Following concerted efforts to prevent unnecessary foreclosures, the Washington Attorney General’s Office and a group of other state attorneys general and banking regulators say they’ve seen improvements in programs designed to help homeowners. But they’re concerned that foreclosures continue to outpace loan modifications, and note that most modifications increase the loan balance.

According to a report issued by the State Foreclosure Prevention Working Group, a multi-state coalition, recent loan modifications are performing better. Modifications can include reduced interest rates and other changes to terms that result in smaller payments and, in some cases, lower outstanding balances.

The report tracks loan modifications made by nine mortgage companies who were servicing 4.6 million loans as of March 2010. Banks, which are regulated by federal agencies, are not included. Compared to loans modified in 2008, borrowers whose loans were modified in 2009 were 40-50 percent less likely to be seriously delinquent six months later.

The Office of Thrift Supervision and the Office of the Comptroller of Currency reported a similar reduction in redefault rates in their Mortgage Metrics Report for the first quarter of 2010. The agencies reported that of the 590,000 modifications made in 2009, nearly 52 percent were current at the end of the first quarter of 2010. Only 27 percent of the modifications implemented during 2008 were current.

“Some analysts have predicted redefault rates as high as 75 percent but today’s report paints a brighter picture of the future,” Washington Attorney General Rob McKenna said. “The newer modifications are holding up better, with fewer borrowers redefaulting.”

McKenna and his office have been leading efforts to help homeowners, including cracking down on unethical lenders and fraudsters, advocating for modifications of mortgages that have become unaffordable, urging changes to bankruptcy rules, and seeking state-federal collaboration on bank regulation. The Washington Attorney General’s Office granted $920,000 of its Countrywide/Bank of America settlement payment for local foreclosure prevention programs that provide counseling and pro bono legal services.

Despite the progress made on the sustainability of the loan modifications being made, McKenna said he’s concerned that 6 out of 10 seriously delinquent borrowers are not getting any help.

McKenna encouraged Washington residents facing foreclosure to call The Washington State Homeownership Information Hotline at 1-877-894-HOME (4663) or visit the Attorney General’s Web site at www.atg.wa.gov/foreclosure.aspx for additional resources. He cautioned that loan modifications aren’t miracle cures and not every homeowner will qualify.

The majority of loan modifications (89 percent) tracked by the working group for the first quarter of 2010 showed some reduction in payments, and nearly 78 percent lowered the monthly payment by more than 10 percent.

Redefault rates were lower for loan modifications that reduced the principal balance by more than 10 percent. However, only 1 in 5 modifications reduce the loan amount and, in fact, the vast majority increase the balance by adding servicing charges and late payments.

“When housing prices are low, the lender is going to take a loss if that home is foreclosed and surrounding home values will ultimately be impacted,” McKenna said. “The underlying theory of a loan modification is to enable the lender to get the same value out of the home as if it had been foreclosed. The lender still takes a loss through the reduction of interest or principle. But the net result is better for the community and the borrower because, of course, a house is more than just an asset. It’s a home.”

The State Foreclosure Prevention Working Group consists of 12 state attorneys general (Arizona, California, Colorado, Florida, Illinois, Iowa, Massachusetts, Nevada, North Carolina, Ohio, Texas and Washington), bank regulators for New York, North Carolina, and Maryland, and the Conference of State Bank Supervisors. The group was founded in 2007 and has issued four prior reports, available at www.csbs.org/regulatory/Pages/SFPWG.aspx.

John Fisher, 35, Jupiter, Florida, pled guilty in federal court to one count of conspiracy to commit mail and wire fraud and to one count of substantive mail fraud. Also pleading guilty were defendants Tracey Balli, 35, Pembroke Pines, Florida, Justina Bryan, 35, Hollywood, Florida, and Delano McLennon, 33, North Lauderdale, Florida. These defendants pled guilty to one count of making false statements on a HUD-1 Real Estate Settlement Form in connection with a mortgage fraud scheme. Sentencing has been scheduled for November 19, 2010 before U.S. District Judge Ursula Ungaro.

