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December 11, 2006: District Attorney Scott Storey of Jefferson County, Colorado is
one busy lawman. The local housing market is chock full of
mortgage fraud varmints. One particularly pesky ring, operating
for roughly 5 years, recruited hundreds of illegal immigrants to
act as "straw buyers", the lowest players in the mortgage fraud
game. Ringmasters were mortgage brokers, realtors, and loan
officers in local banks. Straw buyers were supplied with stolen
identities, including drivers licenses, social security cards,
and income tax returns. Some were given green cards of legal
immigrants. What couldn't be stolen was forged.
False docs in hand, strawbuyers obtained mortgage loans they had
no intention of paying. Some 300 single family homes in Jefferson
County and the adjoining Denver area are known to have been
involved. In 191 transactions every single qualifying document
was fake. So far, 38% of the mortgage loans have gone into
foreclosure. Millions of dollars have been lost.
Tuff luck for lenders? Not as much as you'd think. The mortgages
were insured by the Federal Housing Administration (FHA). A sub
agency of the U.S. Department Of Housing and Urban Development
(HUD). Taxpayers picked up the bad. Expect them to pick up more.
D.A. Scott Storey believes thousands of other properties were
obtained by the same ring and that similar frauds are widespread
in the Denver area. And in an August 24th Denver Post article,
"FHA program key in surge of foreclosures," a government source
estimated that "20,000 illegal immigrants hold FHA mortgages in
metro Denver alone."
Many of the frauds perped by the Jefferson County ring were
powered by an FHA lending assistance arrangement under the HUD
category Downpayment Assistance through Secondary Financing
Providers. Aka DAP. This particular DAP arrangement is commonly
called the FHA gift program and is meant to benefit low income,
first time homebuyers. Mortgages insured by the FHA require 3%
down payment. In the past, only family and friends were allowed
to provide down payment assistance. But in 1998, the FHA started
letting sellers contribute down payments via group funds
administered by charitable, non-profit organizations. Eight years
later, even HUD acknowledges such organizations are frequently
for-profit fronts. Plus, sellers raise the price of properties to
cover down payment contributions. Closing costs and FHA insurance
premiums are also rolled into the loans. Ultimately, gift program
mortgages, granted in the name of affordable housing, wind up
costing buyers more than the property is really worth.
The gift program gouges sincere homebuyers, but gifts grifters
who instantly default. For the past 8 months, Colorado has led
the nation in foreclosures. The foreclosure tsunami has been most
destructive in low income urban neighborhoods, where the gift
program has been used in the name of urban revitalization.
Several years back, a realtor in Jefferson County tipped HUD in
Dee Cee to the mortgage fraud ring which was using illegal
immigrants as strawbuyers. But the frauds went on for another 2
years. According to HUD Deputy Assistant Secretary Jereon Brown,
the size of the ring made it more than an "overnight case".*
Meanwhile, the Gaming Unit of the Colorado Bureau of
Investigation (CBI) launched an investigation of complaints by
a casino re forged proofs of casino employment being used to
qualify for mortgage loans. This led to investigations and a
series of indictments by D.A. Scott Storey. The D.A.'s office is
now working in tandem with the county Sheriff's Department, the
Colorado Attorney General's Office, HUD, Immigration and Customs
Enforcement (ICE), the Social Security Administration, Postal
Inspection Service, and the U.S. State Department.
Like love, justice has been coming in spurts. A number of
ringmasters have been sentenced. Despite the extent of the fraud
and its destructive impact on neighborhoods, plus the cost to
taxpayers and those whose identities were stolen, penalties have
been light. (However, a wee bit of HUD restitution has been part
of the sentencing package.) Illegal immigrants who acted as
strawbuyers are now being arrested. Officials claim they'll be
deported. But in Dee Cee, Columbo hasn't yet knocked on the door
of HUD or its mini-me, the FHA, asking "just a few questions
about your response time and oh yeah, that gift program". Nor
has the Denver Homeownership Center, HUD's rep in Colorado, been
grilled re possible oversight problems.
The stated mission of the Denver Homeownership Center is to
"insure single family FHA mortgages and oversee the selling of
HUD homes". The center serves 14 other states besides Colorado,
including several hot spots for mortgage fraud. Colorado makes
the FBI's mortgage fraud top ten list. Though not the top spot.
That distinction belongs to Florida. Where swampland has always
been popular.
Recently, Jefferson County D.A. Scott Storey and his posse
rounded up another batch of baddies from the fraud ring. In the
post-bust press release, HUD Deputy Assistant Secretary Jereon
Brown weighed in. Saying: "as much as we intend to expand the FHA
program to help more families become homeowners, we will not do
so at the expense of the financial integrity or reputation of
the Federal Housing Administration."
Truly, HUD is the gift that keeps on giving.
Carola Von Hoffmannstahl-Solomonoff
*Mortgage Fraud Ring obtained FHA loans for noncitizens, Matt
Carter, Inman News, 11/28/06
This article also appeared in Homeland Stupidity
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