Task force targets home buyers, brokers who lied on mortgage applications
Monday, November 3rd, 2008A law enforcement task force is investigating thousands of Bay Area homeowners, mortgage agents, investors and others who may have committed mortgage fraud, the latest fallout from a housing bubble that wrecked the finances of countless people.
Federal, state, and local investigators who make up the 30-member task force have begun to probe as many as 11,000 cases involving people who may have committed fraud during the residential real estate frenzy, said Assistant U.S. Attorney Susan Badger. She heads the task force on behalf of the U.S. attorney’s office in San Francisco.
Some local mortgage agents say at least one-third — and perhaps one-half — of the home loans that were written in the East Bay at the height of the housing bubble were loans with fraudulent documentation about income and debt of borrowers.
“The crimes run the gamut,” Badger said. “The task force is looking at crimes committed by people from the top down and from the bottom up. There were a whole lot of participants in this. There is a whole array of culpability from people who turned a blind eye or committed out-and-out fraud.”
Among the types of people who are being probed for illegal activities:
“You see a lot of naive, trusting people who wanted the American dream so badly that they didn’t ask many questions,” Badger said.
Some real estate executives said they weren’t surprised that the government is going after people in the Bay Area who might have committed mortgage fraud.
“There was an explosion of speculative fever with all the new homes being built in the East Bay and the Central Valley,” said George Duarte, broker-owner of Horizon Financial Associates, a Fremont-based mortgage brokerage. “It just got extreme and it was wrong.”
What typically happened, executives said, is that an individual seeking a mortgage often could obtain a loan that obliged the borrower to simply state income or debt levels without any verification that the information was accurate. These were known as stated income, or limited documentation, or no documentation, loans.
“It was a pretty common practice at the time,” said Don Morton, a broker with Danville-based Empire Realty Associates. “We used to call them liar’s loans. People would do whatever it took to get the loans approved.”
Mortgage agents were likely aware if somebody was stating something false, said Guy Schwartz, manager of the Walnut Creek office of CMG Mortgage.
“Somebody had to tell these people how much income they needed to state to qualify for a loan,” Schwartz said. “They had to know how much they needed to get over the hurdle. The borrowers were unlikely to come up with the right figure on their own.”
The Greenlining Institute criticized the U.S. attorney’s office for its focus on individual borrowers.
“The federal prosecutors are going after the low-hanging fruit,” said Robert Gnaizda, Greenlining Institute general counsel. “The blunderbuss actions of U.S. attorneys may trap large numbers of innocent homeowners.”
A better group of targets, Gnaizda said, would be executives of companies such as World Savings and Countrywide.
“The prosecutors should go after the CEO or other top executives of Countrywide, or they should go after Washington Mutual officials, or Wachovia officials, or World Savings or Golden West officials. The World Savings executives reside in the Bay Area. The prosecutors should at least investigate them.”
Gnaizda confirmed he was specifically referring to former Golden West and World Savings chief executives Herbert Sandler and Marion Sandler.
“World Savings was the most liberal in pushing these loan programs,” Duarte said.
“There are a lot of active investigations,” Badger said. “Charges are imminent.”