August 10, 2007: Poor mortgage fraud. It still doesn't get the big eyeball. What does a white collar crime have to do to get real paparazzi action? Sleep with an A list celeb and become rehab material? OK. If that's what it takes here goes: according to the FBI, mortgage fraud is hooked up with the same lending practices that pumped the housing bubble-- on the way up and on the way down. And fraudsters continue to invent new ways to get high on the spread.
The FBI skinny goes something like this: when the bubble was inflating, the mortgage industry hydroplaned loans over the home plate sans sufficient quality control. Mortgage fraud went along for the ride. By the time the bubble began to deflate, industry players were used to mega profits and didn't want no stinking housing correction. The last shreds of quality control vanished in efforts to pump up the volume. Mortgage fraud rode that one too, right into foreclosure land. By 2006, one in every 92 households across the mortgaged plain was filing for foreclosure. Many of the souring loans were adjustable rate mortgages (ARMs) carried by subprime borrowers.
Note to those just out of a coma: subprime borrowers typically have poor or insufficient credit histories. Lenders cover subprime risk with high interest rates and servicing fees, and by uploading subprime loans to the secondary market as mortgage backed securities (MBS). During the bubble daze, nonprime mortgages (the mortgage lending tier which includes subprime and its more upscale cuz Alt-A) were massive money makers for lenders and investment marketeers-- with some investment firms supplying lines of credit to the same lenders whose MBS they marketed. In the effort to turn everyone, no matter how broke or brain dead, into grist for the mortgage mill, more and more wacky loan products and derivative investment instruments were employed. ARMs, which start out with low interest rates, were promoted as an affordable mortgage product. Borrowers were encouraged to gamble that housing values would continue to soar, allowing them to refinance at better rates or flip before their ARMs exploded. For awhile, the gamble paid off. Then it didn't. The fallout is being felt on Main Street and Wall Street.
Mortgage fraudsters dug ARMs too. Still do. Less money up front is a major bennie when you have no intention of sticking around for the bill. And fraudsters go with the flow. Foreclosure? Bring it on. Mortgage fraud flourished when ARMs were golden and continues to thrive in the lingering afterglow. Foreclosures free up more cheap properties for illegal flipping (as opposed to the legal kind shown on HGTV) and homeowners who want to get out from under are ripe for exploitation. Foreclosure rescue frauds are the newest twist on the housing bubble hit parade.
Attention parents! Is your teenager hanging with jive talking Realtors, value jacking appraisers, fly by night mortgage brokers, document juggling attorneys, and easy lay lenders? If so, get the kid into rehab. Not the kind used as a beard for home equity stripping refi scams-- but a substance abuse facility staffed by caring counselors who know mortgage fraud is an addiction. One found not in only in subprime circles but in Alt-A subdivisions. Folks who lie on mortgage loan docs, or who look the other way when real estate pros do it for them, can't help themselves. THEY HAVE TO HAVE THAT HOUSE. God isn't making any more land, any more land, any more land...
That John and Jane Doe's addiction to what the FBI calls “fraud for property” has caused no and low doc mortgages to be labeled “liars' loans” is distressing. Still, the most degenerate junkies are real estate industry insiders who indulge their addiction over and over in groups. Committing “fraud for profit” with multiple properties in multiple places. Mainlining mortgages supplied by pusher lenders. Including ones insured by the U.S. Department of Housing and Urban Development. Aka HUD. The enabler of many a mortgage fraud addict. Never never forget that HUD spelled backwards is DUH.
Mortgage fraud addiction takes its toll. Addicts can end up strung out, turning real estate tricks in crack(ed) houses. Soliciting unwilling appraisers. A fate embodied by Aaron R. Dare of Albany, New York. Albany is the state capital. Aaron Dare is the former head of the Urban League of Northeastern New York. In 2001, the League collapsed under a government enhanced Dare development deal turned ethical swamp. By 2006, Dare was copping a plea to federal fraud charges involving several major HUD backed properties. One was Historic Pastures, a multi-family complex covering blocks of inner city Albany. Aaron Dare's co-conspirator was Berne Watkins, a regional developer and tech entrepreneur from an affluent Albany County suburb. When Watkins was busted his attorney said Watkins was just another victim of big bad Aaron Dare. In July 2007, Watkins pleaded guilty to charges that mirrored Dare's.
In 1997, Berne/Bernie/Bernard Watkins in the form of his wife and Pastures LLC, bought 43 buildings in Historic Pastures from the Albany Local Development Corporation (ALDC) for $1.04 million. The ALDC is the quasi-public arm of the City of Albany. The ALDC had taken over Pastures in 1991, after a local bank threatened foreclosure. In 2002, Watkins sold 39 buildings in Pastures to Aaron Dare for $4.2 million. The appraisal value was faked, as were the proofs of Dare's finances which Berne supplied through his companies. The mortgage was by AMI Capital through Fannie Mae's Delegated Underwriting and Servicing (DUS) program and was insured by HUD. After closing, Dare pulled an EPD. As in-- early payment default. A neon sign of mortgage fraud. Foreclosure followed. Apres auction, taxpayers swallowed nearly $2 million in losses on Pastures and the other Berne/Dare HUD properties. Meanwhile, Berne plowed his profits into other real estate ventures.
