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U.S. Department of Housing and Urban Development Office of Inspector General Semiannual Report to Congress i October 1, 2006, through March 31, 2007 Profile of Performance Audit Profile of Performance for the period, October 1, 2006, through March 31, 2007 Results Recommendations That Funds Be Put to Better Use $755,037,441 Recommended Questioned Costs $18,987,476 Collections from Audits $14,535,322 Administrative Sanctions 6 Investigation Profile of Performance for the period, October 1, 2006, through March 31, 2007 Results Funds Put to Better Use $42,225,372 Recoveries/Receivables $190,176,284 Indictments/Informations 694 Convictions/Pleas/Pretrial Diversions 562 31 Civil Actions Administrative Sanctions1 Personnel Actions 1,050 24 Arrests2 1,777 Search Warrants 30 Weapons Seized 7 Subpoenas Issued 433 Hotline Profile of Performance for the period, October 1, 2006, through March 31, 2007 Results Funds Put to Better Use $2,516,206 Recoveries/Receivables $179,820 Personnel actions include reprimands, suspensions, demotions, or terminations of the employees of Federal, state, or local governments, or of Federal contractors and grantees, as the result of OIG activities. In addition, this reporting category includes actions by Federal agencies to suspend, debar, or exclude parties from contracts, grants, loans, and other forms of financial or non-financial transactions with the government, based on findings produced by the OIGs. 1 2 Included in the arrests is our focus on the nationwide Fugitive Felon Initiative. Inspector General’s Message It is with pride that I present the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG), Semiannual Report that outlines OIG's activities for the first half of fiscal year 2007. HUD OIG provides constant oversight of the administration of HUD programs through audits of HUD's financial statements and internal control reviews. In addition, OIG is a strong deterrent through its criminal and administrative investigations of white-collar crime and program abuse. OIG actively pursues these efforts, finding partners in its drive to uncover housing-related crimes in public housing and HUD's economic development programs. During the past 6 months, HUD OIG has partnered with the U.S. Department of Justice (DOJ) on the National Procurement Fraud Task Force, the purpose of which is to promote the early detection, prevention, and prosecution of procurement fraud associated with government programs. In addition, OIG is participating in the DOJ Public Housing Safety Initiative (PHSI), a crime prevention and community development effort designed to assist in the investigation, prosecution, and prevention of violent crimes and drug offenses in public housing. OIG is actively participating in 10 major PHSI sites across the country. A recent PHSI initiative in the Dallas/Ft. Worth area netted 69 arrests, 36 administrative actions, and $592,992 in funds put to better use. HUD OIG continues to check the crime of Section 8 rental subsidy fraud. A recent action in New York City, "Operation Heat 2," conducted by OIG in cooperation with the New York City Housing Authority, led to the arrest of 30 individuals charged with defrauding the Section 8 program of more than $1.2 million in housing subsidies. HUD OIG has been a strong voice for strengthening the integration of the Federal Housing Administration's financial management systems to the enhance lender accountability and effectively deal with program abusers. The destruction and aftermath of Hurricanes Katrina, Wilma, and Rita continue to be a focus and challenge for HUD OIG. To deal with the enormous task of enforcement and oversight, OIG has established a new, discrete regional office, headquartered in New Orleans, LA. OIG audit, investigative, and inspections staff provide a continuing and comprehensive review of the expenditure of funds and their administration. Weekly Gulf Coast newspapers herald arrests and convictions of those who would seek to defraud the government. Inspector General’s Message iii HUD OIG's major accomplishments for this period are highlighted in this report. During the 6-month reporting period, audit reports related to the single-family housing, public and indian housing, multifamily housing and community planning and development program areas questioned more than $18.7 million in costs and made $755 million in recommendations to the Department on how funds could be put to better use. During this semiannual reporting period, OIG completed 60 audits. HUD OIG's investigative workload continues at a steady pace. During this timeframe, OIG opened 79 investigative cases and closed 111 cases in the single-family program area, resulting in 142 indictments; 134 arrests; and 113 convictions, pleas, or pretrial diversions. In closing, I want to acknowledge the extraordinary efforts of the auditors, investigators, inspectors, and support personnel who form the core of HUD OIG and to thank them for their dedication and service to the American taxpayers and their commitment to eliminating waste, fraud, and abuse. Kenneth M. Donohue Inspector General iv Inspector General’s Message Audit Reports Issued by Program Other Programs 12% Single-Family Housing 13% Community Planning & Development 17% Multifamily Housing 10% Public and Indian Housing 48% Monetary Benefits Identified by Program Public & Indian Housing 7% Multifamily Housing 5% Community Planning & Development 1% Other Programs 87% Monetary Benefits Identified in Millions of Dollars 700 $671.1 600 500 400 300 200 100 0 Audit Charts $1.7 Single Family Housing $37.4 Multifamily Housing $54.8 Public & Indian Housing $9.0 Community Planning & Development Other Programs v Investigation Cases Opened by Program (Total: 635) Community Planning & Development 16% (101) Other/GNMA 8% (48) Single-Family Housing 12% (79) Multifamily Housing 8% (49) Public and Indian Housing 56% (358) Investigation Recoveries by Program (Total: 190,176,284) 180,000,000 160,000,000 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 91% ($173,875,616) 1% ($1,457,213) 7% ($13,188,916) 1% ($1,649,655) 0% ($4,884) 20,000,000 0 vi Single Family Housing Multifamily Housing Public & Indian Housing Community Planning & Development Other Programs Investigation Charts Acronyms List AIGA Assistant Inspector General for Audit AIGI Assistant Inspector General for Investigations ARIGA Assistant Regional Inspector General for Audit ASAC Assistant Special Agent in Charge ATFE Bureau of Alcohol, Tobacco, Firearms, and Explosives CAS Computer Audit Specialist CDBG Community Development Block Grants CID Criminal Investigation Division CPD Community Planning and Development DAIGA Deputy Assistant Inspector General for Audit DAIGI Deputy Assistant Inspector General for Investigation DEA Drug Enforcement Administration DHS Department of Homeland Security DIG Deputy Inspector General DoD Department of Defense DOE Department of Education DOJ U.S. Department of Justice DROD Disaster Relief Oversight Division DUI Driving Under the Influence EIV Enterprise Income Verification FBI Federal Bureau of Investigation FDIC Federal Deposit Insurance Corporation FEMA Federal Emergency Management Agency FFMIA Financial Management Improvement Act of 1996 FHA Federal Housing Administration FIRMS Facilities Integrated Resources Management System FISMA Federal Information Security Management Act of 2002 FY Fiscal Year GAO Government Accountability Office HHS U.S. Department of Health and Human Services HOME Home Ownership Made Easy HOPWA Housing Opportunities for Persons with AIDS Acronyms List vii HUD U.S. Department of Housing and Urban Development ICE Immigration and Customs Enforcement IG Inspector General IRS Internal Revenue Service KDHAP Katrina Disaster Housing Assistance Program MTW Moving to Work NAHRO National Association of Housing and Redevelopment Officials OA Office of Audit OI Office