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Fraud Notes Cost Fannie $7.5 Million

Settlement with DOJ over Ginnie losses

December 10, 2004

By staff

Already on the radar screen of federal authorities when in 1998 he bought a 58-foot Sea Ray yacht for $802,000 in cash, the owner of First Beneficial Mortgage Corp. in Charlotte, N.C., got on Fannie Mae's radar by selling the company millions of dollars of bogus notes. When Fannie demanded he repurchase the notes, he sold the same false notes to Ginnie Mae and used those proceeds to repay Fannie. But Fannie, a government sponsored company, neglected to notify Ginnie, a government owned company, that the loans were fraud -- leading to a $7.5 million settlement this week.

Fannie announced it entered into a consent order with the Department of Justice in which the mortgage giant agreed to forfeit $7.5 million -- $1 million more than it allegedly received.

The government-sponsored enterprise did not admit wrongdoing in the consent order announcement.

"Fannie Mae does not wish to retain the funds or benefit from First Beneficial's illegal activities," Chuck Greener, a vice president of Fannie, said in a statement. "This agreement brings a swift, appropriate and cooperative end for the United States and Fannie Mae in this matter."

The mortgage giant's decision to forfeit follows an order by a federal court judge in Charlotte, N.C., mandating that Fannie forfeit $6.5 million it received through criminal means as it did not disclose the loans were fake and allowed First Beneficial to sell the fraudulent mortgages to Ginnie.

The $6.5 million, plus about $978,000 in stipulated interest, make up the $7.5 million Fannie agreed to pay in the consent order.

In the 1990s, the secondary lender bought mortgages created by First Beneficial Mortgage Corp. When Fannie learned the loans were phony, it demanded that the notes be repurchased. First Beneficial then sold the false loans to Ginnie.

Evidence reportedly showed $4.5 billion were transferred to Fannie on the same day in December 1998 that the loans were sold to Ginnie, and that another $1.7 billion were transferred at a later date in the same manner. Prosecutors and HUD officials have testified that Fannie accepted the proceeds knowing First Beneficial sold the loans to Ginnie.

Fannie said it "intends to work with HUD and other appropriate government and industry entities to establish an appropriate process for sharing information with each other with respect to the type of activities involved in this matter, and [that it] will continue to work to defeat fraud in the mortgage industry."

The case is not related to the Justice Department's criminal investigation of Fannie's accounting.


Fannie Unloaded, Ginnie Bought Bogus Notes
A federal judge has ordered Fannie Mae to turn over $6.5 million it received as a result of selling fraudulent mortgages back to the originator who in turn sold them to the government.
click here to read article

Yacht Sold in Case Where Ginnie Suffered Single Biggest Loss
The luxury yacht that helped sink a $30 million fraudulent mortgage scheme in North Carolina has been sold by federal authorities over the Internet.
click here to read article

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