Aaron Dare kept on going too. Fraudulently flipping 31 subprime properties in and around Albany with the alleged assistance of Albany Police Detective Kenneth Wilcox and unidentified others. Among the “others” were drug dealers allegedly recruited by Wilcox to serve as fake buyers-- or “straw buyers”. Officer Wilcox's actions will remain alleged: he died in a car crash in 2006. Berne Watkins' current attorney, who has represented a number of law enforcement officers in the Albany area, says Wilcox was “probably one of the most dishonest dirty cops the city has had.”*
The feds are taking their time with co-operating witness Aaron Dare: he hasn't been sentenced and until recently, was out on bond. Dare's plea deal was set to bring him less than 4 years. But dang if Dare didn't go and endanger the deal for an alleged hit of his favorite thing. In August, the New York State Police busted Dare on fraud and forgery charges related to recent real estate deals. Plus, Dare was reportedly seen in an Albany inner city nabe, soliciting appraisers to pump up the value of haggard properties.
The mortgage fraud-for-profit addicts of upstate New York tend to be locals with historic connections. The downstate scene can be more exotic. Though still connected. Take the case of United States of America v. Aleksander Lipkin aka Alex aka Shorty aka Melekiy. Twenty two other people follow Lipkin on the indictment issued in January 2007, by the U.S. Attorney for the Southern District of New York State. Three more names were added in July. The full 26 were affiliated with three mortgage brokerages based in Brooklyn: AGA Capital, its successor Lending Universe, and related entity Northside Capital. Aleksander aka Shorty was a mortgage broker. As was Igor Mishelevich aka Ryzhiy and Igor Buzakher aka Jeff. Yup “Jeff”. Galina Zhigun, who was indicted in July, is an AGA owner. Then there's mystery man Oleg Anokhin (no aka) of Staten Island. Oleg, who has disappeared into the Dostoevskian night, allegedly supplied the capital which floated the mortgage frauds of Igor and Igor and Aleksander and Masha and Lyosha and Marina and Mariya and Faina and so on and so forth. Not to suggest all the indicted are Russian. Callahan, Ciafolo, Acosta, Neustein, Ellison, and Carr also appear on the list.
The AGA indictment sprang from investigations by the FBI, Homeland Security's Immigration and Customs Enforcement Division (ICE) and the NYPD, and covers frauds allegedly done between 2004 and the end of 2006, the years when nonprime was starting to tank. The indicted include mortgage brokers, bank officers, loan processors, settlement agents, and property appraisers, plus assorted straw buyers and their recruiters/handlers. The AGA crew allegedly perped over 1000 (known) fraudulent mortgage and home equity loans in the five boroughs of New York City, and in Sullivan County in the Catskill region. New Jersey was hit as well. Impacted lenders included nonprime biggie Countrywide Financial, plus BNC Mortgage, Washington Mutual, National City Bank, and the late New Century Financial. (New Century sank under subprime in early 2007.) Many-- though not all-- of the frauds flowed through lender branch offices in White Plains and Tarrytown in Westchester County.
The alleged game went like this: the AGA crew employed the usual fake appraisals and straw buyers. Proof of income, assets, residence, heartbeat, etc. were forged. When necessary, AGA insiders at banks altered docs. Some buyers only existed on paper-- the product of identity theft. Deals typically involved 100 percent financing, via one or more mortgages and/or home equity loans. Properties were secretly controlled by players. The spread between inflated loans and actual sales price was skimmed. AGA professionals collected commissions on crooked transactions. Straw buyers either milked properties for more loans and/or rental income, or defaulted immediately. The AGA crew surfed that wave too. Staging foreclosure rescues by flipping defaulting properties to other straw buyers. Some lenders bought back properties from straw buyers at less than the face amount of the inflated loan. And several individuals named in the federal indictment have been sued by homeowners in South Brooklyn, who say the AGA players tricked them out of their property titles. A neon sign of foreclosure fraud.
During the years when they were allegedly scamming it up, AGA was touting their creative mortgage solutions at professional gatherings and in press releases. In September, 2004, an AGA president appeared before the Flatbush Real Estate Board at the Flatbush Council Building in Brooklyn. Accompanied by a chief investigator from the New York Department of State's Division of Licensing Services. According to an AGA press release, the man from AGA and the man from the Department of State were there to announce a “Major Breakthrough in Real Estate Buyer Broker Transactions”. In April 2005, AGA issued a press release (Creative Mortgage Puts $3 Million in Owner's Pocket at Closing) about their special touch with mortgage arrangements. Such as high loan to value, and no doc and low doc loans. Claiming “AGA Capital's commitment to providing extraordinary results is earning a reputation like no other.”
Like most PR poop, kind of a brag. While the AGA/Lending Universe crew is indeed alleged to have a monster mortgage fraud habit, their reputation is not “like no other”. According to the FBI, New York is among the top 10 states for mortgage fraud. There are plenty of other addicts in the Empire State, each with their own mega monkey. And as ARMs explode all over the place, the rescue rush is on.
Carola Von Hoffmannstahl-Solomonoff
Sources include but are not limited to:
"Dare again charged in real estate dealings," Brendan J. Lyons, Albany Times Union, 08/02/07
"Police take a closer look at Dare transactions," Brendan J. Lyons, Albany Times Union, 07/31/07
"Shady deals linked to cop," Brendan J. Lyons, Albany Times Union, 07/30/07
"NYC braces for foreclosure surge," Tom Frederickson, New York Business.Com, 07/27/07
"Guilty Plea Entered in New York Mortgage Fraud Case," www.mortgagefraudblog.com 07/26/07
"Dare crony admits fraud in HUD scheme," Brendan J. Lyons, Albany Times Union, 07/25/07
"26 charged in $200m subprime case, Brooke Masters," Financial Times, 07/11/07
"4 Islanders allegedly part of mortgage scam," John Annese, Staten Island Advance, 01/05/07
2006 Mortgage Fraud Report, Federal Bureau of Investigations
"Owner of Pastures sites plans upgrades," James Denn, Albany Times Union, 12/27/97
*Late Detective Linked to Real Estate Scam," CBS6TOGO, 08/05/07
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