In some transactions in the scam, the defendants used straw buyers -- consumers with higher credit scores and bank reserves -- to secure financing for other customers, fraudulently claiming those third parties would occupy the homes, according to prosecutors.
For others, the team altered financial information on loan documents to meet the lenders' requirements, or created false employment information and posed as those employers when lenders called to verify. They submitted loan applications with inflated bank account balances falsely substantiated with fictitious bank statements.
They purchased and submitted to lenders letters from tax preparers that misrepresented consumers as business owners, deposited their own money into clients' bank accounts to falsify certificates of deposit, and fraudulently sent lenders copies of social security cards altered to hide work restriction language, according to court documents.
Alejandro and Emilio Lopez, two owners of Century 21 Eldorado in San Marcos, headed the "Lopez Team" of loan officers, loan processors and real estate agents. Ravinderjit Singh Sekhon was a loan officer there and Linda Velasquez was the office manager, acting as translator for Sekhon with Spanish-speaking clients. All four pleaded guilty earlier this month to charges related to the scheme.
Obtaining financing from subprime lenders using so-called stated income or "no-doc" loans, the group fudged employment, rental, bank and even citizenship status information for more than 200 unqualified clients, brokering first and second mortgages for an average of $400,000 each, according to court documents.
That federal prosecutors are illuminating the scam marks a public acknowledgement of a significant trend of surreptitious real estate-related fraud schemes that have gone unfettered for years, market watchers say.
"You hear about it, kind of under the radar, that this stuff is kind of going on, but nothing really surfaces," said Mark Oatman, president-elect of the North San Diego County Association of Realtors. "The lending institutions now hopefully will be rooting these people out."
The region's sizzling housing market hid layers of shady activity as housing prices doubled or tripled in mere years and lenders loosened their lending standards to expand the market. When home values were rising, consumers with unaffordable loan payments could refinance or sell their homes, paying off the lenders in full and sometimes even pocketing a profit. There was no indication in the court documents if the borrowers knew their information was being falsified as it was submitted to lenders.
But in a slow market, when loan payments skyrocket, many borrowers slide quickly into foreclosure. As banks sell those homes at a loss, their victimization by loan officers submitting false information becomes apparent. This prosecution doesn't touch what some experts consider the widest used form of mortgage fraud in the region in recent years -- cash back schemes that involve artificially inflated loan values and defraud lenders out of hundreds of thousands of dollars in some cases.
Still, the fact that the FBI has found this scam out and has brought charges is heartening for local real estate appraiser and mortgage fraud expert Todd Lackner, whose office is stacked with files he says show schemes countywide.
"I haven't seen much in San Diego; there's a huge lag," Lackner said. "This (scam) has probably been going on for a long time. They've probably been investigating this for two or three years. But if they [investigated] this, you would think they were doing other ones."
This scam stretched from December 2003 to June 2005, according to the government's documents. As part of their guilty plea filed Nov. 13, the defendants admitted they frequented swap meets to find potential clients. They advertised on Spanish-language radio stations and in Spanish-language publications. They billed themselves as problem-solvers for the region's Latinos. Experts say Latinos, especially immigrants, face unique challenges in obtaining financing because they often have thinner credit histories than do other segments of the population.
Aracely Panameño is the director of Latino affairs for the Center for Responsible Lending. Panameño's group predicts that the fallout from predatory lending practices to Latinos will result in a net loss of homeownership in the end, as thousands face foreclosure due to skyrocketing payments on their high-cost loans.
"The greatest concern right now is that formal charges have been lacking, whether at the local or the federal level," she said. "That has been very, very concerning. More of this (investigation) obviously helps a great deal."
The Lopezes and Velasquez are each charged with one count of conspiracy to commit wire fraud and face maximum penalties of five years in prison and $250,000 fines. Sekhon is charged with one count of wire fraud and faces a maximum penalty of 20 years in prison and a $250,000 fine. And the defendants have agreed to repay their illegal gains, a total of $1,070,000.
Defense attorneys for the Lopezes and for Velasquez did not return calls seeking comment Monday. Nor did prosecutors with the U.S. Attorney's Office nor FBI investigators. Scott Savary, defense attorney for Sekhon, declined to discuss the case.
The defendants are scheduled for sentencing on Feb. 4, 2008.
With more than 200 clients wrapped up in this scheme, at $400,000 a loan, the fraudulent loans could total more than $80 million.
Rachel Dollar is an attorney who represents lenders in mortgage fraud cases and runs a blog tracking mortgage fraud litigation nationwide. Dollar said lenders lose an average of 39 percent on a fraudulent loan.
She said some defendants in schemes like these hide behind the national push to increase homeownership for Latinos, a sort of solidarity against the faceless lenders.
"This is very ... typical of the whole 'we were helping people' mentality," she said. "A lot of loan officers utilized that rationale that they were just helping borrowers. But there definitely are reasons for the qualifying criteria -- so that people can actually make their payments."
But those agents and brokers are often mired in a significant conflict of interest: the more loans and sales they make, the more money they earn in commissions.
"At the same time, you end up ... very successful in the real estate business," Dollar said. "The question becomes were they helping the borrowers or were they helping themselves?"
Real Estate Designers offers totally innovative solutions for your software development, Internet programming, real estate web design and hosting needs. Our service includes domain name registration and real estate web design. Real Estate Designers provides the complete solution including design, application development and marketing.
source: voiceofsandiego.org
