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Broker Sued for $6 Million in Fraud

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A Maryland-based wholesale lender has sued a Virginia-based mortgage broker over claims it fabricated and altered files on nearly $6 million in mortgages. A judgment of more than $15 million is sought.

1st Mariner Bank filed the lawsuit against East West Mortgage Company Inc. in the U.S. District Court of the District of Maryland. 1st Mariner is requesting a judgment of over $15 million, including over $10 million in punitive damages.

Baltimore-based 1st Mariner conducts mortgage lending under First Mariner Bank Mortgage.

East West originally entered the broker agreement with First Mariner in April 2004, according to a copy of the broker agreement signed by East West President and sole owner Doug Bui. The brokerage was originally launched in 1986.

Employees and agents of East West allegedly provided the wholesale lender with misleading loan applications, false credit references and forged verifications. Fraudulent appraisals were also allegedly part of the files.

“This complaint addresses the fraudulent conduct of East West’s employees and agents, who for financial gain, knowingly made numerous false representations to 1st Mariner relating to potential borrowers’ credit worthiness to ensure that unqualified borrowers were approved for loans to purchase residential property,” the complaint states. “The unqualified borrowers defaulted on the loans soon after closing, causing 1st Mariner substantial losses and harm to its reputation.”

Among the fake documents were doctored verifications of deposit from SunTrust Bank and Provident Bank, fake verifications of employment and fabricated letters of credit, 1st Mariner alleges. However, many of the borrowers involved in the transactions had no idea mortgage fraud had been committed.

The fraudulent loans went into default soon after closing, according to the complaint. As a result, First Mariner was forced to repurchase the bad mortgages back from the investors.

In all, $5.9 million in fraudulent mortgages were outlined in the lawsuit. First Mariner claims it suffered losses in excess of $5 million East West’s actions.

On its Web site, East West says it has a “vast network of lenders and brokers” and specializes in FHA, conventional, jumbo and subprime loans.

1st Mariner, a state chartered bank owned by 1st mariner Bancorp, announced in July 2007 it exited wholesale lending in conjunction with a second quarter net loss of $3.9 million associated to problems with wholesale Alt-A loans. The move was apparently the result of the alleged mortgage fraud at Vienna, Va.-based East West.

“We have been aggressive in identifying the potential loss in our wholesale-originated mortgage products, specifically Alt-A financing, which have been repurchased under recourse provisions,” First Mariner Chairman and Chief Executive Edwin F. Hale Sr. said at the time. “Further value declines in residential real estate, particularly in the Northern Virginia region, resulted in the recognition of additional loan loss provisions, valuation reserves, and write-downs on foreclosed real estate totaling $5.0 million for the quarter.”

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