Thread: Calif. prosecutors target mortgage fraud

Calif. prosecutors target mortgage fraud
The Associated Press March 24, 2008, 8:52PM ET
By AARON C. DAVIS

SACRAMENTO - Federal prosecutors on Monday announced indictments in a mortgage scheme that siphoned off nearly $13 million in home equity and victimized more than 100 homeowners who had been seeking to avoid foreclosure.

Dozens of people in California and elsewhere lost their homes in the scam, which prosecutors say was led by Charles Head of La Habra. He and 18 others face allegations that they preyed on homeowners who were struggling to make payments on adjustable-rate and other mortgages.

Under the scam, homeowners facing foreclosure were promised lower house payments and even cash upfront to help pay bills if they agreed to add another name to their home's title. The victims were led to believe they were paying rent to the investor while they got their finances back in order.

According to the unsealed indictments, Head and the others actually used the scheme to switch the names on the titles, take control of the homes, refinance them and walk away with whatever equity homeowners had built up.

If convicted, Head faces up to 20 years in prison. The others, including his friends and members of his family, face up to 15 years. Head is in custody in Southern California awaiting extradition to Sacramento and does not yet have a lawyer.

Prosecutors say additional indictments are likely as they continue investigating the brokers, loan officers and banks that did business with Head Financial Services.

"The issue of mortgage fraud has become a major national legal and economic problem," U.S. Attorney McGregor Scott said during a news conference announcing the indictments. "We here in the Central Valley of California have experienced the problem firsthand as record numbers of homes go into foreclosure, in large part due to fraudulent activities."

Scott said the so-called "equity stripping" scheme amounted to a second phase of mortgage fraud. It compounded the problems stemming from suspect lending practices that put many families into homes they could not afford.

In all, prosecutors say Head defrauded 115 financially strapped homeowners in 22 states of at least $12.6 million. The fraud began in 2004 as the red-hot housing market peaked and continued through 2006 as homeowners began facing ballooning payments on adjustable-rate and interest-only loans.

Victims ranged from first-time home buyers to the elderly, said Assistant U.S. Attorney Ellen Endrizzi. The scam cost 90 percent of the victims their homes, she said.

Others were able to keep them but were left with even more debt and credit problems.

If there was a common theme among the victims, Endrizzi said, they were all "people who were desperate and seeing this as a last-ditch effort and were counting on that," she said.

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