FBI arrests eight in broker fraud case

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Federal and local authorities in Ventura, Calif., have arrested eight people linked to a fraudulent mortgage brokerage that targeted low-income borrowers and cost some of the nation's biggest lenders millions.

The FBI has alleged that Oxnard-based New Concepts Home Loans, led by real estate broker Jose Garcia, targeted lower-income, primarily Spanish-speaking home buyers, falsifying borrowers' income, employment and assets to obtain loans from lenders such as Washington Mutual, Wells Fargo, Countrywide, IndyMac, SunTrust, World Savings and JPMorgan Chase.

"The defendants in these cases generated huge commissions and fees through the mortgage application process—typically at least $10,000 per mortgage," the FBI said.

The indictement alleges that Garcia's wife and others involved in the scheme obtained bogus CPA letters that falsely stated that mortgage applicants were engaged in a particular business.

“Jose Garcia and his cohorts are alleged to have lured unsophisticated borrowers with promises of putting them into homes they clearly could not afford, but this American dream quickly turned into a nightmare for these borrowers when they realized they could not afford their new homes. All the while, real estate professionals like Jose Garcia reaped huge profits from the fraudulent loans that they brokered,” United States Attorney Andre Birotte, Jr., said.

FBI Assistant Director in Charge Bill Lewis said Garcia allegedly directed his employees, including unlicensed individuals acting as realtors, "to peddle the dream of home ownership" to poor communities in Oxnard.

If convicted, defendants in the case face a maximum prison sentence of 30 years.

  • Jack on 8/1/2013 9:44:42 AM

    As a broker, I applaud the FBI for cleaning up our business. There is still not enough of a barrier to entry to do loans but things seem to be getting better. I know the FBI has some good people who are continuing to work on cleaning things up in our industry.

  • Karen on 8/1/2013 9:55:46 AM

    I agree. Brokers such as those mentioned in the article give those of us who are honest a very bad reputation.

  • mark on 8/1/2013 9:58:38 AM

    it seems that BROKERS played a HUGE role in the downfall of the mortgage industry.. We always blame the CEO's of big banks, but in reality, it's the small guy doing most of the damage!

  • Jay on 8/1/2013 10:01:34 AM

    The problem with the article as written, makes it appear this is recent activity. These crimes were clearly committed during the height of the boom based... and the things these people did are not even remotely possible since 2008!

  • Jay Kardar on 8/1/2013 10:20:43 AM

    Yes, these unscrupulous Brokers or even these un-licensed mortgage loan originators should be put to task. Great work by US Attorney Andre Birotte Jr. and FBI ADC Bill Lewis and there teams. Lets not blame the Brokers only. All loan programs and underwriting guidelines where released by Banks. Ultimately they would underwrite the loan. Checks and balances were in place but never followed. Nice to see we are back to the traditional financing norms.

  • steve on 8/1/2013 10:23:09 AM

    The FBI clown squad strikes again! Those darn brokers made "too much money" again so you know that there was a crime. And 30 years that is so reasonable......who did they kill anyway?

  • Paul on 8/1/2013 10:26:42 AM

    As a mortgage broker it is good to see the feds are getting rid of the bad apples. As for as the comments made by Mark, he is clueless about the downfall of the mortgage industry. Remember the sated wage earner products, NINA etc. Who came up with those products?
    I can tell you it was not the brokers. How about the greed of big investors who were making up these products to create a much larger pool of business only to get rich quick.

  • Jack on 8/1/2013 10:27:33 AM

    @Steve, one of my best friends is an FBI agent in the white collar division who spends his days putting cases together to put guys like these in jail for taking advantage of homeowners and buyers just to make a buck. In the end we all pay the price, so hardly a clown squad, and what they do is needed even if it is catching people well after the fact. Not sure where you are coming from at all.

  • mark on 8/1/2013 10:35:52 AM

    Paul-

    Brokers were responsible for almost 70% of all mortgage originations in the 90's and beginning 2000's.. They owned the market.. It's their responsibility to put borrowers in loans they can afford...Guys like you, always blaming firms with deep pockets... Brokers played a huge role in this disaster and now they are getting caught..This is the exact reason why big banks and lenders have shuttered wholesale lending divisions and opted to grow retail and correspondent.. YOU NEED TO GET A CLUE!

  • Jack on 8/1/2013 10:45:12 AM

    @Mark, I think you are over stating the case. Did you know it was the banks who wanted loans from borrowers with no documentation, or with no income documentation, or allowing stated income for salaried borrowers? The banks offered the products and pushed the brokers to fill those products. I had more than a few bank account executives that would suggest certain programs for borrowers who would never get a loan now. These bank employees. Did you know that HVCC was the result of a big bank coercing appraisers to overstate home values for their retail loan originators? Retail loan originators were also doing the same loans as brokers. I think you are short on information.

