Mortgage fraud targeted by prosecutors new law

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LANSING — The long arm of justice is nailing some of the scam artists whose mortgage frauds contributed to the national recession, according to the U.S. Attorney’s offices in Detroit and Grand Rapids.

Federal court convictions and a new state law are part of the effort to attack mortgage fraud.

Michigan had the seventh-highest foreclosure rate among the states in 2010, according to an FBI report.

“Mortgage fraud is a serious problem in the state. Every day, scam artists take advantage of people desperate to keep their homes,” said Joy Yearout, deputy director of communications for Attorney Gen. Bill Schuette.

For example, in a recent case, Kevin Lee Grady Sr., a manager of a Grand Rapids mortgage brokerage firm, was found guilty of conspiracy and fraud, according to federal prosecutors in Grand Rapids.

And according to the U.S. Attorney’s office in Detroit, Deangelo Wade of Detroit and Abe Beydoun of Dearborn recently received prison sentences for their scheme to defraud IndyMac Bank in connection with the purchase of four properties in Plymouth.

Erick Martinez, an IRS criminal investigation special agent-in-charge, said, “Wade and Beydoun contributed to the mortgage crisis and are being held accountable for their actions.”

In a third case, John Hoose of Commerce Township and his brother Scott Hoose of Hartland were sent to federal prison for their roles in another mortgage fraud. Officials said their scheme led to losses of more than $1.5 million.

“Everyone is a victim in mortgage fraud,” Martinez said. “These crimes create a loss of tax revenue, burden bank lenders with bad loans and leave neighborhoods abandoned with deteriorating properties.”

Total losses directly attributable to mortgage fraud are unknown.

According to the FBI report, individuals involved in such scams stated that everyone in the mortgage industry assumed such practices were the norm and therefore legal.

The most frequent type of mortgage fraud is called “loan origination fraud.” It includes misstating, misrepresenting or omitting information to an underwriter or lender. It also includes schemes targeting consumers, such as foreclosure rescue, short sales and loan modifications.

“One common example of a foreclosure rescue scam involves a criminal collecting upfront fees with the promise of securing a loan modification for the homeowner,” Yearout said. “In the end, the scammer takes the money and never does anything to help the homeowner.”

A Michigan law that took effect in January makes mortgage fraud a state crime carrying a possible sentence of 20 years in prison and a $500,000 fine.

It also requires lenders to provide written notice to homeowners, including a list of housing counselors, when foreclosure proceedings begin.

Rep. Jeff Farrington, R-Utica, said, “Mortgage lenders must provide a list of nonprofit consumer counselors with the first foreclosure step so borrowers can seek immediate advice.”

Commissioner Kevin Clinton at the Office of Financial and Insurance Regulation said, “This legislative package provides Michigan homeowners with a set of tools to help them stay in their homes and avoid foreclosure.”

The new law also provides additional time for homeowners to arrange loan modifications to prevent foreclosure.

Farrington, a sponsor of the legislation, said that mortgage fraud is much like other fraud. Consumers should be educated before they look for a mortgage and when they are facing foreclosure.

“Because the foreclosure process can be devastating and often embarrassing, many people don’t discuss it with others. My advice would be to seek out others who have gone through the process before by discussing it with friends and family,” he said.

“Likewise, seek out services offered by firms that have a track record of success and a significant time in business. If it doesn’t ‘feel’ right, the firm is worth checking in to,” Farrington said.

Meanwhile, Michigan is joining at least 40 other states in a multi-billion dollar settlement with five of the nation’s largest banks and mortgage servicers. The companies were accused of faulty foreclosure processes and poor servicing of mortgages. Schuette said that Michigan residents will receive about $101 million under the settlement.

“States across America have worked hard to present a united front in the fight to help stabilize the housing market in the aftermath of harmful mortgage lending and foreclosure practices,” Schuette said.

“We can’t go back in time to undo the impact of the foreclosure crisis in Michigan, but these funds will go a long way toward repairing the damage for Michigan families.”

Schuette said the civil settlement does not prevent Michigan from filing criminal charges.

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