are voluntarily and fully cooperating with the SEC’s inquiry as well as the [Office of Thrift Supervision]” — WaMu’s federal regulator — “and look forward to bringing the facts to both the regulators and public.”

The WaMu inquiry comes on the heels of a lawsuit filed in November by New York state Attorney General Andrew Cuomo that didn’t name the bank as a defendant but alleged it exerted pressure on an appraisal company to inflate property valuations to ensure its loans went through.

WaMu said yesterday, “After spending a month and a half investigating these allegations, we can say with confidence that there has been no systematic effort by WaMu to inflate home appraisals. We take these allegations very seriously.”

Last month, Freddie Mac and Fannie Mae, which acquire mortgage loans from lenders and package many of them into securities for sale to investors, agreed to appoint independent examiners to look at whether they have done enough to protect investors from the risks of inflated home appraisals, particularly on WaMu loans.

WaMu, the country’s biggest savings and loan and one of the largest U.S. home-mortgage lenders, has been battered by the subprime-mortgage crisis this year. The company’s stock price is down 68% this year, and its home-loans unit had a loss of $348 million in the third quarter.

The suit filed by Mr. Cuomo, which alleged that the home-appraisal unit of First American Corp. compromised the independence of appraisers it hired, also claimed that WaMu hand-picked appraisers who brought in high valuations and said bank employees pressured the appraisal company, eAppraiseIT LLC, to increase estimates that came in too low.

According to the suit, eAppraiseIT’s president wrote in an email that it would “roll over” and submit to WaMu’s demands. Later, in an email, he wrote that he viewed the bank’s conduct as a violation of federal regulations, which prohibit infringing on the independence of appraisers.

First American denied the allegations and has moved to dismiss the suit, arguing that Mr. Cuomo can’t bring enforcement action in the area of mortgage-loan origination by federal savings and loans, which are overseen by the Office of Thrift Supervision. A court hearing on the matter has been set for February.

Lenders generally require appraisals before making home loans. The appraisal is supposed to ensure that the lender has an authoritative estimate of the property’s value. An inflated appraisal can cause lenders to advance more money than the house is worth, exposing both the lender and the borrower to losses, especially when home prices fall. Critics of the appraisal business have warned for years of growing pressure on appraisers to inflate home values. Appraisers are often hired by mortgage brokers or lender employees whose incomes are based at least partly on the number of loans they get approved.

Article from Wall Street Journal

S.2338 approved by vote of 93 to 1

Legislation that would modernize the Federal Housing Administration has been passed by both the U.S. House of Representatives and the U.S. Senate and could soon be on its way to the president.

S.2338, the FHA Modernization Act of 2007, was approved by the Senate today by a vote of 93-to-1.

“The fact of the matter is that FHA, due to statutory constraints, has not been able to keep pace with changes in the housing markets,” David G. Kittle, Chairman-elect of the Mortgage Bankers Association, said in a statement today. “This legislation will allow FHA to be more efficient and timely in meeting the needs of borrowers — which is especially important during this time of market turmoil.”

The Senate’s bill prohibits down payment assistance funded by the seller or anyone else who benefits financially from the transaction. It Senate legislation also removes the current cap on the maximum number of home equity conversion mortgages FHA can insure and boosts the maximum size of FHA-insured loans and reverse mortgages. In addition, it limits origination fees to 1.5 percent on HECM loans.

The bill improves the ability of FHA to help subprime and other challenged mortgage borrowers, the National Association of Home Builders said in a press release. It also simplifies requirements for condominium loans.

A statement issued by U.S. Housing and Urban Development Secretary Alphonso Jackson said, “I especially appreciate the bipartisan leadership of Senators Chris Dodd and Mel Martinez in our effort to reform FHA.”

The National Association of Realtors said in an announcement that the FHA program enables higher risk borrowers to obtain prime financing.

A House version of the bill approved in September, H.B. 1852, The Expanding American Homeownership Act of 2007, extends the maximum length of FHA loans to 40 years from 35, makes it easier for borrowers to refinance into an FHA loan, allows some down payment assistance providers to participate in the FHA program, and authorizes zero and lower down payment loans for borrowers that can afford mortgage payments but lack the cash for a required down payment.

The House bill would also boost the FHA loan limit in high cost areas to 100 percent of Freddie Mac’s conforming limit, currently $417,000.

The White House previously expressed concern over a provision of the House bill that would allow participation by brokers who are inadequately capitalized or have internal control difficulties, though the National Association of Mortgage Brokers noted at the time NAMB’s support of the provision enabling brokers to obtain surety bonds without having to go through a costly audit.

“Given the current housing market environment, modernizing FHA is something that the government can do that will have an immediate impact helping some distressed borrowers who are having trouble paying their current mortgages avoid foreclosure,” MBA’s Kittle said in today’s statement. “We look forward to getting a meaningful FHA modernization bill to the president as soon as possible.”