  • Mark on 8/1/2013 10:47:50 AM

    When are they going to arrest the real crooks, the big wigs at Wall Street and big bankers that bundled and pushed this stuff?!?!?!

  • mark on 8/1/2013 10:52:42 AM

    jack-

    You bring up the point that HVCC was the result of a big bank coercing appraisers to overstate home values for their retail loan originators?

    Did you realize that NMLS Certification was a result of mortgage brokers originating poor loans AND not understanding the business they were in? Bank employees are not required to take the state or national NMLS Test..But it's a requirement for all mortgage brokers....

  • mark on 8/1/2013 10:55:07 AM

    when Fannie and Freddie see jail time(which will never happen), then the rest will follow..

  • Robert on 8/1/2013 10:55:10 AM

    Steve, crawl back under your rock. You are truly clueless. The remaining brokers that work to serve the American homeowner welcome the FBI and other investigators who work tirelessly to keep scoundrels like Mr. Garcia out of our industry. We are all working to instill consumer confidence back into the real estate and mortgage lending industries. The likes of Mr. Garcia set us back with every unscrupulous deed.

  • Jack on 8/1/2013 11:05:10 AM

    You've made a good further point against the banks in all this ...thank you. Banks don't have to comply because they get a pass by the government even though they were just as complicit, if not more so, than brokers. Here in California, we are licensed and have been for a long time, so NMLS was redundant for me, but guess what? Bank employees don't have to pass ANY standard, other than what their employer decides. Brokers were singled out because we were easy prey and the government could score points with the public. It would have been much harder to do the same with the big banks because they would scream about it and threaten to withhold campaign funding. NMLS is a good thing no doubt but lets not get confused as to why brokers were selected first.

  • Gordon Schlicke on 8/1/2013 11:06:47 AM

    Jack is right. As a trainer I saw too many folks in class asking for the answer sheet. They didn't want to invest time to learn how to do things right, dismissed regulations and leave early. The stiffer we make entry, the better quality we'll get.

  • Charlie Brown on 8/1/2013 11:07:59 AM

    You who defend Wall Street must be banking executives. There could have never been an avenue for Mortgage Brokers to get loan approval without following the banks guidelines and underwriting standards. What is criminal is how our so called watchdogs allowed the blame to be shifted from the people at the top get away with one of the biggest money heist in history. What a mockery!

  • Wm Matz on 8/1/2013 11:08:17 AM

    Paul,

    In my feature article for the OCT 2010 Niche Report, I wrote:

    In 2008, Chase CEO Jamie Dimon tried to blame the crisis on mortgage brokers. But his ill-considered remarks ignored the following:
    • Who created the loan programs that caused problems? The banks!
    • Who underwrote the loans to ensure quality control? The banks!
    • Who trained the brokers/loan officers on loan requirements? The banks!
    • Who controlled pricing and allowed predatory terms/rebates? The banks!
    • Whose loans have a higher level of fraud? The banks!
    • Whose “whiz kids” designed many destructive derivatives? Chase!*
    (*See Fool’s Gold by Gillian Tett for the full story.)
    Incredibly, in his testimony to the Financial Crisis Inquiry Commission in early 2010, the highly-regarded Dimon, a Harvard M.B.A., admitted, “We never stress-tested our products for [a large real estate price decline].”

    Yes, brokers bear some responsibility. But it was Wall St. that was bribing them to sell out their clients and put them into subprime or Option ARMs by offering 4+ point rebates [which were illegal under HUD guidelines]. And Wall St could do so because it was defrauding MBS investors as to the quality of the loans. [We recently got a judgment, including punitive damages, against a broker who did dozens of Option ARMs but could not explain how the loan worked. I had to explain it to him in front of the jury!]

    Wall St preferred to use inexperienced or unethical brokers in order to try to keep a shield between it and the garbage it was peddling to investors. But remember, no broker ever approved a loan; lenders always determined if a loan met underwriting standards [and threatened to fire underwriters who actually tried to follow those standards and decline loans].

    Brokers who fabricated documents or did strawman transactions should pay the price. But it was Wall St -not the brokers- that set up a rigged system that it knew would collapse. And the perpetrators have yet to suffer any serious consequences from their misconduct.

  • Stan J on 8/1/2013 11:13:09 AM

    Kudos to the FBI for a job well done! Too bad the politicians will not give the FBI the green light to pursue the bank officials who commit fraud of greater magnitude.

  • mark on 8/1/2013 11:15:11 AM

    jack-

    we all have our own opinion of who created this disaster....there is no single culprit..i'm getting off my "soap box" for now and getting back to work... lets agree to disagree..

