Mortgage Shopping, Made Easier - Economic View

The following is an excerpt from an article in 

The New York Times
Sunday, August 19, 2012

Mortgage Shopping, Made Easier - Economic View

By RICHARD H. THALER

MORTGAGE rates are very low, but some people who could qualify for cheap refinancing are procrastinating. That may be because shopping for a mortgage can make root canal surgery seem fun.

Choosing a home and mortgage is probably the largest financial decision that most Americans ever make. Yet perhaps because the loan process is so onerous and opaque, many take the first quote they are offered. In fact, research shows that people typically spend more time shopping for a car or vacation than for a mortgage, and I suspect that many families spend as much or more time picking out a microwave oven.

Shirking on mortgage shopping is a costly type of sloth. Other research, done for the Department of Housing and Urban Development, finds that most borrowers could save several thousand dollars by getting just one more quote.

Now is a propitious time for raising these issues because the new Consumer Finance Protection Bureau is undertaking a Congressionally mandated revision of some disclosure forms that are required by law. (Disclosure: Along with John G. Lynch Jr., a professor at the University of Colorado, I met with bureau staff members last month to discuss this proposal from a behavioral science perspective.)

The bureau’s goals should be to make mortgage shopping easier and more efficient, and to make the industry more transparent and competitive, all while reducing the kinds of bad loans that helped create the financial crisis.

One form is of particular importance. It’s the “loan estimate,” a paper copy of which must go to borrowers within three days of application for a loan.

The bureau’s research team did extensive testing to decide what data should be included on this new form. It proposed a three-page version containing more than 100 pieces of information, including the interest rate, charges for various services and whether features like prepayment penalties or balloon payments were part of the deal.

For more, visit www.nytimes.com.

News Release from the FBI, Portland Division

Former Bend-Area Developer Pleads Guilty to $20 Million Bank Fraud 
Cases Relate to the Collapse of Desert Sun Development in Bend, Oregon

U.S. Attorney’s OfficeFebruary 22, 2012

Office of Public Affairs(202) 514-2007/TDD (202)514-1888

EUGENE, OR—Tyler Fitzsimons, 33, appeared before U.S. District Judge Michael R. Hogan on Tuesday, February 21, 2012 and pleaded guilty to a variety of mortgage and loan fraud charges arising out of the collapse of his company, Desert Sun Development (DSD), including conspiracy, bank fraud, and money laundering. From 2004 through 2008, DSD, a company previously headquartered in Bend, Oregon, built commercial structures and residential housing throughout Central Oregon. According to the indictments, DSD principals and other defendants caused financial institutions to lose more than $19 million.

According to court documents, Fitzsimons and others knowingly submitted fraudulent documents, including false financial statements, to various banks in order to obtain financing to develop and construct many of DSD’s commercial projects. Once the loans were approved, Fitzsimons and others submitted additional false documents, including fictitious contracts and invoices, to the banks to obtain loan proceeds for construction costs that were claimed to be associated with the fraudulent documents. Often, no construction had occurred.

Fitzsimons also developed a real estate flipping scheme at DSD. In court records, Fitzsimons admitted, among other things, to undermining the loan approval process for individuals participating in the scheme by “seasoning” or falsely inflating their bank accounts through temporary deposits or undisclosed, short-term loans and by submitting other fictitious documents, including letters explaining employment, large or recent deposits, and bonuses, to the banks funding the loans.

Defendants Shannon Egeland, Jeremy Kendall, Robert Brink, Teresa Ausbrooks, Michael Wilson, and Del Barber, Jr., who are charged in these and related cases previously pleaded guilty and are pending sentencing.

Conspiracy to commit bank fraud carries a maximum sentence of five years in prison and a $250,000 fine. Bank fraud carries a maximum sentence of 30 years in prison and a $1 million fine, and money laundering carries a maximum sentence of five years in prison and a $250,000 fine. Sentencing is set before U.S. District Court Judge Michael R. Hogan on October 09, 2012, at 10 a.m.

These cases were investigated by the FBI, IRS-Criminal Investigations, and the Oregon Division of Finance and Corporate Securities. Assistant U.S. Attorney Scott E. Bradford handled the prosecution of the cases.