NAHB echoed MBA’s message, noting, “We urge the House and Senate to move quickly to iron out differences between their bills and bring this legislation to the president’s desk before year-end.”

The American Bankers Association also weighed in on the legislation.

“This bill makes the changes necessary to improve the efficiency of the FHA, increase competition among lenders and provide borrowers with a much needed option in the current tight credit market,” ABA Executive Director Floyd E. Stoner said in a statement. “This legislation will return the FHA to its intended role as an innovator in the mortgage market.”

A White House statement today commended the Senate’s passage of the bill and suggested a reconciled bill between the House and Senate will enable the housing agency to help hundreds of thousands of borrowers before the end of Fiscal 2008 in addition to the tens of thousands who have already been helped. But the administration noted some concern remains with both bills.

“FHA should be able to design mortgage products that can help at-risk borrowers, reward borrowers with good credit histories, and protect taxpayers with actuarially sound financing,” the White House stated. “We hope to work with Congress to resolve those concerns in a conference between the House and Senate.”

Article from Mortgage Daily, written by Sam Garcia

3,150 layoffs, $5.2 billion in charges

Washington Mutual Inc. will cut thousands of mortgage jobs, close nearly 200 mortgage offices and take more than $5 billion in charges at its home loan unit. Additionally, the company appears to be steering away from mortgage brokers.

The Seattle-based company announced today a number of steps to shore up capital and bring its mortgage lending operation in line with decreased anticipated production.

“The mortgage market is undergoing a fundamental shift due to credit dislocation and a prolonged period of reduced capital markets liquidity,” the press release stated. “As a result, WaMu expects national mortgage originations to shrink to $1.5 trillion in 2008, down about 40 percent from an estimated $2.4 trillion this year.”

Among the planned moves are 2,600 layoffs in its home loans business, the statement said. The layoffs represent about 22 percent of its home loan staff. In addition, 550 corporate and support jobs will be cut.

WaMu will also close 190 of its 336 home loan centers and sales offices as well as nine home loans processing and call centers. The company said it will discontinue remaining subprime operations, shut down its mortgage banker finance warehouse lending operation and close WaMu Capital Corp. — an institutional broker-dealer business.

The company said it plans to accelerate an expanded focus on its “profitable” retail lending network.

While the moves are expected to reduce expenses by $500 million next year, a fourth quarter after tax charge of $1.6 billion will be taken to write down all of the goodwill associated with the home lending unit, according to the announcement. A provision for loan losses of as much as $1.6 billion is expected this quarter, and a loan loss provision of as much as $2.0 billion is anticipated during the first quarter of next year.

“The first quarter range reflects the company’s current view that prevailing adverse conditions in the credit and housing markets will persist through 2008,” WaMu stated. “The company also currently expects quarterly loan loss provisions through the end of 2008 to remain elevated.”

Depending on credit card securitizations, “there may be some additional variation,” the statement said.

WaMu said it will issue $2.5 billion in convertible preferred stock and cut its dividend to $0.15 per share from $0.56 per share. The moves are anticipated to boost its tangible equity by $3.7 billion.

Article by MortgageDaily.com staff

Associated Press

NEW YORK (AP) — First American Corp. and its home-appraisal unit have asked a federal judge to dismiss a lawsuit by New York Attorney General Andrew Cuomo for allegedly colluding with Washington Mutual Inc. to inflate mortgage appraisals.

In a motion filed late Monday, the Santa Ana, Calif., company and its eAppraiseIT unit asked U.S. District Laura Taylor Swain in Manhattan to dismiss the attorney general’s complaint, saying he lacks authority to pursue a case because all federal savings and loan activities are regulated by the U.S. Office of Thrift Supervision.

“Mr. Cuomo has strayed into territory over which he has neither regulatory authority nor oversight responsibility,” the motion said.

Cuomo has alleged that First American caved in to pressure from Washington Mutual, eAppraiseIT’s largest client, to use a list of so-called “proven appraisers” who allegedly provided inflated appraisal values.

The lawsuit seeks to stop the practice and disgorgement of fees that First American and eAppraiseIT received for the allegedly inflated appraisals. The case was originally filed in New York State Supreme Court earlier this month and then moved to federal court in Manhattan.

Washington Mutual, which is not named as defendant in Cuomo’s suit, has previously said it was “surprised and disappointed” by the allegations and has suspended its relationship with eAppraiseIT until it can further investigate the situation.

“This is a meritless motion made in the wrong court,” said Jeffrey Lerner, a Cuomo spokesman, in a statement. “First American’s vain attempts to raise procedural roadblocks should not distract from the damning facts laid out in great detail in the complaint.”