of Investigation OIG Office of Inspector General OMB Office of Management and Budget OTND Officer/Teacher Next Door PCIE/ECIE President’s Council on Integrity and Efficiency/Executive Council on Integrity and Efficiency PFCRA Program Fraud Civil Remedies Act PHA Public Housing Authorities PHSI Public Housing Safety Initiatives PIH Office of Public and Indian Housing REO Real Estate Owned RHIIP Rental Housing Integrity Improvement Project RIGA Regional Inspector General for Audit SA Special Agent SAC Special Agent in Charge SBA Small Business Administration SFA Supervisory Forensic Auditor SSA Social Security Administration SSN Social Security Number TSA Transportation Security Administration USAO U.S. Attorney’s Office USDA U.S. Department of Agriculture USMS U.S. Marshals Service USPS U.S. Postal Service USPIS U.S. Postal Inspection Service VA U.S. Department of Veterans Affairs viii Acronyms List Table of Contents Executive Highlights 1 Chapter 1 - HUD’s Single Family Housing Programs 7 Audits Investigations Chapter 2 - HUD’s Public and Indian Housing Programs Audits Investigations Chapter 3 - HUD’s Multifamily Housing Programs Audits Investigations Chapter 4 - HUD’s Community Planning and Development Programs Audits Investigations 8 13 31 32 45 73 74 78 83 84 89 Chapter 5 - Hurricane Relief Oversight 97 Introduction and Background Audits Investigations 99 105 107 Chapter 6 - Other Significant Audits and Investigations/OIG Hotline Audits Investigations OIG Hotline Chapter 7 - Outreach Efforts Housing Outreach Public Housing and Rental Assistance Programs Community Planning and Development Outreach to Law Enforcement Partners Chapter 8 - Review of Policy Directives 115 116 120 121 123 124 128 134 139 143 Proposed Legislation Proposed Rules Proposed Notices 144 145 145 Chapter 9 - Audit Resolution 147 Significant Management Decision with Which OIG Disagrees Federal Financial Management Improvement Act of 1996 149 150 Appendix 1 - Audit Reports Issued 151 Appendix 2 - Tables 157 Appendix 3 - Index 177 HUD OIG Operations Telephone Listing 181 Table of Contents ix Reporting Requirements The specific reporting requirements as prescribed by the Inspector General Act of 1978, as amended by the Inspector General Act of 1988, are listed below: Source/Requirement Pages Section 4(a)(2)-review of existing and proposed legislation and regulations. 143-146 1-123, 143-146 Section 5(a)(1)-description of significant problems, abuses, and deficiencies relating to the administration of programs and operations of the Department. Section 5(a)(2)-description of recommendations for corrective action with respect to significant problems, abuses, and deficiencies. 7-123 Section 5(a)(3)-identification of each significant recommendation Appendix 2, Table B described in previous semiannual report on which corrective action has not been completed. 7-123 Section 5(a)(4)-summary of matters referred to prosecutive authorities and the prosecutions and convictions that have resulted. Section 5(a)(5)-summary of reports made on instances where information or assistance was unreasonably refused or not provided, as required by Section 6(b)(2) of the Act. No Instances Section 5(a)(6)-listing of each audit report completed during the reporting period, and for each report, where applicable, the total dollar value of questioned and unsupported costs and the dollar value of recommendations that funds be put to better use. Appendix 1 7-123 Section 5(a)(7)-summary of each particularly significant report and the total dollar value of questioned and unsupported costs. Section 5(a)(8)-statistical tables showing the total number of audit reports and the total dollar value of questioned and unsupported costs. Appendix 2, Table C Section 5(a)(9)-statistical tables showing the total number of audit reports and the dollar value of recommendations that funds be put to better use by management. Appendix 2, Table D Section 5(a)(10)-summary of each audit report issued before the commencement of the reporting period for which no management decision had been made by the end of the period. Appendix 2, Table A No Instances Section 5(a)(11)-a description and explanation of the reasons for any significant revised management decisions made during the reporting period. Section 5(a)(12)-information concerning any significant management decision with which the Inspector General is in disagreement. 149 Section 5(a)(13)-the information described under section 05(b) of the Federal Financial Management Improvement Act of 1996. 150 x Reporting Requirements Executive Highlights Strategic Initiative 1 HUD Strategic Goal: Increase Homeownership Opportunities OIG Strategy: Contribute to the Reduction of Fraud in Single-Family Insurance Programs through - Audits uncovering single-family and loan origination abuse - Audits of the U.S. Department of Housing and Urban Development's (HUD) internal policies to determine whether controls are adequate - Regional single-family mortgage fraud task forces - Inspections and evaluations of program areas - Outreach to industry and consumer groups and the Department Highlights: Results or Impact of Significant OIG Work - Recommended that mortgage companies hold HUD harmless for improperly page 9 underwritten loans - Recommended administrative action/civil monetary penalties against page 11 First Magnus for Federal Housing Administration (FHA) loans originated by its net branches that operated in violation of HUD requirements - Reviewed HUD's oversight of 20-year loans and concurred with the change page 12 for processing these loans, which resulted in decreased defaults - $11.6 million forfeited and more than 5 years imprisonment imposed in page 14 a loan origination scam - More than $7.5 million in restitution awarded to HUD and victims of page 14 manufactured homes mortgage scam - Foreclosure company owner sentenced to more than 37 months page 25 imprisonment as a result of a $2 million bankruptcy fraud scam - Advocated changes to the seller-funded downpayment assistance programs page 145 Emerging Issues: Areas of OIG Interest - FHA modernization program: risk and fraud potential - Downpayment assistance: seller-funded downpayments - Control of loan case binders: policy and procedure deficiency - Risk involved in zero downpayment Increasing Homeownership Opportunities 2 HUD’s Management and Performance Challenges Strategic Initiative 2 HUD Strategic Goal: Promote Decent Affordable Housing OIG Strategy: Contribute to the Reduction of Erroneous Payments in Rental Assistance Programs through - Audits of Section 8 Housing Choice Voucher program activities - Investigative initiative against corruption in the management of troubled public housing authorities (PHA) - Section 8 Fraud Initiatives in each Office of Inspector General (OIG) region - Investigative Rental Assistance Overpayment Initiatives in each region - Public Housing Fugitive Felon Initiative: locate and remove - Sex Offender Initiative: locate and remove - U.S. Department of Justice (DOJ) Public Housing Safety Initiative - Inspections and evaluations of program areas - Public and department-wide outreach initiatives Highlights: Results or Impact of Significant OIG Work - Housing choice voucher schemes result in indictments and prosecution - Identified excessive assistance payments due to payments for units not meeting minimum housing quality standards (HQS), errors in tenant files, and lack of controls - Expensive toys and $1.2 million home for sale as result of $3.5 million embezzlement scam - You can run but you cannot reside: HUD OIG works with U.S. Marshals Task Force, arrests 545 fugitive felons; 291 in HUD-assisted housing, 50 sex offenders page 31 page 35 page 46 page 69 Emerging Issues: Areas of OIG Interest - Nursing homes: equity skimming - Adequacy of HQS inspections - Public corruption and mismanagement - Enterprise Income Verification System (EIV): long-term effectiveness - HUD