Thursday, July 25, 2002

Guilty Pleas in 2M HUD Fraud

Two home mortgage underwriters admitted their rolesin a scheme to fraudulently obtain more than 40 federally guaranteed loans for ineligible borrowers, causing a loss of more than $2 million in defaulted loans to the federal Department of Housing and Urban Development, U.S. Attorney Christopher J. Christie announced.

Robert Jordan, 43, of Mahwah,New Jersey and Peter Tortorelli, 48, of Fairfield, New Jersey, each pleaded guilty to conspiracy to commit mail fraud. Last week, Raul Torres, 49, a real estate developer living in Jersey City; Philip Noce, 55, an attorney living in River Edge; and Marlene Schill, 52, a loan officer residing in West Caldwell, each pleaded guilty to the same charge before Judge Greenaway, according to Assistant U.S. Attorney Treby Williams.

Sentencings for the defendants are scheduled for November before U.S. District Judge Joseph A. Greenaway Jr. Each faces a maximum sentence of five years in federal prison, a fine of approximately $4 million, as well as an order for restitution.

Jordan and Tortorelli were principals in County Mortgage Co., Inc. located in West Caldwell. They admitted to having agreed with Torres, Schill and Noce to falsify documents that were included in mortgage loan packages mailed to HUD in order to obtain more than 40 Federal Housing Administration (FHA)-insured mortgage loans for unqualified borrowers who were seeking to purchase homes from Torres.

The homes, most of which were located in Jersey City, New Jersey were sold to the unqualified borrowers at inflated prices.

The proceeds of the fraudulently obtained loans were used to pay Torres for the homes. Jordan and Tortorelli each acknowledged having received 25 percent of the profit that Torres realized upon the sale of the homes.

Jordan and Tortorelli explained that in order to obtain FHA-insured loans for unqualified borrowers who were purchasing Torres‘ properties at inflated prices, they, Torres, Noce and Schill falsified the mortgage loan applications and related documents that were mailed to HUD. Such documents were falsified by, among other ways: falsifying entries concerning the borrowers’ employment and income information and procuring and creating false personal income tax returns for the borrowers. In addition, Jordan and Tortorelli admitted that they had submitted Underwriters Certifications to HUD which falsely represented that borrowers’ mortgages were eligible for FHA insurance, when in fact they were not.

Both Jordan and Tortorelli acknowledged that due to borrowers defaulting on many of these fraudulently obtained mortgage loans, HUD has lost approximately $2 million.

According to the Information, FHA, a division of HUD, administered a mortgage loan insurance program to assist low- and moderate-income borrowers by encouraging lenders to make mortgage loans to borrowers who might not have been able to meet conventional loan underwriting requirements.

The FHA-administered insurance program protected lenders against loan defaults by guaranteeing payment in the event that the borrower failed to make loan payments. In order to facilitate the making of FHA-insured loans, certain mortgage companies specifically approved by HUD were authorized to act as agents for HUD and the FHA by themselves reviewing and qualifying loans for FHA insurance, all through the Direct Endorsement (DE) program.

During their plea hearings today, Jordan and Tortortelli said that from at least April 1995 through at least January 1998, County Mortgage was approved by HUD to act as a DE lender to underwrite FHA-insured mortgage loans.

No charges have been filed against County Mortgage.

Jordan and Tortorelli acknowledged that as a DE lender, County Mortgagee was required to have on staff an employee who had been approved by HUD to serve as an underwriter. They admitted that during the time covered in the Indictment, they were both officers of County Mortgage and each had been approved by HUD to serve as an underwriter on FHA- guaranteed mortgage loans issued by County Mortgage. They admitted that as HUD-approved underwriters for County Mortgage, they were required to personally review the loan application documents and determine that the proposed mortgage loan was eligible for FHA insurance prior to executing the Underwriter Certification for the loan. Following the loan closing, the mortgage loan package was mailed to HUD for insurance endorsement.

Jordan and Tortorelli described the mortgage loan package as including, among other things, the loan application, the borrower’s employment and income information and the Underwriter Certification. They each admitted that as a HUD-approved underwriter, their role and responsibility were critical elements of the DE program in that their Underwriter Certifications caused HUD to endorse the FHA-guaranteed mortgage loans without a detailed underwriting review.

mortgage fraud