Few results from mortgage fraud team

Last modified: 7/18/2010 12:00:00 AM
When state and federal law enforcement authorities joined together to announce a crackdown on mortgage fraud in 2008, then-Attorney General Kelly Ayotte promised that those cases would be "vigorously prosecuted."

"A home to keep one's family healthy and safe is a basic element of the American Dream," Ayotte said at the time.

Two years later, members of the New Hampshire Mortgage Fraud Task Force can attribute only four criminal convictions stemming from two cases to their group's work. The task force of investigators and prosecutors has not met in more than a year, and no one can say how many more cases are in the pipeline. Once the state forwards a complaint to the task force, there appears to be little follow-up with the investigating federal agencies to see how it was resolved.

According to information the Monitor obtained through a Right-To-Know request, the state attorney general's office has not referred a complaint to the task force since January 2009.

The task force was formed as part of a national Department of Justice initiative in response to the national real estate crisis. It includes members from the New Hampshire and U.S. Departments of Justice, the FBI, IRS, Secret Service, and the Department of Housing and Urban Development. Though Ayotte touted the task force when announcing its formation in June 2008, her office's main responsibility was to steer potential cases to federal authorities.

Ayotte, when asked recently whether the task force was successful, responded that the state attorney general's office was just one of seven participating agencies, with the U.S. Attorney's Office as the lead. Ayotte resigned as attorney general in July 2009 to run for Senate.

"It would be more appropriate for current (Department of Justice) personnel to assess the initiative," said Ayotte campaign spokesman Jeff Grappone. "But the creation of the task force was an appropriate response to increased reports of mortgage fraud in New Hampshire."

In her Senate campaign, Ayotte has come under attack from Democrats for failing to stop an alleged Ponzi scheme run by the Meredith company Financial Resources Mortgage. The alleged multi-million dollar scheme was discovered once the company shut its doors. Ayotte testified recently before a legislative committee that she had no direct knowledge of allegations or suspicions about FRM while she was attorney general.

One legislator asked her why the task force had not investigated FRM.

Ayotte responded, "It does not appear that this particular matter came before that task force, or that would have been a very good vehicle to address this." She said complaints about FRM were sent to the Banking Department.

She added that the goal of the task force "was to address criminal matters that would come forward and to work jointly to be able to resolve those criminal matters."

In fact, the attorney general's office did send one complaint about FRM to the task force. The June 2008 complaint did not relate to the alleged Ponzi scheme. Rather, it accused FRM of predatory lending. The complainant said he applied for a $20,000 loan to pay off a town lien and other debts. The company only allowed a minimum loan of $35,000, with payments the first two years covering just interest and fees. The complainant fell behind on payments and was ultimately told his property would be foreclosed on unless he paid $250 a week.

Associate Attorney General Richard Head said the task force did not take any enforcement action as a result of that referral.

 The mission

When it was founded, the task force's charge was to focus primarily on large-scale institutional fraud but to also consider allegations of any type of fraud relating to granting, marketing or servicing home mortgages. This could include anything from borrowers misrepresenting income or making phantom down payments, to mortgage-related identify theft, to "equity skimming," a foreclosure rescue scam in which a homeowner unknowingly gives away his property and equity.

The task force does not have a budget or office space. It had some meetings early on but has not met for a year. FBI supervisory Special Agent Kieran Ramsey described it as a "working group" or a "virtual task force." Essentially, participants say, it allows for easier communication among agencies. Agencies refer cases to each other and coordinate their efforts via e-mail.

Ramsey said New Hampshire has not seen the kind of organized, large-scale fraud that exists on the West Coast. But he said mortgage fraud has been increasing nationally in 2009 and 2010, and FBI investigations in New Hampshire are ongoing. "We do have an active caseload," Ramsey said.

