Thursday, April 24, 2008

3 Indicted In Sophisticated Florida Fraud Scheme

Berry Louidort, Lauren Jasky, and Ralph Michel, Palm Beach County, Florida were charged in a Criminal Complaint filed in federal court on April 22, 2008.  The defendants were arrested and are expected to make their initial appearances before United States Magistrate Judge Linnea R. Johnson on April 24, 2008 at 10:00 a.m. The defendants are charged with bank fraud, in violation of Title 18 United States Code, Section 1344. 

According to the Complaint, defendants Louidort, Michel and Jasky were involved in a sophisticated sub-prime mortgage fraud scheme in South Florida through which they submitted false qualifying information regarding potential borrowers to mortgage lenders.  Among the false information the defendants submitted were false verification of earnings and false verification of deposits.  As a result of these false submissions, defendants Louidort and Michel received approximately $6 million in loan proceeds. 

This investigation began with an audit conducted by the Florida Office of Financial Regulation into 24 sub-prime mortgage loans in the period November 2006 to June 2007.  The initial audit showed that the loans included what appeared to be excessively large fees paid to defendants Berry Louidort and Ralph Michel.  The fees, ranging from $29,000 to $650,000, were described as marketing and/or assignment fees.  In reality, the fees were kickbacks to defendants Louidort and Michel based on inflated sales prices.  The audit also revealed that the majority of the suspect loans were originated by defendant Lauren Jasky, Senior Vice President of Compass Mortgage Services, located in Boca Raton, Florida.

If convicted, the defendants face a maximum term of incarceration of up to 30 years and a fine of up to $1,000,000.

mortgage fraud

1. If you’re worried about being a victim of mortgage fraud it helps to be familiar with closing documents. If you know what to look for on these documents you can avert mortgage fraud.

   Posted by  on  04/24  at  10:40 AM

2. We are seeing a proliferation of fraud, new and old schemes, but I have not heard much discussion about one of the underlying causes of fraud getting in to our shops that can make a difference. 

   Perhaps I have missed the conversation, but poor to non-existent underwriting is a key root cause of some fraudulent loans getting through in the first place.  Loan Officers, Realtors and Borrowers may conspire but good underwriting can save lenders from making at least some of the mistakes that have been made leading up to the current crisis. 

   The reliance on AUS systems has created a generation of underwriters who can no longer underwrite.  Because Fannie Mae and Freddie Mac will buy whatever an AUS system approves and because the systems perform analysis on what is sometimes pretty scant information and does not require a lot of “extra” verifications, garbage in equals garbage out. 

   AUS systems are useful tools but should never have been substituted for a trained human reviewing loan information.  How much fraud might be prevented if a person did more than just look at documents but actually read them?  How many schemes might never have gotten off the ground if someone spent a little bit of time scrutinizing a transaction? 

   If we’re going to continue a practice of relying almost solely on decisions made by AUS systems, why not improve their programing such that they perform a more thorough analysis of the information showing up in a loan file?

   I am in quality control.  I see files every week in which someone has missed or dismissed key information related to whether a borrower qualifies for a loan. A borrower who, I am certain, is not trying to fool the system.  I also see files, less often but more serious, in which questionable information has been accepted without any follow up and it later became a fraud issue.

   We can not prevent cycles in the market.  Cycles are natural.  However, we can prevent some major meltdowns if seek balance between our “gotta have it now” world and really managing risk.  Better underwriting is one step.  More thorough quality assurance reviews on sample files both before and after loans close, would also make an impact on the proliferation of fraud in our shops. 

   Underwriters must have some independence from the core production team with freedom to make tough decisions that are supported by their management.  Reinvigorating underwriting and re-emphasizing QA will not completed stop the schemes like the one in this article.  However, they will help.

   Thank you.

   Posted by  on  04/25  at  05:27 AM