Irresistible Mortgage-Backed Securities

Excerpt from an article in The New York Times
Sunday, February 19, 2012

Prices of Mortgage-Backed Securities Prove Irresistible

By AZAM AHMED

Some Wall Street investors made money as the mortgage market boomed; others profited when it fell apart.

Having reaped big gains during both of those turns, Greg Lippmann, a former star trader at Deutsche Bank, is now catching the next upswing: buying the same securities built from mortgages that he bet against before the financial crisis erupted.

Mr. Lippmann is joined by other big-money investors - mutual funds like Fidelity as well as hedge funds - in riding a wave of interest in the same complex loan pools that nearly washed away the financial system.

The attraction is the price. Some mortgage bonds are so cheap that even in the worst forecasts, with home prices falling as much as 10 percent and foreclosures rising, investors say they can still make money.

"Given its significant underperformance in 2011, we believe the product is as cheap to broader markets as it has been in a long time," Mr. Lippmann, whose portfolio is heavy with subprime mortgage securities, wrote in a recent letter to investors.

More broadly, the nascent recovery in the mortgage bond market supports a view that the housing slump may have bottomed out. Sales of existing homes are picking up. State and federal authorities have reached a $26 billion settlement with the big banks that is expected to provide some mortgage relief. And the Federal Reserve Bank of New York has been able to auction off billions of dollars of mortgage securities that it acquired as part of the financial crisis bailouts.

"There is light at the end of the tunnel," said Kenneth J. Taubes, the head of United States investment for Pioneer Investments, a global investment manager that owns these securities. "The mortgage crisis is getting behind us, and things are getting back to some semblance of normality."

That optimism is an about-face from 2006 and 2007, when Mr. Lippmann and others told investors that housing was a bubble ready to burst. On Wall Street, Mr. Lippmann became known as "Bubble Boy," and one of his traders wore a joking T-shirt that read, "I Shorted Your House."

His exploits were chronicled in Michael Lewis's best seller "The Big Short," which described him as somewhat brash and crass. He was known for maintaining a sushi spreadsheet, where he ranked the top Japanese restaurants in Manhattan on ambiance, quality and cost. (He still maintains the spreadsheet.)

These days, industry competitors describe Mr. Lippmann, who runs LibreMax Capital, as a more mellow presence. And he is much more positive about the market, telling investors that his fund is reducing its hedge against a potential market crash. Through a spokesman, Mr. Lippmann declined to comment.

Developer Convicted of Operating a Ponzi Scheme

From the FBI, New York:

Jury Finds Staten Island, New York Real Estate Developer Guilty of Operating Multi-Million-Dollar Ponzi Scheme

U.S. Attorney’s Office February 09, 2012

Eastern District of New York (718) 254-7000

— filed under: Breaking News, Press Release, White-Collar Crime

BROOKLYN, NY—Following two weeks of trial, a federal jury in Brooklyn, N.Y., today returned guilty verdicts against Joseph Mazella, the founder and president of the Great Atlantic Group Inc., a Staten-Island based real estate and financial consulting company, on charges of securities fraud, wire fraud, and money laundering. These charges arose out of the defendant’s operation of a Ponzi scheme that led to more than $14 million in losses. When sentenced by U.S. District Judge Carol B. Amon, the defendant faces a maximum sentence of 25 years in prison on the most serious charge.

The verdicts were announced by Loretta E. Lynch, U.S. Attorney for the Eastern District of New York.
The evidence at trial proved that Mazella solicited money from prospective investors by telling them that he would invest their money in real estate projects, including projects in Trenton, N.J., a warehouse in Utica, N.Y., and a golf course in Greene County, N.Y. Mazella told his victims that their money would be safe and that he would pay them a fixed rate of return. Mazella encouraged several investors, typically senior citizens, to apply for reverse mortgages on their residences and to invest the proceeds with him. From approximately January 2007 until approximately December 2010, investors gave Mazella more than $14 million. By January 2007, though, the evidence showed that Mazella was operating Great Atlantic as a Ponzi scheme in which he paid returns to investors from existing investors’ deposits or money paid by new investors. Mazella also used investors’ money to pay his personal expenses, including payments for a Porsche, a mortgage on his personal residence and family expenses.

