These cases are a glimpse into the world of mortgage fraud.
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Some of the significant federal prosecutions filed as part of Operation Stolen Dreams
include the following:
United States vs. Anthony Symmes

On May 28, 2010, Symmes pleaded guilty to mail fraud conspiracy and money
laundering in connection with a large-scale builder-buyout mortgage fraud scheme. For many
years, Symmes was the largest homebuilder in Chico. In 2006, as the market cooled, Symmes
had a significant amount of unsold new homes in inventory. Symmes established relationships
with several unlicensed mortgage brokers to “sell” his homes to straw buyers at inflated prices.
The entire reported purchase price was 100% financed on each home with various subprime
lenders. Typically, the day after escrow closed, Symmes then rebated $40,000 to $60,000 of the
reported purchase price per home to shell companies controlled by the buyers’ agents. The
rebates were not disclosed to the lenders. Altogether, from 2006 through 2008, Symmes sold 62
homes with undisclosed sales rebates. The homes were financed in the aggregate amount of $21
million. To date, 38 of the homes have fallen into foreclosure and 10 more have been the subject
of short sales, causing losses to date of $5 million. Symmes has pleaded guilty, is presently
cooperating in an ongoing mortgage fraud investigation, and has already paid $4 million toward
restitution/forfeiture. He is currently scheduled to be sentenced on September 3, 2010.

United States vs. Garret Gililland, et al.

Cr. S 08-0376 EJG

This morning, a federal grand jury returned a second superseding indictment against
Garret Griffith Gililland and Nicole Magpusao who were originally charged in 2008 with mail
fraud and other charges relating to a multimillion dollar “builder bailout” mortgage fraud scheme
in Chico. The new charges add eight defendants with participation in that scheme or related to it.
Chico-area homebuilder William E. Baker; Nor Cal Innovative Investments Inc. president Shane
Burreson; Leonard Williams, a licensed real estate professional; Christopher M. Chiavola,
Brandon Resendez, Niche Fortune, and Kesha Haynie –all former employees of Gililland and
Burreson; and Remy Heng. According to the new indictment, Gililland, Burreson, Chiavola,
Resendez, and Williams recruited various individuals to purchase residential real properties.
Gililland and his associates acted as the mortgage broker and real estate agent in connection with
the transactions. Gililland, Burreson, and others assisted in obtaining residential loans for the
transactions causing materially false loan applications to be prepared on behalf of the purchasers.
Gililland, Burreson, Chiavola, and others arranged with the sellers of the properties to purchase
the properties at a price above the true market price. The defendants also arranged to credit a
percentage of the margin between the actual market price and the inflated purchase price of the
properties after the close of escrow to various bank accounts controlled by defendants. At the
same time, defendants caused the credits to be concealed from the lenders. As a result of the
scheme to defraud, lenders issued loans in an aggregate amount of approximately $21 million.
Bank accounts controlled by Gililland, Burreson, and others, received over $2 million in fraud
proceeds, and defendants Gililland, Burreson, and others, ultimately caused losses to lenders of
over $4 million.

The new indictment separately alleges that Chiavola, Resendez, Fortune, and Haynie,
after leaving the employment of Gililland and Burreson, replicated the scheme on their own.
Gililland, Burreson, and Chiavola are further charged with money laundering for bank
transactions involving the proceeds of the fraud. Finally, Remy Heng is charged with bulk cash
smuggling for attempting to ship $20,000 in cash in a Pringles potato chip can via Federal
Express to Gililland in Spain while Gililland was a fugitive.

United States vs. Hoda Samuel, et al.

