Mortgage-scam probe nets 530

Victim losses $1 billion, U.S. says

— Federal investigators have charged 530 people with targeting homeowners in mortgage-refinancing schemes that cost the victims more than $1 billion, Attorney General Eric Holder said Tuesday.

More than 73,000 homeowners around the country were affected, the Justice Department said in a statement. The cases, filed over the past year, included “foreclosure rescue schemes” that take advantage of those who have fallen behind on payments, according to the statement.

“These comprehensive efforts represent an historic, government-wide commitment to eradicating mortgage fraud and related offenses across the country,” Holder said at a news conference in Washington.

Frauds involving mortgages expanded after the 2008 housing collapse, prompting federal and state law enforcement officials to increasingly focus on the crimes.

Many of the scams were aimed at homeowners looking to participate in foreclosure-relief programs created by President Barack Obama’s administration, Shaun Donovan, the Housing and Urban Development Department secretary, said.

“The increase in the ef- forts that we have, unfortunately, mean that you have more scam artists that are trying to take advantage of families,” Donovan said at the news conference.

Typical schemes involved promises to homeowners that foreclosures could be prevented by payment of a fee, according to the statement. As part of the scams, “investors” purchase the mortgage, or the titles of homes are transferred to those taking part in the fraud, resulting in homeowners losing their property, the department said.

The FBI led the crackdown, which was done in coordination with the Justice Department, HUD and the Federal Trade Commission, Holder said.

The initiative led to 285 federal criminal indictments and another 110 federal civil cases, the department said.

Later on Tuesday, the U.S. government sued Wells Fargo & Co. over claims the bank committed fraud by making reckless mortgage loans, according to a complaint filed in a Manhattan federal court.

The government seeks damages and civil penalties under the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 for alleged misconduct spanning more than a decade related to the San Francisco-based bank’s participation in a Federal Housing Administration program, U.S. Attorney Preet Bharara in Manhattan said in a statement.

“As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance,” Bharara said.

The FHA has paid hundreds of millions of dollars in insurance claims on thousands of mortgages that defaulted in connection with the FHA’s Direct Endorsement Lender Program as a result of false certifications by Wells Fargo, according to the complaint.

Wells Fargo denies the allegations and “believes it acted in good faith and in compliance” with FHA and HUD rules, the company said in a statement.

“Many of the issues in the lawsuit had been previously addressed with HUD,” the company said. “Wells Fargo is the leading FHA lender and has acted as a prudent and responsible lender with FHA delinquency rates that have been as low as half the industry average. The bank will present facts to vigorously defend itself against this action.”

The company said the investigation that led to the lawsuit was previously disclosed in a quarterly filing to the Securities and Exchange Commission.

JPMorgan Chase & Co. last week became the first target of a Justice Department task force set up this year to hold big Wall Street banks accountable for their role in the financial crisis.

A lawsuit filed last Wednesday in New York State Supreme Court, contends that JPMorgan should be held liable for widespread fraud related to the packaging and sale of securities backed by residential mortgages.

These mortgage bonds were sold to investors in the run-up to the 2008 financial crisis by Bear Stearns & Co., the investment bank that was failing in 2008 and was bought by JPMorgan.

Information for this article was contributed by Phil Mattingly, Chris Dolmetsch and Bob Van Voris of Bloomberg News and by Pete Yost of The Associated Press.

Front Section, Pages 1 on 10/10/2012

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