According to records filed with the court and statements made during the plea hearing, the defendants and other conspirators engaged in a scheme to enrich themselves by fraudulently causing real property in Fort Lauderdale, Jupiter, Cape Coral, and Royal Palm Beach, Florida, to be bought and sold through straw buyers who obtained high value mortgages based upon fraudulent mortgage loan applications. A co-conspirator orchestrated the scheme, in which defendant John Fisher, a licensed mortgage broker, Tracey Balli and Justina Bryan, both loan processors, joined. Balli and Bryan, along with other conspirators, recruited straw buyers, including Delano McLennon, to join the scheme.

In order to obtain mortgages on these properties, the defendants and other co-conspirators submitted and caused to be submitted fraudulent documents to various mortgage lenders across the United States. Based on these false documents, the mortgage lenders issued approximately $2,500,000 in loans to the defendants and their co-conspirators.

Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, Henry Gutierrez, Postal Inspector in Charge, U.S. Postal Inspection Service, John V. Gillies, Special Agent in Charge, Federal Bureau of Investigation, Miami Field Office, and J. Thomas Cardwell, Commissioner, State of Florida Office of Financial Regulation, announced the guilty pleas.

Mr. Ferrer commended the investigative efforts of the U.S. Postal Inspection Service, the FBI, and the State of Florida Office of Financial Regulation. This case is being prosecuted by Assistant U.S. Attorneys Randy D. Katz and Jeffrey H. Kay.

John Jackson, 42, Middletown, Connecticut, pleaded guilty before United States District Judge Christopher F. Droney in Hartford to a one count of conspiring to commit wire fraud stemming from a mortgage fraud scheme.

According to court documents and statements made in court, in 2006, Jackson conspired with a New Haven-based real estate attorney and an East Hartford-based mortgage broker to defraud Mortgage Lender Network USA, Inc., a Florida corporation with offices in Middletown, through the purchase of Meriden residential property. Working with the attorney and mortgage broker, Jackson signed a loan application provided by the mortgage broker for a loan in the amount of $280,000. Both Jackson and the mortgage broker knew that application contained several material misrepresentations, including Jackson‘s true financial condition. The application also falsely represented the purchase price of the property, which was substantially less than reflected on the loan application; that the property was to be Jackson‘s primary residence, when it was not; Jackson‘s total liabilities, which were much higher than represented on the application, and that Jackson would provide approximately $60,000 in cash at the loan closing.

On approximately July 21, 2008, as part of the scheduled loan closing, Mortgage Lender wired approximately $283,000 into the attorney’s trust account. At the closing, Jackson signed a HUD settlement statement, which was prepared by the attorney, that overstated the actual purchase price of the property by more than $150,000, and that stated that Jackson had made an earnest payment toward the purchase. In fact, Jackson had not made a payment. Instead, the attorney had made a payout to Jackson.

Judge Droney has scheduled sentencing for October 15, 2010, at which time Jackson faces a maximum term of imprisonment of five years and a fine of up to $250,000.

This case is being investigated by Federal Bureau of Investigation and the Connecticut State Police. The case is being prosecuted by Senior Litigation Counsel Christopher W. Schmeisser.

David B. Fein, United States for the District of Connecticut, announced the guilty plea. 

Peter N. Price, 49, Hollywood, Florida, pled guilty to a criminal information charging him making false statements to HUD, in violation of Title 18, United States Code, Section 1001. In addition, Price agreed to make restitution to Stewart Title Guaranty, the victim of his fraud, in the amount of $1,608,246.57.

Sentencing is scheduled for August 27, 2010, at 1:30 p.m. before U.S. District Court Judge James I. Cohn in Ft. Lauderdale. Price faces a maximum statutory sentence of 5 years in prison.