Cr. S 10-0223 JAM

On June 10, 2010, a federal grand jury returned an indictment charging 10 individuals
with 48 counts, including charges of conspiracy to commit mortgage fraud, mail fraud, and
making false statements in mortgage applications. The indictment focuses on two Elk Grove
businesses owned by defendant Hoda Samuel - Liberty Real Estate and Investment Company
and Liberty Mortgage Company. From April of 2006 through February of 2007, Samuel and
other Liberty employees are alleged to have been involved in at least thirty separate residential
real estate transactions involving fraud. Specifically, the indictment alleges that loan
applications contained misrepresentations concerning loan applicants’ employment and income.
In addition, the indictment alleges that many of the transactions involved the payment of cash-
back to buyers, often disguised as payments to contractors for repair and remodelling work, and
usually not revealed to the lenders. As a result of these undisclosed payments, lenders were led
to believe that the houses being purchased were worth more than the buyers were actually paying
for them. Of the thirty transactions described in the indictment, at least twenty-eight have now
gone into foreclosure, causing a collective loss to the lenders of more than $5.5 million.

United States vs. William T. Bridge

Cr. S 08-275 WBS

William Bridge wilfully failed to report over $3.8 million dollars on his 2003 – 2006
federal tax returns that he had earned as a licensed real estate mortgage broker doing business as
The Loan Center in San Francisco. In completing his tax returns, Bridge reported only the
compensation he earned as part of the “yield spread premium” that was reported by the lending
institutions themselves to the IRS. He did not report his full commission, which involved
substantially more money. During the same time, Bridge was paying thousands of dollars in
kickbacks to an employee of Long Beach Mortgage (formerly a subsidiary of Washington
Mutual bank) to process what he knew were fraudulent loans application packages to be secured
by residential properties located in the Sacramento and Stockton areas. Bridge pleaded guilty to
multiple counts of filing false tax returns and paying kickbacks in connection with real estate
loan transactions in 2008. On April 9, 2010, Bridge was sentenced to 21 months in prison, to be
followed by one year of supervised release, $1,057,700.90 in restitution to the Internal Revenue
Service, and a $60,000 fine. A co-conspirator, former Long Beach Mortgage employee Joel
Blanford, is currently on trial in federal court in Sacramento.

United States vs. Eric Ray Hernandez, et al.

Cr. S 10-249 AWI

Eric Ray Hernandez, Monica Marie Hernandez, and Evelyn Brigget Sanchez, all of
Bakersfield, were charged with submitting loan applications to lenders containing false and
fraudulent information that caused lenders to fund mortgage loans based on such fraudulent
applications. The indictment alleges that the defendants caused false statements to be submitted
to lenders concerning buyers’ income, assets, and liabilities, buyers’ employment status, and
buyers’ intent to occupy the properties as their personal residences. Additionally, the defendants
are alleged to have submitted false supporting documentation in support of mortgage loan
applications, including false pay stubs, false letters purporting to be from the buyers’ tax
accountant, false customer letters purporting to support the buyers’ self-employment status, and
false verifications of the buyers’ bank funds on deposit. The indictment alleges that the
defendants defrauded lenders of in excess of $2.5 million through this scheme.
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Can SF really be leading a housing recovery ?

Compared with the prior month, 18 of the 20 areas covered in the S&P/Case-Shiller home-price index showed an increase on an unadjusted basis for April, led by a 2.4 percent gain in Washington and a 2.2 percent increase in San Francisco. Miami and New York were the only two cities showing a monthly decrease.

San Francisco could be reviving the U.S. housing market, Case said, if it is able to propel California, which comprises 25 percent of the national market. California accounted for the most national foreclosures during March, April and May.

The chart showing the diminishing return to GDP from additional debt is telling.

Why do people, companies and countries borrow? One obvious answer is that it is the only way they can maintain their desired level of spending. Another reason is optimism; they believe the return on the borrowed money will be greater than the cost of servicing the debt. Crucially, creditors must believe that debtors’ incomes will rise; otherwise how would they be able to pay the interest and repay the capital?

Hyman Minsky, an American economist who has become more fashionable since his death in 1996, argued that these debt crises were both inherent in the capitalist system and cyclical. Prosperous times encourage individuals and companies to take on more risk, meaning more debt. Initially such speculation is successful and encourages others to follow suit; eventually credit is extended to those who will be able to repay the debt only if asset prices keep rising (a succinct description of the subprime-lending boom). In the end the pyramid collapses.

