RBC Discloses Massive Mortgage Fraud at U.S. Unit

$33 million in fraud loans from West Coast office

August 23, 2004

By PATRICK CROWLEY

The loans were originated through Chicago-based RBC Mortgage, the company’s U.S. mortgage unit, and were made to “fictitious borrowers with inflated appraisals,” company executives have said.

RBC further stated the “certain mortgage loans” were believed to be fraudulently originated in 2001 and 2002.

An insurance claim has been filed, but it has not been settled or paid out.

“Although an insurance claim has been filed regarding this matter, no benefit form this insurance claim has been reflected in the financial statements … due to uncertainty surrounding the timing and final amount of the recover,” RBC said.

For the quarter, RBC Centura’s earnings fell 90 percent, from $45.8 million in 2003 to $4.6 million this year.

The company — which is based in Rocky Mount, N.C. — has issued no other public statements, and representatives could not be reached to comment.

Kel Landis, CEO of RBC Centura, said in an interview the earnings slide can be attributed to structural problems in the bank’s mortgage division.

The difficulties were being worked out when the bad loans were discovered, Landis told the Triangle Business Journal in North Carolina.

“We took a second-quarter charge, and it is behind us now,” Landis told the weekly business paper. “It has been fully provided for, and we are continuing to rebuild RBC Mortgage long term.”

The bogus loans were made through a West Coast office the company has not identified and were identified in May, 2003, the company has said.

Jim Rager, head of U.S. banking operations for RBC, talked about the problems in a phone call with analysts in June, the business paper reported.

“Essentially, (it was) the situation of fictitious borrowers with inflated appraisals and inaccurate or fraudulent information with respect to income levels,” Rager reportedly said. “You’ve always got to be on guard for that sort of thing in business.”

RBC Mortgage touts itself as a top 20 mortgage originator with $34.3 billion in loans originated last year. The company says it has 3,000 employees and more than 200 branches.

The company has been revamping its mortgage operations. In a Power Point presentation posted on the RBC Internet Web site, the company said “bottlenecks in back-office”, “late delivery of loan files to investors” and “poor loan documentation” are being addressed.

RBC Mortgage is “revising loan delivery policies and guidelines” and “streamlining processes and addressing loan documentation issues.”

Some responsibilities and functions were moved to Houston, a major RBC Mortgage outpost, “to allow Chicago staff to focus on clearing the backlog.”

The company is also focusing on a number of U.S. markets for growth, including Houston, Dallas, Phoenix, Las Vegas, Denver, San Diego, Sacramento and Chicago.

In those areas RBC is forming joint ventures to operate as a “full service construction/development loan officer,” it said in the presentation.

Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: [email protected]