A federal lawsuit filed by the government alleges that five mortgage lenders used an elaborate scheme to avoid repurchases and the loss of their Federal Housing Administration approvals.
A complaint was filed on Monday by the Department of Justice in U.S. District Court for the Eastern District of New York.
The complaint alleges that on 865 occasions, the defendants defrauded the government and banks — resulting in false claims payments of more than $5.6 million.
At the center of the alleged scheme was defendant Rainy Day Foundation Inc., which the Justice Department claims funneled money from the lenders to banks holding the FHA-insured loans.
Using the foundation, the defendants allegedly used their own funds to make payments on defaulted loans and avoid losing their FHA approval.
Early payment defaults on the defendants’ loans were at more than twice the average at other lenders.
The fraudulent payments allegedly continued until the loans had
aged beyond banks’ contractual right to force repurchase or beyond the period that the Department of Housing and Urban Development monitored the loans for early payment defaults.
The government claims that when the Rainy Day Foundation began to draw scrutiny from the government, it quickly reorganized as a new business, Default Mitigation Services, to avoid detection and continue making the payments.
The bogus payments were passed off as grants being made by an American Indian tribe in Ely, Nevada, known as the Ely Shoshone tribe.
“In reality, DMS was again funneling money from the defendant mortgage lenders, through Ely Shoshone tribal bank accounts, to the banks holding the loans,” the announcement said.
Treble damages and penalties under the False Claims Act, fines under the Financial Institutions Recovery, Reform and Enforcement Act and damages and indemnification are sought by the Justice Department.
In addition to
the Rainy Day Foundation and related parties, the lawsuit names five lenders and some of their officers as defendants in the action.
One of the defendants, Melville, New York-based Franklin First Financial LTD, was one of the companies named last year by the Consumer Financial Protection Bureau for its eClosing pilot.
Franklin First, which has also done business as President First Mortgage Bankers, had its FHA approval terminated in April 2010; agreed to a $413,500 civil penalty that same year; and was hit with $66,500 indemnification charge in July 2013.
Executives at Franklin First who were named as defendants in the Justice Department lawsuit include Frederick Assini, chief executive officer; Antonio Baines, senior vice president of operations; Andrew Dauro, manager; and Chris Bertman, chief operating officer.
Mortgage Source LLC was named as a defendant, as was its chief financial officer, Max Kane, and chief operating officer, JoAnn Medeiros. Mortgage Source lost its
direct endorsement approval and its origination agreement in November 2011. The company went out of business around that same time.
Defendant Intercontinental Capital Group Inc. faced a civil penalty from HUD in 2009 for failing to to meet FHA annual re-certification requirements. Its president and managing director, Dustin Dimisa, and its former CEO, Richard Steinberg, were both named as defendants in the government’s lawsuit.
The remaining defendants include Continental Mortgage Bankers Inc., dba Financial Equities,
and its president, Walter Stashin; and Gregg Marcus, managing director of now-defunct Somerset Investors Corp., dba Somerset Mortgage Bankers.