The dearth of IPO’s combined with the imploding tech companies in the past few years are bad signs for the future of this valley. THe following news is not a surprise.

The number of U.S. firms with publicly traded stock has dropped by half in the past decade. Ten years ago, around 9,100 companies filed annual proxy statements with the Securities and Exchange Commission. Last year, roughly 6,450 did; so far in 2010, only about 4,100 have, estimates Wharton Research Data Services. The Dow Jones U.S. Total Stock Market Index tracks 4,136 stocks, down from 4,599 just a year-and-a-half ago and 5,000 at the end of 2005.
…
In two-thirds of the years from 1960 through 1996, the number of initial public offerings exceeded the number of stocks that dropped out. Since then, however, there have been more deaths than births among stocks every year: 7,725 stocks have disappeared over that period, while just 4,299 new ones have arisen to replace them, according to Wharton.

SIgns of another downturn are in the air with existing home sales dropping yet another month and jobless claims inching up again. Households are tightening up as credit card debts shrink.

In the Realtors group’s report, the number of existing homes for sale at the end of January fell 0.5% to 3.27 million. That represents a 7.8-month supply at the current sales pace, up from a 7.2-month supply in December.

This is a staggering statistic which underscores how difficult it is for banks to pull out of this hole.

Eleven million, three hundreds thousand homes had underwater mortgages as of the fourth quarter of last year. That number represent 24% of all residential homes loans in America…. The aggregate dollar value of negative equity was $801 billion at the end of last year, up $55 billion from $746 billion in Q3 2009.

The numbers are not pretty , reflecting the absence of a primary driver in the tech arena.

Jobs – Between November 2008 and November 2009, employment in Santa Clara and San Mateo Counties dropped 6.1 percent, compared to 3.8 percent nationally. Silicon Valley lost 90,000 jobs between the second quarter of 2008 and 2009, bringing total employment down to 2005 levels. The “green” economy accounted for 12,000 jobs in the region.
Venture capital funding plummeted, and office vacancy rates were up 33% percent in 2009.
Workers took a 5% cut in income between 2007 and 2009.
Competition for talent with China and India, among other geographies.

Timeshares are long term financial commitments where owners do not have control over. Over 10 percent year increases are exorbitant.

…Her bill for 2010 totals $1,650, up 20% from last year plus a $250 charge to make up for “the deadbeats who have abandoned their time shares…Time-share mortgage defaults rose each quarter in 2009 compared with 2008, ARDA says. In the third quarter of last year, 2.9% of time-share mortgages went into default vs. 2.2% in 2008. About 8% of time-share mortgages were in default as of 2008. Maintenance fees have grown an average of 12% a year since 2005….ARDA’s Nusbaum says industry woes can be traced largely to developers no longer being able to package mortgage debt as asset-backed securities sold to Wall Street. … Developers have historically lent directly to customers. Cash back from investors on the sale of bundled mortgages was used to build more resorts. The mortgage-backed security market all but vanished in the 2008 financial crisis, and the industry has had to halt most new construction and cut back on free cruises, air tickets and hotel rooms given as incentives for customers listening to a sales pitch.

The downpayment requirement for $1M + homes in California is at nosebleed levels.

A total of 18,621 Golden State homes sold for a million dollars or more last year. That was down 23.8 percent from 24,436 in 2008. In 2007 it was 42,506; in 2006 it was 50,010; and in 2005 it peaked at 54,773… Among buyers who got mortgages, the median down payment was 39.4 percent of the purchase price. Bank of America, Wells Fargo and Union Bank were the top lenders for the $1 million-plus homes, according to DataQuick.

Here’s another way borrowers can be tripped up by the financial industry.

Codi is based on short-term borrowing costs, which have fallen significantly since the Federal Reserve and other central banks cut interest rates and flooded the economy with cheap money. Cosi includes long-term CDs that are paying higher yields, keeping Cosi elevated above Codi. Wells Fargo doesn’t publicly release the deposit portfolio used to calculate its index.