Article from Associated Press

Brokers notified 2nd lien programs available only with Wells 1st liens

Wells Fargo Wholesale Home Equity Lending has notified its mortgage brokers that it will halt some of its second mortgage programs.

The company sent a Newsflash to its wholesale clients yesterday indicating it will no longer fund second liens where it does not also hold the first mortgage. Monday was the last day the program was offered.

The move was made in response to current mortgage market conditions, according to the Des Moines, Iowa-based company.

“Wells Fargo regularly analyzes the market and makes changes that align with our prudent lending practices,” the message said. “Over the past several months, we have made adjustments to our Wholesale Home Equity credit and pricing structures that reflect our ongoing commitment to responsible lending principles and the market demand for such products.”

The wholesaler said it will also stop funding second lien products that are in first position.

Seconds currently in the pipeline must be funded by Dec. 28, Wells explained.

The company said it will, however, continue to offer seconds where it holds the first mortgage or where it funds a simultaneous first lien.

In July, Wells Fargo Home Mortgage announced it would no longer accept subprime business from mortgage brokers, and in June the company stopped buying nonprime loans from correspondent customers.

Article from MortgageDaily.com

Two weeks ago, The First American Corp. was sued in New York for allegedly colluding with Washington Mutual to inflate appraisals. Now, the company faces more potential lawsuits. Read on to see why four law firms are investigating alleged violations of the Employee Retirement Income Security Act of 1974.
(11/14/2007)

Two weeks ago, The First American Corp. was sued in New York for allegedly colluding with Washington Mutual to inflate appraisals. Now, four law firms are investigating the company for potential violations of the Employee Retirement Income Security Act of 1974 (ERISA).

The investigation focuses on investments in First American stock by the First American Corp. 401(K) Savings Plan. The four firms pursuing possible litigation include Milberg Weiss LLP, Keller Rohrback LLC, Kahn Gauthier Swick LLC and Brower Piven.

In response to the investigations, First American issued a statement to The Title Report that said it “believes the plan has been appropriately administered.”

The law firms said a breach may have occurred if the fiduciaries failed to manage the assets of the plan prudently and loyally by investing the assets in company stock when it was no longer a prudent investment for participants’ retirement savings.

Kahn Gauthier Swick said First American employees’ 401(K) accounts may have been weighted too heavily with First American stock.

“These accounts may have been overly invested in First American stock during the time First American shares declined significantly in value, thereby resulting in excessive losses for First American employees,” the law firm alleged.

Lawsuits over company 401(k) plans are a common tactic of firms such as Milberg Weiss, which sue companies after big drops in their stock or other problems.

The investigation relates to certain facts alleged in the lawsuit field Nov. 1 by New York Attorney General Andrew Cuomo against First American and its subsidiary, eAppraiseIT.

The suit alleges that First American violated federal and state laws by conspiring with Washington Mutual to inflate real estate appraisals.

“Disturbingly, evidence collected by the attorney general, including internal e-mails, are alleged to show that eAppraiseIT executives knew that their scheme was illegal,” Milberg said in a statement.

First American has vehemently denied the charges, saying the attorney general’s allegations are based on a handful of e-mails that were taken out of context and mischaracterized and provided an incomplete review of the facts.

“The program called into question today by the attorney general has been vetted and approved by the federal regulator responsible for oversight of such programs,” First American said. “We welcome the opportunity to now present all the facts before an impartial third party. In that presentation, we will demonstrate the appropriateness of our appraisal practices in the state of New York and we will vigorously defend the reputation of Washington Mutual and the reputation we have labored more than 100 years to build.”

Cuomo’s lawsuit did not target Washington Mutual, however, the largest U.S. thrift, was sued last week by investors claiming the bank sought to inflate real-estate appraisals. New York-based law firm Wolf Popper and San Diego-based Coughlin Stoia Geller Rudman & Robbins said in statements they had filed lawsuits alleging WaMu’s results were boosted by such alleged practices.

HUD AND STATE OF FLORIDA SETTLE CASE AGAINST FIRST AMERICAN TITLE CO. IN ALLEGED KICKBACK SCHEME
First American to shut down 84 limited partnerships in Florida and will pay $5 million

WASHINGTON - The U.S. Department of Housing and Urban Development and two Florida regulators today announced a legal settlement with First American Title Insurance Company for alleged violations of the Real Estate Settlement Procedures Act (RESPA) and similar state laws. HUD, the Florida Department of Financial Services (DFS), and the Florida Office of Insurance Regulation (OIR) claim First American made payments to scores of affiliated partnerships based on the referral of business to the title company.

Under the terms of the settlement agreement announced today, First American will shut down 84 partnerships and pay $5 million to the U.S. government and the State of Florida.

