California Real Estate Fraud Report

Five loan officers from Creative Financial Solutions, Inc. (CF) have pled guilty to wire fire and admitted that CFS, a mortgage brokering company, obtained mortgage loans for unqualified borrowers by submitting false loan applications, false bank statements, and false income documentation. In total, the lenders who funded their loans, may have lost up to $16 million on properties that have been foreclosed or are in the foreclosure process.

Read the Full Article in the Imperial Valley News.

The San Mateo County Investment Pool has filed a civil lawsuit against executives for Lehman Brothers Holdings Inc., accusing them of concealing information from investors about the firm’s losses in the real estate market while taking home lucrative bonuses.

The investment pool, which represents public agencies that invested in Lehman, lost more than $150 million when Lehman Brothers went bankrupt. They are suing the executives and the firm’s auditor, Ernst & Young, alleging fraud, negligent misrepresentation and violations of California law and the federal Securities Act.

According to Supervisor Mark Church:

“The theory here is the top management fraudulently represented that the company was financially strong at a time when they were about to declare bankruptcy. What makes this case so outrageous is all the while, they were siphoning off millions of dollars for their personal benefit, leaving good-faith investors holding the bag. It hurts our schoolchildren, our transit projects, and other essential services that we provide.”

Lehman Brothers was also in the news as the source of tens of millions of dollars lent to the Beverly Hills real estate fraud, appraisal fraud and mortgage fraud ring, whose accused members include Mark Alan Abrams, Charles Elliott Fitzgerald, Joseph Babajian and Kyle Grasso. Read earlier articles in the California Real Estate Fraud Report and another in Mortgage Law Central.

Read the Full Article in the San Jose Mercury News.

Now that the ferocious and inevitable finger-pointing has begun as to who is to blame for the $700 billion corporate welfare bail-out, it’s time for those with cool heads and common sense to review the simple laws of nature in business - who controls the purse strings - to see how predictable the mortgage crisis was.

Fact: as home prices kept rising and banks and other lenders had lent to everyone who was credit-worthy, the quest began to write loans to anybody with a verifiable pulse. Centuries of underwriting standards were thrown out in the race to write loans. Hence the birth of the NINJA loan: No Income No Jobs or Assets.

Fact: borrower stupidity (and investor greed) aside, it was and still is the lending institution that decides whether the loan should be written or not. These decisions directly led to, and are therefore responsible for, the massive real estate fraud, mortgage fraud, appraisal fraud and other real estate crime such as foreclosure fraud that occurred and are which now occurring in new forms to take advantage of both real estate market chaos and the lack of sufficient law enforcement capabilities to respond.

Fact: Former Fed Chairman Alan Greenspan lied when he stated that he had no idea that large-scale defaults and price re-setting to numbers roughly equivalent to the days leading up to the lending splurge. So did Secretary of the Treasury Henry Paulson of Goldman Sachs. They both knew this was a great opportunity to make a lot of money for their industry, they knew the inevitable fall-out, and they knew that Congress - which had eagerly accepted industry largess for their own campaign coffers - would ride to the rescue with the taxpayer skewered at the end of its lance.

Fact: Congress willingly put no conditions on the bail-out: not on golden parachutes, not on year-end bonuses - some amounting to $600,000 EACH to managers and executives in “failed” lending institutions receiving bail-out money, not on corporate pork. Both political parties are as guilty as Greenspan and the Fed, Paulson and his Treasury (it’s apparently not yours and mine) and the lenders, who have not let up a bit on rewarding themselves for a combination of incompetence and fraud. See the many articles below on WaMu / Washington Mutual in the California Real Estate Fraud Report.

Fact: did you - or Congress - ever ask how Henry Paulson came up with the $700 billion figure for the bail-out? As opposed to $600 billion or $800 billion? This is just the start - there will be more bail-out money demanded by continuing to manipulate public fear and the markets.

Fact: this further leap into enormous deficit spending by the federal government is inevitably leading to the bankruptcy and selling off of the United States. Treasury bills and bonds are being sold to foreign interests because America has not lived within its means and there are few American takers for those financial instruments. Bulk sales of banks’ REOs are also finding primarily foreign purchasers as investors’ confidence in the dollar’s value continues to erode. Don’t be surprised if the next “tsunami” is uncontrolled inflation.

This is the biggest con of the 21st century.

For an excellent write-up on the man-made mortgage crisis, read this article by real estate broker Madeline Zook.

Although many jilted investors have cheered at the recent arrests of the mother-and-son leaders of the bankrupt Paso Robles-based Estate Financial, they are only one group of a growing number of investors in the Central Coast who have had troubles with mortgage and lending firms.

Besides Estate Financial, other hard money lenders who are biting the dust are:

- Atascadero-based Hurst Financial, which had at least $86 million in investments last year, has had its license revoked by the California Department of Corporations and has been accused of fraud in September in filings by the Department of Real Estate. Hurst Financial has been the subject of several posts in the California Real Estate Fraud Report.