  • Nav on 8/1/2013 11:34:41 AM

    @Mark - Every Industry has their share of bad apples - look at the records of our elected officials but to blame the small guy the one working in the trenches for the downfall is just an Uneducated Opinion. Your going to blame the guy that made a few thousand dollars over the guy that made millions for the mortgage mess. But now what's happening instead of the small guy, small business making money and helping the economy grow it's the big guys at the top making the money.
    Nmls just takes more money from the small guy. It doesn't teach you anything that has to do with originating a loan. You honestly think a bank employee that doesn't even have to qualify under nmls guidelines, state guidelines is better qualified to help someone get a mortgage loan? Try going to your local bank and see first hand just how incompetent they are.

  • Jim on 8/1/2013 11:36:57 AM

    As a former banker and now a mortgage broker, it is the person dealing with the client who is ultimately responsible for the loan. You know whether a product is right for someone. Just because a loan was permitted to use "stated income" doesn't mean that it permits you to state a false income. That's your choice. Face it, if you do more than 2 loans a year you know if a borrower can afford it or not. Those easy loan products were invented by wall street (not banks) to sell product (mortgage backed securities) to investors. Who lost...investors! Any borrower who was put into a home and/or mortgage that was not right for them was also a victim. They may have had a temporary lifestyle in a home above their true means but they have to live with the stigma of a foreclosure for years. Investors...they have to come to grips with the loss of their retirement funds...banks...made the loans and sold them to investors (who pushed for easy loans to get product)...and brokers...most of us are honest and wanting to help our clients...others see a client as $ signs and do whatever it takes to get the $ and not help the client. Those LO's should be out of the business one way or another and, if they were making false claims on behalf of their clients, they should do time. Let's do the right thing. Get good people into good loans.

  • Mary on 8/1/2013 11:47:06 AM

    Please go back and re-read the article. These individuals were REAL ESTATE BROKERS as well as mortgage brokers.
    "Real estate broker", "real estate professionals", "including UNLICENSED individuals acting as REALTORS", but the article's title states only "broker fraud"?
    Interesting that the mortgage broker is the only one being chastised here and not the realtor/real estate industry, of which these "employees" were "acting" as "unlicensed" "REALTORS"!
    Honestly, has anyone of us mortgage brokers ever "generated HUGE commissions and fees through the mortgage application process"? I personally have never generated a "huge commission" at closing, but maybe that's why I've been able to sustain my business in the rough waters?
    Let's keep in mind that no wholesale lender, then or now, has ever been FORCED to approve or accept a loan brokered to them. 99.9% of wholesaler lenders underwrote/underwrite all loans delivered to them to their guidelines. If the wholesale lender did not have staff underwriters or were overwhelmed, they typically sourced the underwriting out to the private mortgage insurance companies, who then underwrote the loans. With so many different hands touching these files, it's truly amazing that mortgage brokers singularly brought the industry to its knees.

  • Del on 8/1/2013 11:56:38 AM

    as a Broker we only do what the Lenders will buy and The NMLS is another redundant Beuracracy that is useless and costs us time and Money and I have 40 years under my belt

  • Jack on 8/1/2013 12:10:41 PM

    @Mary, you may already know this but just in case, in California, I had to pass the Real Estate Brokers exam, to be a Mortgage Broker. All DRE licensed originators, brokers or salespeople have to pass the same exam and go thru the same process as Realtors do, so it may be why the author used 'Real Estate Professionals' , though it appears he had unlicensed Realtors working for him as well, which means he may have been brokering the real estate transactions as well as the loan. Gross.

  • Damon on 8/1/2013 3:07:25 PM

    Mark,

    It's ironic that you blame the brokers for this. But Wm Matz nailed it perfectly. While brokers had a responsibility to put their clients into loans that were suited for their particular situation, and that they could afford, it was ULTIMATELY the responsibility of the people that underwrote, approved and funded the loans to make sure it was a viable loan that could be re-paid. While the people that created the product, the end-user, were responsible to the investors, the lender that put out the guidelines to those of us that sold the loan to the customer, were responsible for this. And HVCC was the result of WaMu getting nailed for influencing appraisals, Thank You Very Much Mr. Andrew Como. So while you are blaming brokers for this mess, look up the Fed's statement on who was actually to blame.

  • Andrea on 8/2/2013 12:09:04 PM

    The NMLS seems like a huge bureaucratic white elephant (their website is just so un-userfriendly) but I am glad it weeds out unscrupulous "mortgage brokers" like these folks. People like this have given the industry a bad rep and the honest ones that are left, are paying the price.

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