FBI busts million dollar mortgage ring in San Diego
Federal agents believe this scam involved loans on more than 200 houses, costing banks millions and devastating property vales in San Diego County. U.S. attorney Karen Hewitt named Darnell Bell, a former gang member from the San Diego area, as the leader of the alleged mortgage fraud enterprise. The U.S. attorney's office believes he oversaw the purchase of property. Before getting involved in mortgage fraud, Bell's career was selling drugs and he has served time on cocaine charges.
The mortgage fraud involved loan brokers, contractors, appraisers and straw buyers. The leaders of the scam would find a property listed on the market for a long time. Working with a real estate appraiser, they would prepare an inflated appraisal for the house about $100,000 over the asking price. The straw buyer would promise improvements, but never make them. The buyer would then apply for a 100 percent loan based on the inflated appraisal. The excess money for the supposed home repairs would instead be split among the scammers. The buyer walked away from the house without making any payments, leaving the bank no option but to foreclose.
These types of scams led to a dramatic loss of home values for neigbhoring homeowners who paid their mortgage and watched their home prices plummet. Eric Halperin, director of the Washington office of the Center for Responsible Lending told ABC, "So, on average, every time a house is foreclosed on, the scammer reached into the neighbors' pocket and took $8,600 out of their pockets. That means there are going to be less property taxes paid, that's less money for schools, less money for fire departments, less money for police departments, and all those costs are then going to affect the community at large."
But the even bigger question here is: What were the bank officers doing while this was going on? How could they write 100 percent mortgages without even sending out their own appraiser? How could they approve a loan for a straw buyer on what appears to be purely fictional documentation?
Given that more than 200 straw buyers walked away from homes in the San Diego area without making one payment, didn't any of the bankers involved start to see a pattern? With more than 2,100 mortgage fraud cases now in the hands of the FBI, it's clear banks fell down on their fiduciary responsibility to the investors who bought what now appear to be fraudulent loans. Of course, since most banks packaged and sold these loans, they probably didn't care very much whether they would get repaid. They just wanted to line their own pockets with the loan closing fees.
Lita Epstein has written more than 25 books, including The 250 Questions You Should Ask About Buying Foreclosures.