- Real Property Lenders of Paso Robles had its license revoked by the Department of Corporations in May. It had about $55 million in loans as of 2007,

- 21st Century Mortgage, also of Paso Robles, closed down abruptly about a year ago with no notice to its investors. Other firms eventually bought most of the loans.

Estate Financial is still the king of fraud allegations at the time of this writing. Their $170-million in loans were frozen and put under court control after the state revoked its license to sell real estate investments. On October 16, Estate Financial’s President, Karen Guth, and her son Joshua Yaguda were arrested at their Paso Robles ranch by investigators from the SLO County District Attorney’s Office.

Read the Full Article in the San Luis Obispo New Times.

Stressing that Wachovia did not fail, but that its buy-out by Joe Taxpayer and Citigroup was accomplished with “government assistance” (a new euphemism for corporate welfare), FDIC Chairman Sheila Bair announced the latest takeover.

Citigroup will acquire the bulk of Wachovia’s assets and liabilities while assuming senior and subordinated debt. Under the agreement, Citigroup will take the first $42 billion of losses on Wachovia’s $312 billion mortgage portfolio. The FDIC (middle- and working class taxpayers) will absorb losses beyond the first $42 billion (my emphasis). To compensate the FDIC for the risk, Citigroup will pay the agency $12 billion in preferred shares and warrants.

Read the Full Article in the Mortgage News Daily.

Galloping in after the gate was closed:  the Associated Press reports that the FBI is investigating Fannie Mae, Freddie Mac, Lehman Brothers and insurance giant AIG (American International Group, Inc.). According to FBI Director Robert Mueller, they and up to two dozen other large financial companies are also under investigation to determine whether any of them have misrepresented their assets.

Also under the FBI’s microscope are failed bank IndyMac Bancorp Inc. and Countrywide Financial Corp.

Read the Full Article published on Yahoo News

Finally, somebody with common sense is speaking and acting.

Rewarding executives for exceptional performance has been replaced with shoveling obscene amounts of cash into their bank accounts no matter how poorly their companies performed under their leadership. Angelo Mozilo of Countrywide Home Loans is a perfect example of someone who has been overly rewarded for greedy and inept management at the costs of thousands of homes and jobs.

News that former CEOs Daniel Mudd (Fannie Mae) and Richard Syron (Freddie Mac) would be receiving multi-millions of dollars for guiding the financial giants has been greeted with outrage by taxpayers.

On September 14, the conservator appointed to administer the affairs of Freddie and Fannie Mae press release summarizing the FHFA’s (Federal Housing and Finance Authority) decision that “‘golden parachute‘ payments contemplated under (the executive’s) contracts would not be paid. The Agency, serving as conservator, determined that under applicable statute and regulation, the Enterprises should not make such payments to these individuals and directed the Enterprises accordingly.”

Read the Full Article in Mortgage News Daily.

The Wall Street Journal is reporting that the Federal Insurance Deposit Corporation (FDIC), rather than being a white knight chartered to protect the assets of depositers, may have engaged in the same risky subprime lending practices that have led to the real estate economic crisis in the U.S.

In the early 2000s, the FDIC was supervising (= running) the operations of Illinois-based Superior Bank, FSB. During its oversight period, about $550 million worth of subprime loans were written, many of which have subsequently defaulted. Beal Bank, SSB bought a portfolio of those loans and has since then filed suit, claiming that many of the loans were improperly funded.

The FDIC’s most recent take over is Pasadena-based IndyMac.

Read the Full Article in the Mortgage News Daily.

In a lawsuit watched closely in San Diego a jury sided with Carlsbad real estate broker Mike Little against a couple who claimed that Little’s lack of due diligience caused them to overpay by about $150,000 for their home in July 2005.The burning question at the heart of the case? What are the responsibilities of a real estate agent?

The jury found unanimously that Little had executed a reasonable standard of care when he showed Vern and Marty Ummel more than 80 homes in a house hunt beginning in May 2005. Two months later, they decided to pay $1.2 million.

Read the Full Article in the Voice of San Diego and the San Diego Union Tribune.

In a move that should surprise no one accustomed to hypocrisy by the Bush Administration, the Fed (that means you, the taxpayer) has stepped in to bailout Bear Stearns, one of Wall Street’s oldest investment banks. After finally admitting today that the economy is in trouble, President Bush, who has resisted bailing out homeowners under the guise that that would be “overreacting”, opened the taxpayers’ pockets via the Fed:

“It was strong action by the Fed and they did so because some financial institutions that borrowed money to buy securities in the housing industry must now repair their balance sheets before they can make further loans,” the president said.

Bear Stearns is the nation’s fifth-largest investment bank. Its troubles stem from having levereged itself heavily in mortgage-backed securities, resulting in its accumulating an astounding $2.75 billion in write-downs since last year.

Apparently, the Administration is comfortable with homeowners going out of business (being foreclosed) but not its corporate contributors.

 Read both articles here and here.