“The evidence at trial showed that the defendant callously and systematically defrauded his victims of their lives’ savings. Mazella’s victims, many of whom are senior citizens on a fixed income, turned to him to ensure their security in their golden years. Instead, their security was raided to fund his fraud, and they will feel the impact of Mazella’s crimes for the rest of their lives,” said U.S. Attorney Lynch.

Ms. Lynch extended her grateful appreciation to the FBI, which led the government’s criminal investigation.
The government’s case is being prosecuted by Assistant U.S. Attorneys John Nowak, Winston Paes and Mary M. Dickman.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

Press release from the FBI, Buffalo Division:

Defendant Sentenced for Stealing from 136 Housing Clients

U.S. Attorney’s Office February 02, 2012

Western District of New York (716) 843-5700

— filed under: Buffalo Top Stories, Fraud, Press Release

BUFFALO, NY—U.S. Attorney William J. Hochul, Jr. announced today that Lori J. Macakanja, 35, of Dunkirk, New York, who was convicted of mail fraud and theft of government money, was sentenced to 72 months in prison and three years’ supervised release by U.S. District Court Judge Richard J. Arcara. Judge Arcara also ordered the defendant to pay $298,639.00 in restitution to the victims.

Assistant U.S. Attorney Trini E. Ross, who handled the case, stated that Macakanja, in her capacity as a housing counselor employed by HomeFront, Inc., inappropriately requested money from clients. The defendant told HomeFront clients that the money would be used toward loan modifications to prevent foreclosure on their homes. However, after receiving the funds, Macakanja used the money for her own personal use, including gambling, and failed to obtain the loan modifications for the victims. A total of 136 HomeFront clients were defrauded with losses totaling approximately $300,000. In addition, Macakanja also obtained federal grant monies from the Buffalo Urban Renewal Agency (BURA) for HomeFront clients. On two occasions, she diverted $2,000 worth of BURA money to pay her own personal mortgage.

“Many Americans are struggling to hold on to the American dream, ownership of a home,” said U.S. Attorney Hochul. “The victims turned to the defendant for help in keeping their home. Instead, the defendant abused their trust and stole their money. Unfortunately, because of the defendant’s actions, some of the victims lost their homes. Our office, along with our federal law enforcement partners, will work vigorously to protect federal funding targeted to help those who are struggling. We will also continue to prosecute those, like this defendant, who attempt to take advantage of those who are most vulnerable.”

“Lori Macakanja abused her position and violated the trust of distressed homeowners in the interest of personal gain,” said Cortez Richardson, Special Agent in Charge, U.S. Department of Housing and Urban Development, Office of Inspector General New York Region. “Her actions further jeopardized the assets of the Federal Housing Administration and unnecessarily complicated the lives and financial security of individuals already feeling the adverse impact of a volatile housing crisis. Today’s judicial action signals HUD’s Office of Inspector General’s firm commitment to working with our law enforcement partners to investigate and prosecute any individuals seeking to profit illegally from the nation’s mortgage crisis.”

“Macakanja preyed on the most vulnerable homeowners,” said Christy Romero, Deputy Special Inspector General for SIGTARP. “While an employee of a federally approved housing counselor, she illegally solicited and received payments from 136 homeowners facing foreclosure with the promise that the funds would be used to secure mortgage modifications. Little did the homeowners know, the payments were being used by Macakanja to support her gambling habit and to pay her own mortgage. SIGTARP will aggressively investigate and pursue those who exploit the federal government’s aid to homeowners under TARP and, with the help of its partners in law enforcement, ensure that they are brought to justice.”

SIGTARP investigates fraud, waste, and abuse related to HAMP and all other TARP-funded programs. HAMP encourages loan servicers and investors to modify mortgages to reduce the monthly payments of homeowners who are risk of default. There is no fee to homeowners to apply for a modification under HAMP.

