The state of Michigan has issued a Cease and Desist Order against a company it accuses, among other things, of falsely submitting purchase transactions as refinances.
According to an announcement from the state’s Office of Financial and Insurance Services, World Wide Financial Services Inc. engaged in a variety of illegal activities including mortgage fraud. In addition, the state said the company used fraudulent documents in loan packages and failed to maintain adequate records so that the state could confirm compliance.
In its order, the state said the Southfield-based company intentionally deleted some application information “in an attempt to avoid regulatory scrutiny of the improper actions.”
The order went on to describe a jumbo program where properties were refinanced 1 to 30 days after the purchase and World Wide was shown as the current lienholder. Cofounder Jack Wolfe issued a memo to loan officers about the program, according to the order, laying out rules that included withholding copies of disbursement checks, original first mortgage payoff documentation, and other documentation from investors.
World Wide, which was founded in 1990 and operates as Loan Giant, allegedly processed the loans, dubbed “Portfolio” or “Phantom,” with no intention of funding them.
“They then immediately initiated refinance transactions, often in the same week and sometimes on the same day the original loan documentation was prepared,” the state said in its announcement. “These refinanced loans were then sold to investors on the secondary market who were unaware that the initial loans were not funded.”
The regulator’s “investigation of the portfolio loans revealed they are a sham, with funds from the refinance transaction flowing through to ultimately fund the obligations of the original purchase transaction,” the complaint said. “In most, if not all cases, Respondent, its employees, and its affiliate Title Giant, engaged in fraud and material misrepresentations in connection with these mortgage loan transactions to induce investors to purchase the loans.”
But Loan Giant had investor approvals and favorable legal opinions supporting these type of transactions, COO and cofounder Rob Silverstein told MortgageDaily.com in a phone interview.
“It was a real loan,” Sivlerstein said. “The loan that I ultimately sold to my investors…as a refi disclosed World Wide Financial as being paid off, (and) provided a pay history on the mortgage — which at times there was none,” he said. “It was a fully disclosed, fully documented transaction.”
While the state said 34 transactions occurred under the portfolio program, Silverstein noted that only 24-27 loans were closed under that structure out of more than 100,000 loans the company has funded. “Occasionally a transaction would surface that would fit under the guidelines of this portfolio loan.”
World Wide, which was among a number of lenders to lose its FHA approval this year, said in a written statement that the state’s objective is “to shut the Company down through the court of public opinion.”
In one of the transactions, the wife of a former Loan Giant employee purchased a $1 million property with no down payment, according to the order. While she allegedly showed her income at $27,000 monthly on the application, a subsequent verification confirmed her income was around $4,000 per month.
The state went on to say that GMAC RFC filed a lawsuit against Loan Giant in Minnesota last February alleging false employment verifications and inflated property values — which Silverstein said was triggered by a default on the $1 million loan. “It was million dollar default,” he said, “That’s a red flag in anybody’s system.”
Silverstein maintains that while the income verified had fallen by the time the reverification occurred, “the information at the time he did the loan was accurate.”
In its statement, the privately held corporation blames the state’s abusive investigation for causing “the termination of a substantial and important business relationship of the Company that being GMAC/RFC.”
Michigan also accused a settlement agent at an affiliated title company, Title Giant, of signing false affirmations in the transactions.
In one transaction, a Loan Giant loan officer allegedly used a land contract transaction and confusing first payment correspondence with the current owner to ultimately gain title to the property. The state’s review of that file found the originator obtained a loan on the property and used a fake social security number, listed inflated income, and falsely listed another originator as the loan officer in the transaction, according to the order. The state also said Title Giant prepared fake HUD-1 closing statements so the file would appear to meet the guidelines of GMAC RFC for no cashout loans.
“If a loan officer that’s very skilled in understanding how to package a deal dupes the system on his own transaction, I have no real checks and balances while it’s going through,” Silverstein added.
In another transaction, another Loan Giant originator is accused of misleading the borrower about the cash proceeds they would receive.
The company’s CFO, Howard Babcock, is accused of deceiving Washington Mutual on his own loan earlier this year by claiming the investor property securing the loan was his primary residence, and that he made a down payment of more than $50,000 — which he didn’t. In addition, unpaid property taxes were allegedly shown as paid on the settlement statement.
Silverstein noted that no fines have been levied and his license remains fully intact.