According to the criminal information and statements made during today’s plea hearing, Price, a title attorney, operated Intracostal Title Services, Inc., a title company in Hollywood, Florida. According to statements made in court, Price embezzled more than $1,000,000 in loan proceeds that had been sent to Intracostal’s escrow bank account by clients to pay off prior mortgage loans. Instead of using the money as directed, Price prepared and sent a false HUD1 Real Estate Settlement Form, falsely reflecting the old loans had been paid. 

Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, Henry Gutierrez, Postal Inspector in Charge, U.S. Postal Inspection Service, John V. Gillies, Special Agent in Charge, Federal Bureau of Investigation, Miami Field Office, J. Thomas Cardwell, Commissioner, State of Florida’s Office of Financial Regulation, announced the guilty plea.

Mr. Ferrer commended the investigative efforts of the U.S. Postal Inspection Service, FBI, the State of Florida’s Office of Financial Regulation. This case is being prosecuted by Assistant U.S. Attorney Jeffrey H. Kay.

Irshad a/k/a “Tony” Ramzan, 36, Baldwin, New York, a former mortgage broker who supervised the operations of Queens-based Platinum Funding, was sentenced to seven years in prison for his roles in a scheme to steal over $6 million in the proceeds of home mortgage loans issued by various banks for the purchase of residential properties, which funds were supposed to be used to pay off existing mortgages on the properties, and in another scheme to obtain home mortgage loans from banks under false pretenses by arranging straw purchases of those homes, thereby generating tens of thousands of dollars in unwarranted fees for Ramzan and Platinum Funding. The sentence was imposed today by United States District Judge Naomi Reice Buchwald in Manhattan Federal Court.

According to the Indictment and Superseding Information to which Ramzan pleaded guilty, statements made in court, and other documents filed in this case:

Ramzan controlled a business called 44th Street Home Funding, Inc., which operated under the trade name “Platinum Funding.” Platinum Funding was located in South Ozone Park, New York, and engaged in the business of, among other things, brokering retail real estate and mortgage transactions by arranging for the sales of homes and for home mortgage loans and refinancings.

From 2004 through October 2005, Ramzan and a coconspirator, Eric Koppelman, who has been separately charged, engaged in a scheme to steal the proceeds of home mortgage loans
from banks that were supposed to have been used to pay off the existing mortgages on the properties. To further their scheme, Ramzan and Koppelman issued, and cause to be issued, checks to one or more companies controlled by Ramzan or Koppelman, which funds represented all or part of the loan proceeds that were to be used to satisfy mortgages. To hide their fraud, Ramzan and Koppelman lied to financial institutions providing the home mortgage loans and falsely stated that some of the proceeds of the mortgage loans were being used to satisfy the seller’s mortgage loan. Instead, these funds were being used by Ramzan or Koppelman for their own purposes.

In a separate scheme that Ramzan supervised, Ramzan tricked homeowners who were having problems making payments on existing home loans, often to the point of facing foreclosure, to
sell their houses to so-called “straw purchasers.” In doing so, Ramzan misrepresented the nature of these “bailout” transactions to the lenders that financed these transactions and, thereby,
defrauded these lenders. In return, Ramzan obtained substantial fees from the transactions.

In addition to the prison term, Ramzan was sentenced to four years of supervised release and was ordered to pay over $6 million in restitution and to forfeit several properties.

Previously, on February 25, 2010, Koppelman pleaded guilty to conspiracy to commit bank fraud based on his role in the scheme to steal mortgage payoff money. Koppelman, 49, Hauppage, New York, is scheduled to be sentenced by United States District Judge Paul G. Gardephe on July 7, 2010, at 11 a.m.

US Attorney Preet Bharara announcement the sentence and praised the investigative work of the United States Postal Inspection Service and thanked them for their work in this case. He also thanked Ticor Title Insurance Company of Florida for its assistance in the investigation.

These cases are being prosecuted by the Office’s Complex Frauds Unit. Assistant United States Attorney Daniel W. Levy is in charge of the prosecutions.