The cases the task force investigates come from different sources. Assistant U.S. Attorney Bill Morse, a liaison to the task force, said financial institutions send in monthly reports of suspicious activity, which are reviewed by a separate committee. The U.S. Attorney's Office gets approximately a dozen leads a month, and any that are mortgage fraud related are referred through the task force to the FBI office. The FBI looks for patterns to track down large-scale fraud.

But once a case is referred to another agency, Morse said, there is no follow-up. "As far as I know, there's no formal record-keeping system of what comes of the referrals," Morse said.

Morse said the U.S. Attorney's Office only has resources to pursue a limited number of cases, so it focuses on patterns of fraud rather than individual complaints.

For example, the U.S. Attorney's Office generally does not pursue false statements by individual borrowers, unless there is a pattern of fraud. It also does not pursue most cases of inflated appraisals, since those tend to be subjective and difficult to prove.

 29 complaints

The Consumer Protection and Antitrust Bureau of the state attorney general's office has referred 29 complaints to the task force, almost all in mid- to late 2008. Head, the associate attorney general, said the state went to the task force to access the inter-state resources of federal authorities. Many companies involved are multi-state companies, so a federal agency would have an easier time prosecuting them under federal law than the state would under its own laws, Head said.

The Monitor obtained summaries of the state complaints referred to the task force, which touched on numerous issues. Several were forwarded to the state Banking Department in addition to the mortgage fraud task force.

Several complaints involved homes that were foreclosed on, in which owners were trying to delay a foreclosure or had claimed they were forced into foreclosure by unfair practices.

Some complaints dealt with allegations of predatory lending or dishonest dealing on mortgages or refinancing deals. For example, borrowers who do not speak English found out after the fact that they had signed two mortgage agreements, not one. In some cases, lenders had charged higher fees or interest rates at closing than borrowers had been told about beforehand.

The attorney general's office lists all 29 complaints as closed because they were referred to the task force. Head said there is nothing in the files that indicates any follow-up from the attorney general's office.

"Matters referred to the Task Force are investigated by the federal authorities, and decisions on whether or not to prosecute or refer to another state or federal agency are made by the federal authorities," Head wrote to the Monitor. Head said task force investigations and record-keeping were mostly handled by the FBI.

 'A lot slower'

According to the FBI, the investigations have led to just four convictions so far. "They often move a lot slower than many of our other criminal cases because of the complexity in identifying potential fraud, and the complexities in proving it and gaining evidence," Ramsey said.

Ramsey said the FBI did not keep records of convictions through other agencies. But it is unclear whether other agencies had any convictions. The U.S. Attorney's Office and the attorney general's office referred their complaints to the FBI. Officials from the Secret Service and IRS said they did not know of any active cases relating to the mortgage fraud task force. Neither would speak about cases from the past. Officials at the Department of Housing and Urban Development could not be reached.

One of the cases prosecuted through the task force was that of Paula Philbrook, a former Hillsborough County prosecutor who pleaded guilty to wire fraud. According to the U.S. Attorney's Office and press accounts, Philbrook admitted to inflating her income to obtain mortgage financing, falsely stating that she lived on a property that she was leasing and hiding a deal with her builder from a lender. Philbrook was sentenced to three years of probation and six months of home confinement.

Three convictions came from a case involving brothers Thomas Ryder of Hopkinton and Paul Ryder of Hudson. According to the U.S. Attorney's Office and press accounts, the men were charged with wire fraud and mail fraud in a scheme to deceive lenders by buying property through straw purchasers using false information. The brothers submitted loan applications to buy homes that included inflated purchase prices. They then skimmed the difference between the inflated price and the actual sale prices.

Both pleaded guilty. Paul Ryder was sentenced to 15 months in prison; Thomas Ryder to 21 months. A co-conspirator, Frank Blake of Sandown, pleaded guilty to making false statements to lending institutions. He was sentenced to five years of probation, including six months of home confinement.

Though those have been the only cases identified so far to have resulted in convictions, Morse said from the perspective of the U.S. Attorney's Office, the task force today remains "very active."




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