oversight of performance-based contract administrators - Overpayments in Section 8 due to “Overhousing”: providing more bedrooms than needed Promote Decent Affordable Housing HUD’s Management and Performance Challenges 3 Strategic Initiative 3 HUD Strategic Goal: Strengthen Communities OIG Strategy: - Promote Integrity, Efficiency, and Effectiveness of Programs - Contribute to the Reduction of Fraud, Waste, and Abuse through - Audits of the Community Development Block Grant (CDBG), Supportive Housing Program, and HOME program - Investigative initiative against corruption in administration of State or local community planning and development programs in each OIG region - Investigative initiative against corruption in FHA multifamily corruption - Hurricane Relief Fraud program - National plan to involve all regions in prevention of fraud in CDBG program funds in five Gulf Coast States - Inspections and evaluations of program areas - Public dissemination of HUD OIG activities and outreach activities with State and local government agencies - Department liaison Highlights: Results or Impact of Significant OIG Work - Initiated total agent training program for community planning and development and multifamily fraud and corruption investigations - Health care official causes HUD loss of more than $4.4 million - City employees indicted for theft of government funds - Owner of three apartments pleads guilty to stealing more than $1.9 million from HUD - Advocated HUD controls over grantees to ensure that grant funds are used in accordance with grant agreements - Minister to face judgment day for theft of funds - Shelter directors using funds for vacations, vehicles, tuition, and Federal income tax: arrested and charged - Katrina scheme unravels page 75 page 79 page 80 page 82 page 86 page 90 page 90 page 109 Emerging Issues: Areas of OIG Interest - Community planning and development performance monitoring - Liens on real property purchases with Federal assistance - Matching funds: grantee misuse of Federal funds - Gulf Coast hurricane assistance fraud Strengthen Communities 4 HUD’s Management and Performance Challenges Strategic Initiative 4 HUD Strategic Goal: Embrace High Standards of Ethics, Management, and Accountability OIG Strategy: - Be a Relevant and Problem-Solving Advisor to the Department - Contribute to Improving HUD's Execution and Accountability of Fiscal Responsibilities through - Audits of HUD's financial statements - Audits of HUD's information systems and security management - At the request of members of Congress, investigation of remarks attributed to the HUD Secretary, specifically, and possible political influence on the HUD contracting - Implementation of DOJ Procurement Fraud Task Force at HUD - FedRent data match operation: Identifying Federal employees improperly receiving Highlights: Results or Impact of Significant OIG Work - Encryption of OIG computers - Elimination of material weaknesses and HUD’s removal from General Accountability Office (GAO) high-risk list page 118 page 144 Emerging Issues: Areas of OIG Interest - Ethics and accountability in contracting - Security and data integrity - Management of human capital - Risks in information technology: vulnerabilities and security Embrace High Standards of Ethics, Management, and Accountability HUD’s Management and Performance Challenges 5 Chapter 1 HUD’s Single-Family Housing Programs The Federal Housing Administration’s (FHA) single-family programs provide mortgage insurance to mortgage lenders that, in turn, provide financing to enable individuals and families to purchase, rehabilitate, and construct a home. In addition to the audits and investigations described in this chapter, OIG has also conducted numerous outreach efforts. (see chapter 8, page 124) Audits Strategic Initiative 1: Contribute to the Reduction of Fraud in Single-Family Insurance Programs Key Program Results Audit Questioned Costs Funds Put to Better Use $524,000 $1.1 Million 8 Audits page 9 page 11 - Single-Family Real Estate Owned Property Sales page 12 Our Focus - Mortgagees, Loan Corresponents, and Direct Endoresement Lenders - HUD’s Oversight of 20-Year Insured Loans Chart 2.1: Percentage of OIG Single-Family Housing Audit Reports During this Reporting Period Region 1 Boston 12% Region 7-8 Kansas City 37% Region 5 Chicago 13% Region 2 New York 0% Region 3 Philadelphia 12% Region 9-10 Los Angeles 13% Region 6 Fort Worth 0% 8 Region 4 Atlanta 13% HUD’s Single-Family Housing Programs Mortgagees, Loan Correspondents, and Direct Endorsement Lenders Audits to uncover single-family lenders and loan origination abuses continued to be a priority during this semiannual period. Lenders are targeted for audit through the use of data mining techniques, along with prioritizing audit requests from outside sources. During this period, the U.S. Department of Housing and Urban Development (HUD) OIG reviewed four FHA single-family mortgage lenders. While OIG's objectives varied by auditee, the majority of the reviews were to determine whether the mortgage lender complied with HUD's regulations, procedures, and instructions for the underwriting of FHA loans and to determine whether the mortgage lender's quality assurance plan met HUD's requirements. The following section illustrates the audits conducted in the single-family mortgage lender area. HUD OIG audited loans that Pine State Mortgage Company, a nonsupervised direct endorsement lender, underwrote at its Atlanta, GA, branch office. Pine State improperly underwrote 21 of the 108 loans reviewed, thereby placing the FHA insurance fund at risk for nearly $152,000 in questioned costs and more than $713,000 in funds to be put to better use. Pine State also did not maintain proper quality controls over its underwriting process, placing HUD's insurance fund at risk for an additional 15 loans. These loans involved material violations affecting the loans' insurability that were not recognized by Pine State and reported to HUD, thereby exposing HUD's insurance fund to unnecessary risk of default, claims, and foreclosure. OIG recommended that HUD take appropriate administrative action against Pine State. This action should, at a minimum, require Pine State to reimburse or hold HUD harmless against any losses for the 21 improperly underwritten loans and any of the 15 loans that involved material violations. (Audit Report: 2007-AT-1002) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ HUD OIG audited Colony Mortgage Corporation, Fairview Park, OH, a supervised lender approved to originate, underwrite, and submit insurance endorsement requests under HUD's single-family direct endorsement program. Of 22 FHA loans reviewed, Colony approved nine that did not meet HUD's requirements. Further, Colony incorrectly certified to the integrity of the data supporting the underwriting deficiencies or to the due diligence used in underwriting the loans. Colony's quality control plan did not fully comply with HUD's requirements, and its quality control reviews were not adequately performed. For the loans in question, the risk to the FHA fund was increased. OIG recommended that HUD require Colony to reimburse HUD for any future net loss once the associated properties are sold, reimburse HUD nearly $199,000 for the loss incurred on four loans already sold and for one overinsured loan, improve its existing procedures and controls to ensure that its underwriters follow HUD's underwriting requirements, implement its revised quality control plan, and ensure that quality control reviews are performed in accordance with its revised plan. OIG also HUD’s Single-Family Housing Programs 9 recommended that HUD determine legal sufficiency and if legally sufficient, pursue remedies under the Program Fraud Civil Remedies Act against Colony and/or its principals for the nine incorrect certifications identified. (Audit Report: 2007-CH1006) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ HUD OIG audited Plains Capital McAfee Mortgage, Lubbock, TX, because its 2-year default rate for loans with amortization dates between December 2003 and November 2005 exceeded HUD's national average by 44 percent. In addition, the percentage of current defaults and claims was 88 percent higher than HUD's national average. McAfee Mortgage did not follow HUD regulations when underwriting 11 of the 35 loans reviewed. As a result, HUD insured 11 loans with original mortgage amounts of more than $1 million, placing the FHA insurance fund at unnecessary risk. McAfee Mortgage submitted 821 loans from unregistered branch offices, circumventing HUD's oversight controls and placing the FHA insurance fund at unnecessary risk for nearly $75 million in loans. OIG recommended that HUD require McAfee Mortgage to indemnify it for the 11 improperly underwritten loans and seek civil money penalties for all loans originated from unregistered branches from December 1, 2004, to the present. (Audit Report: 2007-KC-1003) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ HUD OIG audited Wells Fargo Home Mortgage, West Des Moines, IA, to determine whether it originated, sponsored, or purchased Title II manufactured housing loans in accordance with HUD requirements and whether the insured loans met HUD permanent foundation requirements specific to Title II manufactured housing loans. Of 11 FHA-insured loans reviewed, one was not eligible for insurance because the property's foundation did not meet HUD requirements, and Wells Fargo did not provide HUD with all required certifications when submitting the loan for insurance. As a result, HUD incurred a loss of almost $65,000. OIG recommended that HUD require Wells Fargo to reimburse it for the loan. (Audit Report: 2007-KC-1002) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ HUD OIG audited Mortgage Amenities Corporation, Lincoln, RI, a nonsupervised mortgage company approved by HUD to originate, underwrite, and service FHA single-family insured loans. Mortgage Amenities approved one loan that was not eligible for FHA insurance because of questionable citizenship and/or immigration status. It also charged ineligible document preparation fees to borrowers and did not establish or operate its branches in accordance with HUD requirements. In addition, a significant number of mortgage records in HUD's Single-Family Insurance System were not accurate for loans 10 HUD’s Single-Family Housing Programs originated or sponsored by Mortgage Amenities. Further, Mortgage Amenities did not establish or implement a quality control plan that met all of HUD's requirements. This noncompliance increased the risk to the FHA insurance fund and the public. OIG recommended that HUD require Mortgage Amenities to (1) indemnify HUD against future losses for the ineligible FHA-insured loan, (2) refund the ineligible closing fees, (3) terminate its branches that do not comply with HUD requirements, (4) review HUD's mortgage records and update them accordingly, and (5) update and fully implement its quality control plan. OIG also recommended that HUD refer Mortgage Amenities to the Mortgagee Review Board for consideration of administrative sanctions and/or civil money penalties for the violations identified. (Audit Report: 2007-BO-1002) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ HUD OIG audited the branch office operations of First Magnus Financial Corporation, Scottsdale, AZ, primarily the branch doing business as Great Southwest Mortgage. First Magnus violated HUD requirements by allowing officers to enact noncompete clauses, requiring net branch managers to indemnify branch-related losses, allowing nonexclusive employment, and failing to execute office leasing agreements and equipment lease agreements in First Magnus' name. As a result of this noncompliance, HUD's insurance funds and the public were exposed to an increased risk. OIG recommended HUD impose civil money penalties against First Magnus for FHA-insured loans originated by its net branches that were operated in violation of HUD requirements and require First Magnus to either discontinue operations of all net branches or bring them into compliance with HUD requirements. (Audit Report: 2007-LA-1002) Single-Family Real Estate Owned Property Sales HUD OIG audited HUD's single-family sales to owner-occupant purchasers under the jurisdiction of its Philadelphia, PA, Homeownership Center to determine whether HUD's policy for single-family home sales to owner-occupant purchasers was followed and adequately monitored. HUD's policy for single-family home sales to owner-occupant purchasers was followed and adequately monitored to prevent multiple purchases by owner-occupant purchasers within a 24-month period. However, for 15 of 51 owner-occupant purchases audited, owner-occupant purchasers did not comply with the 12-month residency requirement. OIG recommended that HUD evaluate the 12-month residency requirement to determine whether it is needed since enforcement of the requirement is not practical and violations do not constitute a monetary loss to HUD. If HUD concludes that the 12-month residency requirement is essential, it should monitor compliance and enforce the requirement. (Audit Report: 2007-PH-0001) HUD’s Single-Family Housing Programs 11 HUD's Oversight of 20-Year Insured Loans HUD OIG reviewed HUD's oversight of 20-year insured loans to determine whether HUD has adequately addressed the increased risk associated with 20-year loans approved by an automated underwriting system. HUD has adequately addressed the increased risk associated with these loans. In December 2004, it changed the way it processes the loans. Since this change, the default rate has decreased dramatically to less than 3 percent for loans closed in fiscal year (FY) 2006. OIG did not recommend corrective action. (Audit Report: 2007-KC-0001) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 12 HUD’s Single-Family Housing Programs Investigations Some of the investigations discussed in this report were conducted jointly with Federal, State, and local law enforcement agencies. The results of OIG’s more significant investigations are described below. Strategic Initiative 1: Contribute to the Reduction of Fraud in Single-Family Insurance Programs Key Program Results Cases Closed $ Recovered Convictions/Pleas/ Pretrials Admin/Civil Actions Investigations 111 $22 Million 113 114 page 14 page 22 - Identity Fraud page 22 - False Social Security Number page 25 - Bankruptcy Fraud page 27 Our Focus - Loan Origination Fraud - Other Single-Family Fraud Chart 2.2: Percentage of OIG Single-Family Housing Closed Investigation Cases During this Reporting Period* Region 1 Boston 3% Region 7-8 Kansas City 14% Region 5 Chicago 21% Region 2 New York 11% Region 3 Philadelphia 15% Region 9-10 Los Angeles 11% Region 6 Fort Worth 17% Region 4 Atlanta 9% * This does not include cases where funds misused came from Congress for the hurricane relief. (see chapter 6 for these cases) HUD’s Single-Family Housing Programs 13 Loan Origination Fraud Gary Konstantin, the former branch manager and loan officer at Brucha Mortgage Bank, was sentenced in U.S. District Court, Brooklyn, NY, to 63 months incarceration and 3 years probation, ordered to pay HUD $708,378 and Stewart Title $440,387 in restitution and forfeit $11.6 million, and fined $6,100 for his earlier conviction of conspiracy, money laundering, and wire and insurance fraud. Konstantin and others conspired with nonprofit entities to secure FHA-insured mortgages by performing minimal property renovations and submitting false loan documents and appraisals, then flipped the properties and skimmed construction funds. HUD realized losses of $11.6 million after numerous mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Donald W. Gupton, owner and president of Dynasty Homes of Henderson, Superior Housing Center, Creative Real