The plea is the result of an investigation by the Mortgage Fraud Task Force of WNY, which includes agents and personnel from the U.S. Postal Inspection Service under the direction of Inspector in Charge Robert Bethel; the Housing and Urban Development Office of Inspector General, under the direction of Cortez Richardson, Special Agent in Charge, New York Region; SIGTARP, under the direction of Special Agent in Charge John Feiter; the United States Secret Service under the direction of Special Agent in Charge Tracy Gast; the Federal Bureau of Investigation under the direction of Special Agent in Charge Christopher M. Piehota; and the Internal Revenue Service under the direction of Special Agent in Charge Charles R. Pine. The Mortgage Fraud Task Force of WNY is led by the U.S. Attorney’s Office and also includes Veterans Affairs Office of Inspector General and the U.S. Bankruptcy Trustee.

Former RI Attorney Pleads Guilty to Bank Fraud, Tax Evasion Charges

From the FBI, Boston Division:

Former Rhode Island Attorney Pleads Guilty to Bank Fraud, Tax Evasion Charges

U.S. Attorney’s Office February 01, 2012

District of Rhode Island (401) 709-5000

— filed under: Bank Crime, Boston Top Stories, Press Release, White-Collar Crime

PROVIDENCE, RI—Former R.I. attorney James D. Levitt, 66, pled guilty in federal court in Providence today to three counts of bank fraud and two counts of filing false tax returns for his role in a million-dollar mortgage fraud scheme. Levitt faces up to 96 years in federal prison and a fine of up to $3.3 million dollars when he is sentenced by U.S. District Court Judge John J. McConnell, Jr., on April 19, 2012.

Levitt’s guilty plea was announced by U.S. Attorney Peter F. Neronha; Cortez Richardson, Special Agent in Charge of the HUD Office of Inspector General; Richard DesLauriers, Special Agent in Charge of the FBI’s Boston Field Office; and William P. Offord, Special Agent in Charge of the Boston office of the Internal Revenue Service, Criminal Investigation.

At today’s change of plea hearing, Levitt admitted to the court that between July 2006 and November 2007 he applied for and received, based on fraudulent information, three mortgages totaling more than $1.1 million for two properties in Providence and one in East Providence. He used two of the mortgages to buy the Providence properties from an acquaintance that was experiencing financial problems and was facing foreclosure on the properties. Levitt admitted that he offered to assist his acquaintance by purporting to obtain a buyer for the properties who was qualified to obtain financing to purchase the properties.

In order to finance the purchases, Levitt admitted that he induced a business associate to apply for the mortgages by representing to him that they would be partners, would refurbish the properties as condominiums and sell them at a profit. Levitt admitted that the mortgage applications and settlement statements contained false information; including failing to identify the true purchaser of the property and falsely stating that the buyer was putting a down payment in excess of $100,000 for each property.

Levitt admitted to the court that he conducted the closings on the properties despite his financial interest and despite the fact that he was a disbarred attorney. After the closings, Levitt obtained and deposited the majority of the proceeds of the sale of the properties, approximately $270,000, into bank accounts which he controlled. He provided $25,000 of the proceeds to the seller of the properties shortly after the closing, and he later made periodic payments. However, Levitt admitted that he used the majority of the proceeds for his business and for personal expenses. The two properties eventually went into foreclosure.

Levitt admitted to the court that he used the third mortgage to buy a property from another company he controlled. He applied for the mortgage in his own name. The application also contained false statements and omissions, including an affirmation by Levitt that there were no outstanding judgments against him when, as he admitted to the court, he knew that there was an outstanding judgment against him of approximately $432,728 by the State of Rhode Island, which represented restitution owed to the State on a prior criminal conviction.

Levitt also admitted to the court that he failed to disclose to the Internal Revenue Service in tax filings in October 2007 and October 2008 derived income from the ventures as well as from other sources.
The case is being prosecuted by Assistant U.S. Attorney Luis M. Matos.

The matter was investigated by the U.S. Department of Housing and Urban Development Office of Inspector General, Federal Bureau of Investigation, and Internal Revenue Service-Criminal Investigation.