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Rocky Mountain Mortgage Fraud Fever
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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Copyright (c) 2006 by Carola Von Hoffmannstahl-Solomonoff. This material may be freely distributed subject to the terms and conditions set forth in the Open Publication License. This license relieves the author of any liability or implication of warranty, grants others permission to use the Content in whole or in part, and insures that the original author will be properly credited when Content is used. It also grants others permission to modify and redistribute the Content if they clearly mark what changes have been made, when they were made, and who made them. Finally, the license insures that if someone else bases a work on this Content, that the resultant work will be made available under the Open Publication License as well.

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