Estate, Manufacturing Housing Sales Center, M&G Properties II, Inc., and CRE Properties, LLC, was sentenced in U.S. District Court, Greenville, NC, for his earlier guilty plea to conspiracy to commit mail and wire fraud, false statements, bank fraud, and money laundering. Gupton was sentenced to 75 months incarceration and 5 years supervised release and ordered to pay HUD more than $7.5 million in restitution, including $160,000 to 20 victims. In addition, Gupton agreed to forfeit $11 million in property, an aircraft, and additional assets belonging to the businesses identified above. From 1999 to 2002, Gupton and other conspirators bought and sold more than 150 manufactured mobile homes, some including land, and assisted unqualified borrowers in obtaining $15 million in FHA-insured mortgages by verifying fictitious trade-ins, providing cash or fabricated gift letters, or falsely inflating values and certifying land ownership. HUD realized losses of $7.5 million after numerous mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Patrick Singletary, a former owner of Sunshine Mortgage and Universal Title; Peter Russo, the current owner of Sunshine Mortgage; and Robert Singletary and Clifford Shaw, former owners of Tropical Mortgage Company and Cal Investments, each pled guilty in U.S. District Court, Atlanta, GA, to conspiracy, false statements to HUD, and bank and wire fraud. The above defendants purchased then resold HUD Real Estate Owned (REO) properties to unqualified borrowers obtaining FHA-insured and conventional mortgages. HUD realized losses in excess of $7 million after approximately 120 FHA-insured mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Real estate investors Doug Hastings and Phil Miskimon, along with Jeffrey Meyer, Shawn Fleming, Price Brooks, and Julie Smith, were sentenced in U.S. District Court, Rockford, IL, for their earlier guilty pleas to conspiracy, false statements, and false statements to HUD. Collectively, the above defendants were sentenced to more than 11 years incarceration and 15 years supervised release and ordered to pay HUD more than $2 million and private lenders $228,259 in restitution. The defendants and others 14 HUD’s Single-Family Housing Programs Copyright, 2006. The Rockford Register Star- Rockford, IL. Reprinted with permission. acted as straw buyers or provided false credit letters, verifications of employment, or gift letters to assist unqualified borrowers in obtaining more than 50 FHA-insured mortgages. HUD realized losses in excess of $3.1 million after more than 40 mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ In a civil judgment filed in U.S. District Court, Los Angeles, CA, real estate investor Morteza Eghbal and his wife, Marilyn Trujillo, were ordered to pay HUD more than $5.7 million and civil penalties and litigation costs of $148,500 for their earlier convictions on false statements and conspiracy to defraud HUD. Eghbal and Trujillo purchased then resold properties and provided downpayment funds for unqualified borrowers obtaining FHA-insured mortgages. HUD realized losses of more than $2.4 million when 62 properties defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Appraiser Kahala Hickoff was charged in an information filed in U.S. District Court, Los Angeles, CA, with making a false statement. Hickoff allegedly completed and submitted fraudulent FHA-insured property appraisals but signed the appraisals using the names of others. HUD realized losses in excess of $2.7 million after 31 FHA-insured mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Ricardo Medina, a former realtor with William E. Mendez Team, Inc., at Remax 100 in Lakewood, CO, was sentenced in U.S. District Court, Denver, CO, to 8 months home detention and 60 months probation and ordered to pay HUD $126,420 in restitution for his earlier guilty plea to wire fraud. Medina and others assisted unqualified undocumented immigrants in obtaining more than 300 FHA-insured mortgages. HUD realized losses of $2.4 million after 51 mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ HUD’s Single-Family Housing Programs 15 James L. Boyle, a former loan officer at RBC and Irwin Mortgage, was indicted in U.S. District Court, Rockford, IL, for mail fraud, false statements, and false statements to HUD. In addition, Frank J. Mazzarese, a loan officer at RBC Mortgage; Marie Caltagerone, owner of Caltagerone Accounting; and Israel Quintero and Raul Raygoza, employees of Friends Furniture, each pled guilty to conspiracy. Boyle allegedly and Mazzarese, Caltagerone, Copyright, 2007. The Rockford Register Star- Rockford, IL. Quintero, and Raygoza admittedly Reprinted with permission. provided fraudulent financial, employment, and other documents to assist unqualified borrowers in obtaining FHA-insured mortgages. HUD losses exceeded $2 million after more than 40 mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Greg Leigh Buzarde, a former HUD-approved appraiser, was indicted in U.S. District Court, Los Angeles, CA, for conspiracy, false statements, and mail fraud. Buzarde and others allegedly prepared and submitted HUD appraisal reports certifying fewer than actual units in properties obtaining FHA-insured mortgages. HUD losses are estimated at $1.9 million after 37 mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Norvel Brown, owner of Mississippi Valley Title (MVT), pled guilty in U.S. District Court, St. Louis, MO, to wire fraud and employee pension benefit plan theft. From 2000 to 2005, Brown and MVT, while under contract with HUD's Home Ownership Center in Denver, CO, and performing as the closing agent for all HUD properties in Missouri, failed to wire approximately $1.8 million in escrow funds to HUD and $990,000 to commercial lenders. Brown also embezzled employee pension account funds. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ World Wide Financial Services (WWFS), doing business as Loan Giant, and Jack Wolfe, president of WWFS, were named in a $3.4 million civil complaint filed in U.S. District Court, Detroit, MI. Wolfe and WWFS allegedly created and submitted false documents to secure FHA insurance on 10 mortgage loans, causing HUD losses in excess of $1.4 million. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 16 HUD’s Single-Family Housing Programs Trudy M. Peters, a former Ticor Title Agency escrow officer; Larry M. Smith and John M. Soto, former service representatives at Wells Fargo Home Mortgage; and Maria A. Felix and Tony S. Vasquez, HUD-certified counselors, were each indicted in U.S. District Court, Phoenix, AZ, on numerous counts of conspiracy or mail and wire fraud. Peters, Smith, Soto, Felix, Vasquez, and previously indicted Edward Carrillo, owner of Sahara Investments in Scottsdale, AZ, allegedly conspired to defraud HUD's "preforeclosure" program by submitting fraudulent appraisals, falsifying counseling certification forms, or concealing additional mortgages encumbering properties. HUD losses are estimated at more than $1.8 million. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Emmitt Cotton Sr., a former loan officer at Mid-America Mortgage, Fast Trac Mortgage, and Mortgage Executives; Linda Edwards, a realtor at Affable Realty; and LaDonna Mullins, a realtor at LaDonna's Realty and Management, were each indicted in U.S. District Court, Denver, CO, for wire fraud, false statements, false use of a Social Security number (SSN), false statements to a financial institution, or money laundering. In addition, Linda Carnagie, a former loan officer at Highland Mortgage Financial Group; Stafford Hilaire, a loan officer and president of Catalina Century Mortgage; and Sandra Lindsey, an FHA-insured mortgagor, were each convicted of wire fraud, false statements, or conspiracy. From February 1999 to July 2004, Cotton, Edwards, and Mullins were allegedly and Carnagie, Hilaire, and Lindsey were found guilty of submitting or causing the submission of FHA loan files containing fraudulent documentation and information for more than 100 unqualified borrowers obtaining FHAinsured mortgages. HUD realized losses in excess of $1.2 million after 40 mortgages defaulted. Copyright, 2007. The Arizona Republic - Phoenix, AZ. Reprinted with permission. