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09/24/03
 You've
heard the pitch a hundred times: "Bad credit? No problem!
You can qualify for a mortgage or we'll give you $100."
It sounds too good to be true. In the recent case of one mortgage
company, it was.
After
a two-year investigation by a state regulator of financial
institutions (unnamed pending trial of the case), the U.S.
Department of Housing and Urban Development and the FBI, the
company's owners and their co-conspirators were charged Aug.
5 with swindling home buyers and deceiving lenders by using
inflated property values, "phantom" second mortgages
and bogus "gift letters" that said the buyers had
been given money by rich relatives for down payments.
The
mortgage brokers, in cahoots with a realtor and real estate
appraiser, preyed on first-time home buyers with poor credit
histories and modest incomes, those who would not normally
qualify for a mortgage.
One
typical scam? It's often called "flipping": A home
buyer and his girlfriend responded to the company's newspaper
and and were shown two homes that the company said were available
for purchase. The couple agreed to buy one of them for $95,000.
What they didn't know was that the house needed major repairs
and that the owners of the mortgage company had bought it
for $57,500. The mortgage brokers overstated the value of
the couple's assets in the loan application and falsely told
the lender to whom they sold the loan that the buyers would
carry a second mortgage of nearly $24,000 in lieu of a downpayment
-- duping the lender into financing 100% of the home's cost.
The brokers actually paid the $24,000 themselves, but because
of the home's inflated purchase price, they still made a healthy
profit on the deal. The couple, thrilled at the prospect of
owning their own home and inexperienced in the process, didn't
question the brokers and signed the papers. Unfortunately,
they were later unable to make the payments on the home and
the lender foreclosed.
What
tipped investigators off? The high rate of foreclosures on
the company's loans.
If they
are found guilty of the 17 counts of wire fraud and conspiracy
with which they are charged, the owners of the now-defunct
company and their accomplices could be sentenced to as much
as eighty-five years in jail, fined a total of $1.8 million,
and ordered to pay nearly $450,000 in restitution to individual
borrowers, lenders and others they defrauded.
But
the bottom line for first-time home buyers? Let the buyer
beware.
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