“Closing 84 affiliated partnerships and negotiating this significant monetary settlement is an outstanding example of ongoing cooperation between state regulators and HUD to enforce RESPA,” said Brian Montgomery, HUD’s Assistant Secretary for Housing and FHA Commissioner. “Our joint investigation found these partnerships were created to generate referrals in violation of RESPA and HUD’s policies against sham affiliated business arrangements.”

The investigation found that over a number of years, First American formed or acquired limited partnerships in the State of Florida to act as title insurance agencies. While these partnerships were created as title insurance agencies, the joint investigation concluded that all regular title services were performed by First American. HUD, DFS and OIR claim the partnerships acted only as “pass throughs” to pay real estate agents, mortgage brokers, builders and other limited partners for referring business to First American.

Section 8 of RESPA prohibits a person from giving or accepting anything of value in exchange for the referral of settlement service business. It also prohibits a person from giving or accepting any part of a charge for services that are not performed.

First American further agreed that any future affiliated title company operating in Florida will:

* Employ individuals who are licensed and experienced in the title industry and will provide core title services through its own employees;

* Have operating capital and net worth comparable to independent title agencies in the market area in which it operates;

* Hire employees who will work exclusively for it and who will not be compensated, employed or managed by any affiliated real estate agent, mortgage broker, title insurance company or homebuilder;

* Actively compete in the marketplace for title insurance business and actively market its services and seek title business from persons other than the agency’s owners and persons associated with First American, and;

* Comply with RESPA, HUD policy statements, and relevant state law.

To read the settlement agreement announced today, visit HUD’s website.

Wolf Popper Announces Filing of Securities Class Action Lawsuit Against Washington Mutual, Inc. - WM
Monday November 5, 2:18 pm ET

NEW YORK, Nov. 5 /PRNewswire/ — Wolf Popper LLP has filed a class action lawsuit against Washington Mutual, Inc. (”Washington Mutual”) (NYSE: WM - News) and certain of its officers and directors in the United States District Court for the Southern District of New York, on behalf of investors who purchased Washington Mutual common stock on the open market from July 19, 2006 through October 31, 2007 (the “Class Period”). This is the first action filed against Washington Mutual and alleges claims for securities fraud. The case has been assigned Civil Action No. 07 Civ. 9801.

The complaint charges that during the Class Period Washington Mutual improperly exerted pressure on a third-party appraisal firm, eAppraiseIT (a division of the First American Corporation), to inflate the appraised value of homes used as collateral for loans originated by Washington Mutual. Washington Mutual failed to disclose this scheme, which violated federal and state laws and regulations requiring an independent appraisal process. The inflated appraisals caused Washington Mutual’s financial results to be misstated, including causing its loan assets to be overstated while its provision for doubtful accounts and reserves for loan losses were materially understated.

On October 17, 2007, Washington Mutual revealed that its anticipated fourth quarter 2007 writedowns of home loan assets would be $1.3 billion greater than previously disclosed. These writedowns were caused, at least in part, by the impairment of loan assets that were originated based on the inflated appraisals fraudulently orchestrated by the defendants. Between October 17 and October 31, Washington Mutual’s stock price declined by $5.19 per share, or 15.6%.

On November 1, 2007, the Attorney General of the State of New York filed a lawsuit against First American Corporation and eAppraiseIT, alleging their complicity in a scheme to provide inflated appraisals to Washington Mutual. On November 1, 2007 and November 2, 2007, following the announcement of the NY AG’s lawsuit against First American, Washington Mutual shares fell further, closing at $23.81 on November 2, 2007, down $4.07 per share, or 15%, from the October 31, 2007 closing price.

If you purchased or acquired Washington Mutual common stock during the Class Period, you may move the court no later than January 4, 2008, and request that the Court appoint you as lead plaintiff. A lead plaintiff is a representative party acting on behalf of other class members in directing the litigation. To be appointed lead plaintiff, the Court must decide that your claim is typical of the claims of other class members, and that you will adequately represent the class. Your share in any recovery will not be enhanced or diminished by the decision whether or not to serve as a lead plaintiff.

Wolf Popper LLP has extensive experience representing shareholders in class actions and has successfully recovered billions of dollars for defrauded investors and shareholders. The reputation and expertise of the firm in shareholder and other class action litigation has been repeatedly recognized by the courts, which have appointed the firm to major positions in complex multi-district and consolidated litigations.

For more information or to pursue your right to be appointed lead
plaintiff, please contact:

Wolf Popper LLP
James Harrod, Esq.
845 Third Avenue
New York, NY 10022
Tel.: 212.759.4600 or 877.370.7703 (toll free)
Fax: 212.486.2093 or 877.370.7704 (toll free)
Email: irrep@wolfpopper.com
website: www.wolfpopper.com