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Stacey Marrero, a former Neighborhood Mortgage Bankers underwriter previously sentenced in U.S. District Court, Newark, NJ, for her earlier guilty plea to theft by deception, was suspended from procurement and nonprocurement transactions as a participant or principal with HUD and throughout the Executive Branch of the Federal Government. Marrero and others assisted unqualified borrowers in obtaining FHA-insured mortgages by submitting false loan documentation and appraisals. HUD realized losses in excess of $1.2 million after 33 mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ HUD’s Single-Family Housing Programs 17 Paul and William Peterson, owners of Peterson Land and Development, were each sentenced in U.S. District Court, Los Angeles, CA, to 18 months incarceration and 3 years supervised probation and ordered to pay HUD more than $1.2 million in restitution, jointly and severally, for their earlier convictions on false statements. Paul and William Peterson submitted false gift letters and other documents to assist unqualified borrowers in obtaining FHA-insured mortgages. HUD realized losses in excess of $1.1 million after 43 morgtgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Louay M. Kahale, owner of Marquee Mortgage and a former loan officer at Charter West Mortgage, LLC, was charged in an information filed in U.S. District Court, Denver, CO, with wire fraud. Kahale allegedly originated 37 FHA-insured loans at Marquee Mortgage and 384 FHA-insured loans at Charter West Mortgage, LLC, containing false income and employment documentation; the estimated value of the FHA-insured loans containing false documents is approximately $66.8 million. HUD losses have not yet been determined. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Lawrence Lynch, James Smith, Pasquale Romeo, Mark McCarthy, Kathryn Zepka, Michael Bergdoll, and Elliott Beals, mortgage or real estate brokers doing business as Affordable Mortgage, Tiffy Corporation, Springfield Mortgage, Ivy Mortgage, Metro Mortgage, Inc., or B&V Properties; Theodore Jarrett, the former branch manager of Equicredit Corporation; Joseph Sullivan, an appraiser doing business as Sullivan Appraisals; Anthony Matos, an investor doing business as New England Wholesalers, First Empire Realty, and Elite Auto Center; and Wilfred Changasie were each sentenced in U.S. District Court, Springfield, MA, for their earlier guilty pleas to wire fraud, money laundering, false statements to Federal agents, or aiding and abetting. Collectively, the above defendants were sentenced to more than 26 years incarceration, 37 years probation, and 1,000 hours community service; fined $15,000; and ordered to pay numerous financial institutions more than $1.4 million and 16 victims $68,858 in restitution. Changasie was also ordered deported to South America after completion of his prison term. The above defendants and others purchased and flipped more than 70 HUD REO properties and assisted unqualified borrowers in obtaining FHA-insured mortgages valued in excess Copyright, 2006. The Republican - Springfield, MA. Reprinted wit permission. 18 HUD’s Single-Family Housing Programs of $5.9 million by processing fraudulent loans containing false information and documentation. HUD realized losses of $834,795 after 31 mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Naomi LaBrie, formerly doing business as Rehablers, Inc., was sentenced in U.S. District Court, Kansas City, KS, to 4 months incarceration, 4 months home detention, and 12 months supervised release and ordered to pay HUD $500,893 in restitution for her earlier guilty plea to bank fraud. LaBrie purchased distressed properties, fabricated property rehabilitation, and provided fraudulent documents to assist unqualified borrowers in obtaining FHA-insured mortgages. HUD realized losses of $688,770 after 20 mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Sharon Blake, a former loan processor at Sunset Mortgage Company, and real estate speculators Earl Ginter, Ronald Fruth, and David Walsh were sentenced in U.S. District Court, Harrisburg, PA, for their earlier guilty pleas to false statements and aiding and abetting. Blake was sentenced to 12 months confinement and Ginter, Fruth, and Walsh were each sentenced to 24 months supervised probation and ordered to pay HUD $511,253 in restitution, jointly and severally. In addition, Deborah Black, the former branch manager and loan officer at Sunset Mortgage Company, was charged in an information with false statements and aiding and abetting. Blake originated 40 fraudulent FHA-insured mortgages valued at $1.2 million, knowing that Ginter, Fruth, and Walsh provided downpayment funds or paid delinquent debts for the borrowers. Black allegedly conspired with the above defendants and provided borrowers with fictitious gift letters used to obtain FHA-insured mortgages. HUD realized losses of $511,253 after 10 mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Jean Lindor, a former loan consultant and employee of American Redevelopment Corp, was sentenced in U.S. District Court, Miami, FL, to 6 months home detention and 3 years probation, fined $10,000, and ordered to pay HUD $180,929 in restitution for his earlier conviction of conspiracy. From 1997 through 1999, Lindor conspired with others to create fictitious documents and provide downpayment funds for unqualified borrowers obtaining FHA-insured mortgages. HUD realized losses of about $443,000 after 17 mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Mario Izquiero, an assistant loan officer at First Capital Mortgage and Pacific Network Funding, was sentenced in U.S. District Court, Los Angeles, CA, to 6 months home detention and 3 years probation and ordered to pay HUD $313,340 in restitution for his earlier conviction of false statements. Izquiero purchased false employment documents from previously convicted Maggie Cuevas to assist unqualified borrowers in obtaining FHA-insured mortgages. HUD realized losses of $441,556 after 14 mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ HUD’s Single-Family Housing Programs 19 Straw buyers John and Caridad Prados were each indicted in U.S. District Court, Newark, NJ, for conspiracy to defraud HUD for using a false SSN to secure an FHAinsured loan. In addition, former AMS Mortgage loan officer Kenneth DiPrenda and former Weichart realtor Mario Mendoza, both previously sentenced for their earlier guilty pleas to conspiracy to submit false statements to HUD, were each debarred from procurement and nonprocurement transactions with HUD and throughout the Executive Branch of the Federal Government for a period of 3 years. John and Caridad Prados allegedly assisted DiPrenda, Mendoza, and others in recruiting and assisting unqualified borrowers in obtaining FHA-insured mortgages by submitting fraudulent employment, identity, and other loan documentation. HUD realized losses in excess of $349,000 after 12 mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ George W. McRee, a mortgage broker at Mortgageworks, Inc.; Martin Rosenthal, a recruiter for RETI Relocation Services; straw borrowers John O. Bello and Karen Beckmann; and William Russell Chavis each pled guilty in U.S. District Court, Atlanta, GA, to conspiracy, wire fraud, false statements to a lending institution, or bank fraud. Straw borrower Reginald L. Kemp was sentenced to 57 months confinement and ordered to pay Radian Group, Inc., and Amtrust Mortgage Corporation $475,361 in restitution for his earlier guilty plea to conspiracy, bank fraud, and money laundering. The above defendants and others created and submitted false documents to obtain 98 mortgage loans valued at more than $20 million. HUD realized losses of $300,000 after two FHA-insured loans defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Winston Shillingford, the former president of now-defunct First Funding Mortgage Bankers, pled guilty to Federal income tax evasion in an information filed in U.S. District Court, Brooklyn, NY. From 2000 through 2003, Shillingford obtained more than $300,000 from sales proceeds on FHA-insured flipped properties originated by First Funding Mortgage Bankers, then failed to report the $300,000 on his Federal income tax returns. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Barbara Stevenson, a former realtor with IE Investments, Inc., was sentenced in U.S. District Court, Riverside, CA, to 6 months supervised probation and 1 month home detention and ordered to pay HUD $33,317 in restitution for her previous guilty plea to false statements to HUD. Stevenson assisted unqualified borrowers in obtaining FHA-insured mortgages by providing false or forged loan applications, verifications of employment, and other documents. HUD realized losses of $246,798 after nine mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Straw buyers Dennis LeBlanc, Dennis Addison, and Timothy Falls each pled guilty to making false statements to HUD or aiding and abetting in informations filed in U.S. 20 HUD’s Single-Family Housing Programs District Court, New Orleans, LA. LeBlanc, Addison, and Falls provided false information and inflated appraisals to obtain and later default on FHA-insured mortgages. HUD realized losses in excess of $159,800. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Frank Pepe, a former AMS Mortgage loan officer previously sentenced for his earlier guilty plea in U.S. District Court, Trenton, NJ, to conspiracy to commit false statements, was debarred from procurement and nonprocurement transactions with HUD and throughout the Executive Branch of the Federal Government for 19 months. Pepe purchased, appraised, and flipped approximately 31 properties and then conspired with previously sentenced American Home Loans branch manager/loan officer Kim Sammartano to create and submit fraudulent income, employment, and other documents for unqualified borrowers obtaining FHA-insured mortgages. HUD realized losses of $145,712 after 18 mortgages defaulted. Copyright, 2006. The Times-Picayune - New Orleans, LA. Reprinted with permission. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ James Galloway, a real estate broker at Colorado Classic Properties, was sentenced in U.S. District Court, Denver, CO, to 12 months and 1 day imprisonment and 36 months supervised release and ordered to pay HUD $29,359 in restitution for his earlier conviction of conspiracy, wire fraud, false statements, and misuse of an SSN. Galloway and others submitted or caused the submission of fraudulent FHA loan files, allowing unqualified borrowers to obtain FHA-insured mortgages. HUD realized losses of $94,048 after three mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Katrina Arrington and John Kurzel, former loan processors at now-defunct N.J. Affordable Homes (NJAH); Michael Meehan, a real estate appraiser retained by NJAH; and Lucesita Santiago, a former investment account manager at NJAH and Woodbridge Township Housing Authority (WTHA) public housing tenant, each pled guilty in U.S. District Court, Newark, NJ, to conspiracy to commit wire fraud, conspiracy to create and submit fraudulent loan documents, or submitting fraudulent claims for HUD rent reduction subsidies. Arrington and Santiago created fictitious account statements for use in qualifying borrowers obtaining FHA-insured or conventional mortgages; Kurzel used the fraudulent investor account statements provided by Santiago to qualify borrowers obtaining FHA-insured and conventional mortgage loans; Meehan appraised nominee properties at inflated values, included substantial but fictitious improvements HUD’s Single-Family Housing Programs 21 in the appraisal documents, then submitted the false appraisals, allowing borrowers to secure FHA-insured or conventional mortgages; and Santiago failed to report the income she received for creating fabricated account statements on annual WTHA certifications and obtained $73,177 in WTHA housing assistance she was not entitled to receive. HUD losses relating to defaulted FHA-insured mortgages have not yet been determined. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Shaian Birashk, owner of Global One Mortgage, Inc., was sentenced in U.S. District Court, Denver, CO, to 36 months probation and ordered to refrain from employment in the real estate or mortgage industry for his earlier guilty plea to wire fraud. Birashk and previously indicted or sentenced Farid Bayot; Mehdi "Tim" Ghaemi, owner of Arborz Real Estate Company; and Hamidullah Sarwary, a former Littleton Housing Authority (LHA) Section 8 tenant, allegedly conspired to assist Sarwary in obtaining an FHAinsured mortgage and concealing his property ownership from LHA. HUD realized a loss of $46,988 after Sarwary defaulted on his FHA-insured mortgage and $3,760 in LHA housing assistance Sarwary obtained but was not entitled to receive. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ John Acevedo, a real estate agent at Exclusive Rights Realty, was sentenced in U.S. District Court, Los Angeles, CA, to 4 months incarceration, 4 months home detention, and 36 months probation and ordered to pay HUD $41,199 in restitution for his earlier conviction of wire fraud, conspiracy to commit wire fraud, and aiding and abetting. Acevedo and others recruited straw buyers, provided downpayment funds, and obtained fraudulent documents to assist unqualified borrowers in obtaining FHA-insured mortgages. HUD realized losses of $31,636 after 15 mortgages defaulted. Identity Fraud and False Social Security Numbers Real estate investor Rito Miguel Diaz, Jr., also known as Mike Diaz, and his parents, Rosemary and Rito Miguel Diaz, Sr., licensed and unlicensed real estate agents at Familia Realty, Realty World, or Network Realty, were each indicted in U.S. District Court, Los Angeles, CA, for mail fraud and aiding and abetting. From September 1998 to January 2002, Mike, Rosemary, and Rito Diaz, Sr., allegedly provided or created false identification, employment, credit, and other information to assist unqualified borrowers in obtaining FHA-insured loans. HUD realized losses exceeding $900,000 after 18 mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Twenty-two undocumented immigrants and former FHA-insured mortgagors were indicted in Dallas County Judicial District Court, Dallas, TX, for securing execution of a document by deception. The above defendants allegedly used false SSNs and other documents to obtain and later default on FHA-insured mortgage loans. In addition, Martin Cuenca, an undocumented immigrant, was sentenced in U.S. District Court to 36 months probation and ordered to pay HUD $13,151 in restitution for his earlier guilty 22 HUD’s Single-Family Housing Programs plea to misuse of an SSN. Cuenca used a false SSN and other fraudulent documents to obtain and later default on an FHA-insured mortgage. Collectively, the above defendants caused HUD losses in excess of $647,000 after 19 mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Eight undocumented immigrants pled guilty in Johnson County Court, Johnson County, KS, to making a false writing. The defendants were each sentenced to 5 months incarceration and 18 months probation and ordered to refinance or eliminate their FHA-insured mortgages to eradicate approximately $552,000 in FHA-insured mortgages considered at risk. The above defendants fraudulently obtained FHA-insured mortgages using false SSNs through an unidentified loan officer. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Jose Antonio Caballero, owner of American International Finance and Mortgage Services, Inc., pled guilty in U.S. District Court, Dallas, TX, to making a false statement and agreed to pay HUD $119,520 in restitution prior to his sentencing. Caballero failed to claim a prior felony conviction on his HUD FHA lender application and provided undocumented immigrants with false SSNs or Internal Revenue Service employment identifications, allowing the unqualified applicants to obtain FHA-insured mortgages. HUD realized losses of approximately $400,000 after 11 mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Lesly Bardales, a self-employed tax preparer, was sentenced in U.S. District Court, Los Angeles, CA, to 6 months incarceration and 3 years supervised release and ordered to pay HUD $265,809 in restitution for her previous guilty plea to mail fraud and unlawful transfer of Social Security cards. Bardales and previously convicted conspirators Catherine Diaz and Dalila Moreno created and submitted fraudulent loan documents for unqualified borrowers, obtaining more than 100 FHA-insured mortgages valued in excess of $1.3 million. HUD realized losses of $135,899 after eight mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Louis Ramon Luevano, also known as Ray Luevano, a real estate broker at Harvest Realty in Denver, CO, and five FHA-insured mortgagors were arrested after criminal complaints were filed in Colorado District Court, Brighton, CO, charging them with theft, computer crimes, attempting to influence a public servant, forgery, criminal impersonation, or offering a false instrument for recording. The above defendants allegedly provided fraudulent SSNs to obtain and later default on FHA-insured mortgages, causing HUD losses in excess of $120,000. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Ignacio Juan Jasso, a real estate broker and former loan officer at JR Mortgage, was indicted in U.S. District Court, Dallas, TX, for false Federal credit institution entries, reports, and transactions. Jasso allegedly provided or used false SSNs or loan HUD’s Single-Family Housing Programs 23 documents to assist unqualified undocumented immigrants and others in obtaining FHA-insured mortgages. HUD realized losses of $77,116 after four mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Rudean Cooper pled guilty in Montgomery County Circuit Court, Rockville, MD, to identity theft. Cooper used the SSN of another to obtain and later default on an FHA-insured mortgage, causing a HUD loss of $58,742. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Sergio Manuel Torres-Rodriguez was sentenced in U.S. District Court, Athens, GA, to 12 months and 1 day incarceration for his earlier guilty plea to false statements. TorresRodriguez used the identity of another to obtain and later default on an FHA-insured mortgage, causing a HUD loss of $40,376. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Real estate speculator Willie Bynum was sentenced in U.S. District Court, Norfolk, VA, to 4 years probation and 6 months home confinement and ordered to pay HUD $11,413 in restitution for his earlier guilty plea to conspiracy to make false statements to HUD. Bynum used a false SSN and employment, income, and credit information to obtain FHA-insured mortgages on investment or owner-occupied properties for himself and other unqualified borrowers. HUD realized a loss of $25,000. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Fifteen FHA mortgagors were arrested after criminal complaints were filed in Colorado State District Court, Golden, CO, charging them with forgery, criminal impersonation, or offering a false instrument for recording; Maria De Los Angeles Mendez was arrested in New Mexico after failing to appear. Five of the above defendants pled guilty to forgery and were each sentenced to 3 years incarceration and 3 years probation. The above defendants allegedly provided fraudulent SSNs or other forged documents to obtain and later default on FHA-insured mortgages. HUD losses have not yet been determined. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Francina Valadez, a former loan officer with Visalia Community Bank, and Mari Oregon, a former realtor with 21 Arrow Realty, each pled "nolo contendere" in Tulare County Superior Court, Visalia, CA, to false financial statements. Elizabeth del Valle, Oregon's assistant, was sentenced to 30 days incarceration and 60 months probation for her earlier conviction of grand theft. From December 2003 to April 2004, Valadez, Oregon, and del Valle allegedly used fictitious names and SSNs to assist unqualified borrowers in obtaining FHA-insured mortgages. HUD losses have not yet been determined. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 24 HUD’s Single-Family Housing Programs Alberto and Mabel Gutierrez were arrested after their indictments in U.S. District Court, Harrison, VA, for making false statements to HUD, misuse of an SSN, and identity theft. Alberto and Mabel Gutierrez, undocumented immigrants, allegedly used false SSNs and Immigration and Naturalization resident alien cards to obtain and later refinance an FHA-insured mortgage. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Dolores Monger was charged in General District Court, Virginia Beach, VA, with identity fraud and false statements to obtain property or credit. Monger allegedly assumed the identity of her minor daughter and obtained and later defaulted on an FHA-insured mortgage. HUD realized no loss when the property was resold. Bankruptcy Fraud Richard Leroy Davis, owner of Foreclosure and Tenant Company Association, was sentenced in U.S. District Court, Detroit, MI, to 37 months incarceration and ordered to pay various victims $34,000 for his earlier guilty plea to mail fraud. Davis and previously convicted conspirators Chris Thomas and Milton Goddard acquired partial ownership in 600 distressed properties including 120 properties with FHA-insured mortgages, filed fraudulent bankruptcies to forestall foreclosure proceedings, then skimmed property equity by diverting monthly payments. HUD realized losses approximating $2 million after 100 mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Mark Neusch and Michael Davis, former owners of M&M Properties; Greg Colledge, former owner of G&KC Properties, LLC; and Donald Kingston, former owner of DBK Properties, were each sentenced in U.S. District Court, Salt Lake City, UT, for their earlier guilty pleas to false bankruptcy declarations, equity skimming, and bankruptcy fraud. Collectively, the above defendants were sentenced to 33 months incarceration and 72 months supervised release and ordered to pay HUD $241,789 in restitution. Neusch, Davis, Colledge, and Kingston obtained quit claim deeds from distressed homeowners, leased the properties but failed to pay the property mortgage loans, then filed fraudulent bankruptcies to impede foreclosure proceedings. HUD realized losses of $936,704 after eight mortgages defaulted. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Donna Renae Woods Lawrence Willis, the former president of Assurety Mortgage Group, Inc., was arrested after her indictment in U.S. District Court, Atlanta, GA, for bank fraud, bankruptcy fraud, conspiracy, or witness tampering. Kerwanna Lashon Bennet Woods, a former loan processor at Assurety Mortgage Group, Inc., and straw buyer Gwendolyn Reshell Woods each pled guilty to conspiracy or false bankruptcy declaration. Willis allegedly used a stolen SSN and obtained HUD approval to originate FHA-insured loans through Assurety Mortgage Group, Inc., fraudulently eliminated the security interest of prior lenders and received proceeds from multiple loans on the same properties, then filed five fraudulent bankruptcy petitions to delay HUD’s Single-Family Housing Programs 25 lender foreclosures. Kerwanna and Gwendolyn Woods assisted Willis in filing false bankruptcies and creating false